U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB/A
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
BUI, INC.
(Name of Small Business Issuer in its charter)
Delaware 87-0528557
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
66 E. Wadsworth Park Drive, Suite 101, Draper, Utah 84020
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (801) 523-8929
Securities to be registered under Section 12(b) of the Act:
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.0001
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part I
1. Description of Business 3
2. Management's Discussion and Analysis or Plan of Operations 8
3. Description of Properties 13
4. Security Ownership of Certain Beneficial Owners and Management 13
5. Directors, Executive Officers, Promoters and Control Persons 15
6. Executive Compensation 16
7. Certain Relationships and Related Transactions 18
8. Description of Securities 19
Part II
1. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 22
2. Legal Proceedings 22
3. Changes in and Disagreements with Accountants 22
4. Recent Sales of Unregistered Securities 22
5. Indemnification of Directors and Officers 24
Part F/S Financial Statements 25
Part III
1. Index to Exhibits 25
2. Description of Exhibits 25
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
BUI, Inc., is a Delaware corporation engaged in the business
of selling to consumers and small businesses services and
products under the name "Buyers United." The marketing strategy
of Buyers United is based on a membership concept under which
members of Buyers United are entitled to receive the services and
products offered at lower prices than can be obtained elsewhere.
Buyers United uses the purchase power of its membership to
negotiate lower prices from producers and resellers of the
services and products. Lower pricing allows Buyers United to
attract and retain members, and makes it possible for Buyers
United to offer rebate incentive programs to its members for
referring to Buyers United new prospective members.
Buyers United focuses on providing services and products
that it believes are perceived by consumers and businesses as
essential or are compatible with their normal annual
expenditures. Buyers United is researching additional services
and products to offer its members.
Buyers United has over 9,000 members located in 48 states.
Its target market includes networking professionals, small
businesses, and middle-class families with an annual household
income between $36,000 and $80,000, as these are the most likely
to respond actively to the savings opportunity offered by Buyers
United. Members reside mostly in high population centers and
they tend to spend more than the average on long distance
services. Approximately one-third of the present membership
consists of small businesses and entrepreneurs who operate home-
based businesses.
Buyers United was formed as a Utah corporation under the
name "Linguistix, Inc.", in 1995 as a subsidiary of Twin Creek
Exploration Co., Inc. ("Twin Creek"). It received certain assets
of Twin Creek for its stock and was spun-off to the stockholders
of Twin Creek in connection with a business reorganization
between Twin Creek and an unrelated corporation. Efforts to
exploit the assets held by Buyers United after the spin-off were
unsuccessful, and the assets were sold or written off in 1997.
In November 1997, Buyers United acquired WealthNet Incorporated,
a Utah corporation, through an exchange of 1,852,589 shares of
Buyers United common stock, or approximately 92% of the
outstanding shares, for all of the capital stock of WealthNet
Incorporated. The transaction was accounted for as a reverse
purchase acquisition, in which WealthNet Incorporated was treated
as the acquiring company and Buyers United as the acquired
Company. Buyers United adopted the name, "Buyers United
International, Inc.," and WealthNet changed its name to "Buyers
United, Inc." Since that acquisition, Buyers United has pursued
the business described herein, which was started with the
inception of WealthNet in January 1996. In March 1999, Buyers
United changed its corporate domicile from Utah to Delaware
through a merger with a Delaware corporation formed for that
purpose. In connection with the change in domicile, Buyers
United changed its name to BUI, Inc., and effected a 1-for-4
reverse split in the issued and outstanding common stock of
Buyers United.
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Buyers United's offices are located at 66 E. Wadsworth Park
Drive, Suite 101, Draper, Utah 84020, where its telephone number
is (801) 523-8929.
Marketing strategy
Selection of services and products
Buyers United intends to offer services and products that
are considered "essential"; part of the monthly or annual budget
of individuals, families, and small businesses. Buyers United
believes consumers prefer to save money where they spend it most;
on services and products they must consume or use each month and
year. By becoming a member, a consumer or small business simply
makes a choice on where to purchase essential services and
products, not on whether to spend money on items outside its
normal budget.
In selecting service and product providers, Buyers United
focuses on the quality of the service or product. It believes
that offering a service or product at a low cost, alone, is not
enough. The service or product must meet consumer expectations
of performance and quality. After locating a suitable service or
product, Buyers United negotiates for lower pricing based on the
purchase power of its members. The combination of good quality
and low cost will attract and retain members for Buyers United.
Since its inception in January 1996, Buyers United
focused on selling long distance service because consumers and
businesses use long distance every month and look for ways to
save money on this service. This focus has enabled Buyers United
to build the size of its membership base. Buyers United also
provides teleconferencing service and is in the process of
establishing local telephone service for its members in the Salt
Lake City metropolitan area. With the recent explosion in
Internet commerce, especially among small businesses, Buyers
United is now offering low cost Internet access to its members.
By expanding its service and product offerings, Buyers United
believes that membership will be attractive to a larger number of
prospective members and existing members will have added
incentive for staying with Buyers United.
Member referral strategy
Management believes that member-generated, "word-of-mouth"
referral sales is a fast and cost-effective way for Buyers United
to increase its membership and its sales. It has focused on this
marketing approach since its inception.
Buyers United believes consumers are willing to share with
their personal acquaintances a satisfying and rewarding
experience with its services and products, and the recommendation
of a personal acquaintance is credible. As an inducement to
share this experience, Buyers United has adopted an incentive
program for members called "Piece of the Pie", which allows them
to benefit from identifying new prospective members for Buyers
United.
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Under the "Piece of the Pie" incentive program, members
who have successfully referred others to Buyers United receive a
monthly rebate on the services and products they purchase from
Buyers United. Every month, Buyers United rebates 10% of Usage
Revenue to members. Collected Usage Revenue is defined as the
usage portion of a bill that is paid in full within 45 days of
the statement date. This rebate pool is referred to as the
"Pie." The "Pie" is disbursed proportionally every month to
qualifying members according to the amount of usage generated by
their referrals. The "Piece of the Pie" rebate allocated to a
member in a given month is applied first to payment of the
Member's bill in the next month, and any excess is paid by check
to the member with the next billing statement.
A member is not required to refer any new members to Buyers
United in order to purchase services and products from Buyers
United on the same terms as all other members. The services and
products offered meet the needs of many members, who simply want
to save money on services and products. The "Piece of the Pie"
incentive program allows the entrepreneur-minded member to obtain
additional benefits through rebates.
Buyers United believes the "Piece of the Pie" incentive
program has the added value of creating member loyalty. Members
receiving rebates on services and products purchased from Buyers
United will be reluctant to give up those rebates by switching to
a different provider. The rebate benefit also makes it more
difficult for other service providers to compete with Buyers
United on the basis of price.
A member who refers a new prospective member does not make a
sale for Buyers United. All new members are signed by Buyers
United from the referrals it receives. Members are not
employees, independent contractors, or agents of Buyers United,
and have no authority to sign new members.
Member service
Buyers United maintains a staff of service representatives
for its members, which is designated as the "Legendary Member
Service" group. Management believes that member support and
assistance is important to growing and maintaining its member
base, because member service is an important part of the overall
consumer experience with the services and products offered by
Buyers United. Buyers United's goal is to exceed members'
service expectations, so that they remain with Buyers United and
are more willing to tell new prospective members of their
positive experiences.
Members are urged to contact Buyers United through its toll
free number with any questions or concerns. The Legendary Member
Service group addresses member questions and complaints, assists
members with the "Piece of the Pie" incentive program, provide
information on services and products, and works with members on
billing questions and timely payment.
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Infomercial proposal
Buyers United is investigating the development of a one-half
hour television program, which it would broadcast to market the
benefits of membership. At present, Buyers United is negotiating
production agreements for the infomercial with a view to testing
the program in the first quarter of 2000.
Services and products
Buyers United offers long distance phone service and
related products, including travel cards, pre-paid debit cards,
800/888 service, and teleconferencing. Long distance and related
services are provided by IXC Communications, Inc., an unrelated
wholesale long distance carrier based in Austin, Texas, which
owns and operates its own fiber optic network. Under its
contract with IXC, Buyers United is able to offer domestic long
distance service to its members at a rate of 7.9 cents per minute
and overseas long distance at discounted rates. The long
distance rate to Buyers United for domestic charges is fixed by
agreement. The long distance rate for overseas calls may be
adjusted by IXC on seven days advance notice to Buyers United.
All long distance charges are billed to Buyers United and due
within 30 days. Buyers United, in turn, bills its members for
their long distance calls. The contract is for a term of three
years ending in April 2002. Buyers United is in the process of
negotiating contracts with other long distance service providers,
which will enable Buyers United to take advantage of least cost
pricing for long distance calls.
Management intends to initiate a plan to resell long
distance service that utilizes "voice-over-data" based on
Internet Protocol technology. It is expected the plan will be
rolled out in Utah during the later part of 1999, where a package
of in-state, out-of-state, and toll-free long distance will be
offered to members at a flat rate of just 5.9 cents per minute.
The final terms of the contract between Buyers United and the
provider of this service are yet to be finalized.
Buyers United launched an Internet service program in
January 1999. Internet services include unlimited local dial-up
access at approximately 2,100 locations across the country, free
filtering services, unlimited e-mail, web hosting for businesses,
and activity reporting. Management plans to add online billing
capability for bundled goods and services, discount consolidating
with existing web sites, and manufacturer-direct web commerce
opportunities. The Internet access program is provided by SISNA,
Inc., based in Salt Lake City, Utah, under a three-year contract
expiring in October 2001. The basic Internet service is offered
to members at $16.95 per month for unlimited access.
Buyers United has no plans to acquire a long distance
network or establish its own infrastructure for other services
and products it offers. As a result, Buyers United depends on
developing and maintaining relationships with third party
providers of the services and products it offers. Buyers United
relies on the purchasing power of its members to negotiate the
terms of its arrangements with providers. An additional benefit
to providers is that Buyers United handles all billing and
collection for the services and products purchased by its
members, so that the provider avoids this cost of business.
Buyers United believes that it is on good terms with its
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current providers. In the event its relationship with a provider
terminates for any reason, management believes it could obtain
the same services or products from other providers on terms
similar to existing contracts.
Competition
The consumer buying organization industry is highly
competitive. Many of the competitors of Buyers United are
substantially larger with greater financial and other resources.
The U.S. long distance telecommunications industry is highly
competitive and significantly influenced by the marketing and
pricing practices of the major industry participants, AT&T, MCI,
Sprint and WorldCom. AT&T, MCI, Sprint and WorldCom are
significantly larger than Buyers United and have substantially
greater resources. Buyers United also competes with other
national and regional long distance carriers, which employ
various means to attract new subscribers, including television
and other advertising campaigns, telemarketing programs, network
marketing, cash payments and other incentives to new subscribers.
The ability of Buyers United to compete effectively will depend
on its ability to provide high quality services at competitive
prices.
Governmental Regulations
Buyers United's relationship marketing system may be
affected by government regulation, including, state regulation of
marketing practices and federal and state regulation of the offer
and sale of business franchises, business opportunities, and
securities. Although Buyers United believes that its
relationship marketing system is in compliance with all currently
applicable regulations, there can be no assurance that it will
remain in compliance in the future as a result of new
interpretations of existing regulations or adoption of new
regulations.
Long distance telecommunications carriers currently are
subject to extensive federal and state government regulation,
including, regulation of both domestic and international tariffs
for their services, and certification or registration
requirements. Buyers United is indirectly subject to these
regulations because it offers long distance service provided by
others. Of particular relevance to Buyers United is federal and
state regulation of "slamming", which is the practice of changing
long distance service of a consumer without proper authorization.
To avoid violation of regulations in this area, Buyers United is
required to obtain from its members written authorization to
change long distance service that meets certain requirements.
Buyers United believes it is in compliance with federal and state
regulation of changing long distance service.
Employees
As of June 30, 1999, Buyers United employed a total of 25
persons, including four executives and 13 in member services and
marketing. None of the its employees is represented by a labor
union. Buyers United has experienced no work stoppages and
believes that its relations with its employees are good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Overview
Buyers United is engaged in the business of selling to
consumers and small businesses services and products. The
marketing strategy of Buyers United is based on a membership
concept under which members of Buyers United are entitled to
receive the services and products offered at lower prices than
can be obtained elsewhere. Buyers United uses the purchase power
of its membership to negotiate lower prices from producers and
resellers of the services and products. Lower pricing allows
Buyers United to attract and retain members, and makes it
possible for Buyers United to offer rebate incentive programs to
its members for referring to Buyers United new prospective
members. Buyers United's goal is to build a national consumer
membership organization. Its strategy for achieving this goal is
to focus on its member referral and rebate program, expand
service and product offerings, and develop and promote an
infomercial to attract new members through television.
Buyers United focuses on providing services and products
that it believes are perceived by consumers and businesses as
essential or are compatible with their normal annual
expenditures. Since its inception in January 1996, Buyers United
focused on selling long distance service. This focus has enabled
Buyers United to build the size of its membership base. Buyers
United also provides teleconferencing service and is in the
process of establishing local telephone service for its members
in the Salt Lake City metropolitan area. With the recent
explosion in Internet commerce, especially among small
businesses, Buyers United is now offering low cost Internet
access to its members. By expanding its service and product
offerings, Buyers United believes that membership will be
attractive to a larger number of prospective members and existing
members will have added incentive for staying with Buyers
United.
Buyers United has over 9,000 members located in 48 states.
Its target market includes networking professionals, small
businesses, and middle-class families with an annual household
income between $36,000 and $80,000, as these are the most likely
to respond actively to the savings opportunity offered by Buyers
United. Members reside mostly in high population centers and
they tend to spend more than the average on long distance
services. Approximately one-third of the present membership
consists of small businesses and entrepreneurs who operate home-
based businesses.
Internal business development over the past two years has
resulted in substantial growth. Total revenues after cost of
revenues in 1998 were $1,946,394, as compared to $811,644 in
1997. Total revenues after cost of revenues for the first six
months of 1999 were $957,477, as compared to $432,487 for the
same period in 1998. Total revenues after cost of revenues for
the second quarter of 1999 were $501,689, as compared to $319,755
for the same period in 1998.
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Results of Operations
Three Months Ended June 30, 1999 and 1998
Revenues decreased $376,067 to $1,249,046 for the quarter
ended June 30, 1999, from $1,625,113 for the same period in 1998.
Cost of revenues for the same period decreased $558,001 from
$1,305,358 in 1998 to $747,357 in 1999. The decrease in revenues
is largely attributable to a decrease of approximately 20% in the
long distance rates being charged to customers. The decrease in
costs of revenue is due largely to a significant decrease during
1999 in the wholesale rates that Buyers United pays for long
distance.
Operating expenses, exclusive of cost of revenues, were
$603,960 in the second quarter of 1999 as compared to $561,362
for the same period of 1998. This increase in expenses is
attributable to the addition of a sales staff and more
administrative personnel to support the expected growth over the
coming months.
Loss from operations decreased $139,336 to a loss from
operations of $102,271 for the quarter ended June 30, 1999,
compared to a loss from operations of $241,607 for the same
period in 1998. .
Total other expense decreased from $42,069 in the second
quarter of 1998 to $30,540 for the same period in 1999. This
reduction is a result of a decrease in interest expense on debt
financing.
As a result of the above factors, net loss decreased from
$283,676 for second quarter of 1998 to $135,551 for the three-
month period ended June 30, 1999 and diluted net loss per common
share decreased from $0.13 in the 1998 period to $0.04 in the
1999 period.
Six Months Ended June 30, 1999 and 1998
Revenues increased $552,029 or 27% to $2,570,779 for the six
months ended June 30, 1999, from $2,018,750 for the same period
in 1998. Cost of revenues increased from $1,586,263 in the first
six months of 1998 to $1,613,302 in the first six months of 1999.
The increases in revenues and cost of revenues are attributable
to a change in the Company's supplier of long distance service.
In early 1998, the Company changed from a commission based
agreement with I-Link, in which Buyers United earned commissions
based on revenues collected by I-Link from Buyers United's
members, to a tarriffed carrier purchasing wholesale from IXC and
reselling the services. As a tarriffed carrier, Buyers United
records revenue from reselling long distance service to its
members and records as cost of revenues the wholesale cost of
acquiring the long distance service from IXC. The net margin
generated as a tarriffed carrier supplied by IXC is higher than
the commissions received under the I-Link arrangement.
Operating expenses exclusive of cost of services were
$1,218,858 in the first six months of 1999 as compared to
$1,194,634 for the first six months of 1998. The slight increase
in expenses is attributable to the addition of a sales staff and
more administrative personnel to
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support the expected growth over
the coming months offset by certain reductions in work force,
which Buyers United was able to implement as a result of changing
long distance providers to a provider with better and more
efficient service and the development of more efficient internal
systems for providing customer service.
Loss from operations decreased $500,766 to a loss from
operations of $261,381 for the six months ended June 30, 1999,
compared to a loss from operations of $762,147 for the same
period in 1998. This substantial improvement is a result of
increased revenues in 1999 from Buyers United's growing
membership base and the increase in net margins described above.
Other expense, net decreased from $231,721 in the first six
months of 1998 to $64,025 for the same period in 1999. This
reduction is a result of a decrease in interest expense on debt
financing from $113,178 in 1998 to $65,544 in 1999 as well as a
loan guarantee expense of $118,659 in 1998 that was not present
in 1999.
As a result of the above factors, net loss decreased from
$993,868, or $0.48 per diluted common share, for the first six
months of 1998 to $328,146, or $0.11 per diluted common share,
for the six-month period ended June 30, 1999.
Years Ended December 31, 1998 and 1997
Revenue, after cost of revenues, increased $1,134,767 to
$1,946,411 for the year ended December 31, 1998, from $811,644
for the year ended December 31, 1997. Cost of revenues in 1997
were $51,108 as compared to $3,140,950 in 1998. The increases in
revenue and cost of revenues are attributable to an overall
increase in the Company's membership base and the difference in
the terms of the service contract utilized by Buyers United with
the long distance service provider that preceded IXC. Whereas
during 1998 Buyers United sold and serviced long distance that it
purchased wholesale, under the former arrangement through 1997,
Buyers United acted as an agent to enroll customers to be
serviced by the former long distance provider's organization.
Under the current arrangement, Buyers United records the amount
billed to their customers as revenue and the costs to purchase
the long distance as a cost of revenue, whereas under the former
arrangement Buyers United simply received and recorded a
commission for their enrollment services.
Operating expenses, exclusive of cost of revenues, were
$3,024,294 in 1998 as compared to $2,982,956 in 1997. In 1997,
Buyers United established the basic operating systems and
facilities for its business, which needed to be in place to
support future growth in membership. Consequently, membership
growth in 1998 and the resulting increase in revenues were
achieved without any meaningful increase in operating expenses.
Buyers United expects that its operating expenses exclusive of
cost of services as a percentage of revenues will continue to
decrease in 1999 as membership grows.
Loss from operations decreased $1,093,429 to a loss from
operations of $1,077,883 for the year ended December 31, 1998,
compared to a loss from operations of $2,171,312 for the year
ended December 31, 1997. This substantial improvement is a
result of increased revenues
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in 1998 from Buyers United's growing
membership base without an increase in its operating expenses
before cost of revenues from 1997 to 1998.
Total other expense, net decreased from $522,090 in 1997
to $388,699 for 1998. This reduction is a result of a decrease
in interest expense on debt financing.
As a result of the above factors, net loss decreased from
$2,693,402 for the year ended December 31, 1997, to $1,466,582
for the year ended December 31, 1998.
Operations were not significantly impacted by inflation
during the years ended December 31, 1998 and 1997, and it is not
anticipated that inflation will have any significant impact on
results of operations for at least the next year.
Liquidity and Capital Resources
Net cash used in operating activities was $541,173 during
the six-month period ended June 30, 1999. This is primarily due
to a net loss of $328,146, during the period. It is anticipated
net cash used in operating activities will improve during the
remainder of 1999, as revenues increase from the addition of new
members. In the first six months of 1998, net cash used in
operating activities was $944,243 due a net loss of $993,294 for
the period.
Total cash generated from financing activities was
$1,993,191 for the six-month period ended June 30, 1999, compared
to $1,124,322 generated from financing activities in the first
six months of 1998. Cash from financing activities in the first
six months of 1999 and 1998 resulted primarily from sales of
common and preferred stock for cash.
Net cash used in operating activities was $1,275,988 in
1998. This is primarily due to a net loss of $1,466,582 and a
substantial increase in accounts receivable of $617,421 resulting
from the commencement of billing and collection from members by
Buyers United at the beginning of 1998, which were offset by
issuance of common stock to pay for services and credit
extensions in the amount of $304,774, and increases in accounts
payable and accrued liabilities to a total of $519,153. It is
anticipated net cash used in operating activities will improve in
1999, as revenues increase from the addition of new members. In
1997 net cash used in operating activities was $1,293,199
primarily due a net loss of $2,693,402.
Total cash generated from financing activities was
$1,327,213 for 1998, compared to $1,162,635 generated from
financing activities in fiscal 1997. Cash from financing
activities in 1998 was primarily related to the net proceeds from
sales of stock for cash. Cash from financing activities in 1997
was primarily related to debt financing in the amount of $793,000
and sales of stock for cash in the amount of $514,825.
At June 30, 1999, Buyers United had working capital of
$862,509, and at December 31, 1998, it had a working capital
deficit of $811,850. In July 1999, the Company completed an
equity financing resulting in net proceeds of $3,480,000, which
will be used for marketing and working capital. Management
anticipates that working capital will continue to improve in 1999
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if the Company's performance continues at present levels.
Management estimates that cash flow from operations in 1999 as
well as funds generated by the recent financing will be
sufficient for meeting payment obligations and working capital
needs for the next 12 months.
Year 2000 Compliance
Buyers United's internal computer information system is Year
2000 compliant, since its database does not store dates as plain
text. The dates are converted into an internal date format that
does not rely on the year to determine the century. Any new
software purchases will conform to the same type of internal date
storage specifications, which should eliminate any internal Year
2000 issues. As Buyers United has determined it has no internal
Year 2000 issues, it has not developed a contingency plan.
Year 2000 issues and any potential business
interruptions, costs, damages or losses related thereto are
primarily dependent upon the Year 2000 compliance of third
parties. Buyers United's suppliers that provide mission-critical
services are primarily large companies, such as local and long
distance telephone service providers. Buyers United has no
reason to believe that these suppliers will not be Year 2000
compliant. However, Buyers United is in the process of reviewing
its third party relationships and requesting written confirmation
that they are year 2000 compliant and assessing what impact any
problems with Year 2000 compliance will have on its current
business. At this time Buyers United has contacted 100 percent
of its critical vendors and have received conformation from 80%
that they are year 2000 compliant, with the other 20% stating
that they will be compliant by year 2000. Buyers United has
looked at alternate vendors to perform certain processes where
necessary, but to date has no contingency plan should any
significant problems arise with its suppliers.
The costs associated with Year 2000 compliance have been
nominal and Buyers United believes that the remaining costs will
be minimal and will not have a material adverse effect on its
financial condition or results of operations.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1985
provides a safe harbor for forward-looking statements made by
Buyers United, except where such statements are made in
connection with an initial public offering. All statements,
other than statements of historical fact, which address
activities, actions, goals, prospects, or new developments that
Buyers United expects or anticipates will or may occur in the
future, including such things as expansion and growth of its
operations and other such matters are forward-looking statements.
Any one or a combination of factors could materially affect
Buyers United's operations and financial condition. These
factors include competitive pressures, success or failure of
marketing programs, changes in pricing and availability of
services and products offered to members, legal and regulatory
initiatives affecting member marketing and rebate programs or
long distance service, and conditions in the capital markets.
Forward-looking statements made by Buyers United are based on
knowledge of its business and the environment in which it
operates as of the
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date of this report. Because of the factors
listed above, as well as other factors beyond its control, actual
results may differ from those in the forward-looking statements.
ITEM 3. DESCRIPTION OF PROPERTIES
Buyers United leases its executive offices at a single
location in Draper, Utah (a suburb of Salt Lake City). The
offices consist of approximately 2,600 square feet. The current
monthly lease rate is approximately $3,500, and increases
annually at the rate of 3.5 percent. The lease for this facility
expires on December 31, 2003, but Buyers United has an option to
renew the lease for an additional five years. Management
believes that the office space is adequate for Buyers United's
anticipated needs for at least the next 3 months.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of July 28, 1999, the
number and percentage of the outstanding shares of common stock
which, 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. The only
beneficial owners of more than 5% of the outstanding common stock
of which Buyers United is aware are also directors or officers.
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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Amount and Nature of
Beneficial Ownership
Common Preferred Percent
Name and Address Shares Shares Options(1) of Class(2)
Rod Smith (3) 248,151 0 391,250 18.8
66 E. Wadsworth Park Drive
Draper, Utah 84020
Theodore Stern 0 80,000 0 2.3
2210 One PPG Place
Pittsburgh, PA 15222
Gary Smith (3) 259,567 0 183,122 13.8
66 E. Wadsworth Park Drive
Draper, Utah 84020
Edward Dallin Bagley 297,912 20,000 0 10.5
2350 Oakhill Drive
Salt Lake City, Utah 84121
G. Douglas Smith (3) 61,184 0 238,913 9.2
66 E. Wadsworth Park Drive
Draper, Utah 84020
Paul Jarman 61,184 0 216,798 8.6
66 E. Wadsworth Park Drive
Draper, Utah 84020
All Executive officers and 927,998 100,000 1,030,083 49.6
Directors as a Group (6 persons)
persons)
________________________________
(1) These figures represent options that are vested or will vest
within 60 days from the date as of which information is
presented in the table.
(2) These figures represent the percentage of ownership of the
named individuals assuming each of them alone has exercised
his options or conversion rights, and percentage ownership
of all officers and directors as a group assuming all
purchase and conversion rights held by such individuals are
exercised.
(3) Gary Smith is the father of Rod Smith and G. Douglas Smith.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
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
Rod Smith 43 Chairman of the Board, 1996
President and Chief Executive
Officer
Theodore Stern 69 Director 1999
Gary Smith 61 Director 1999
Edward Dallin Bagley 60 Director 1999
G. Douglas Smith 30 Executive Vice President of 1997
Marketing
Paul Jarman 30 Treasurer and Vice President 1997
of Sales
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 the Board of Directors.
The following is information on the business experience of
each director and officer.
Rod Smith founded the predecessor of Buyers United in
January 1996 and has served as the President, Chief Executive
Officer, and Chairman of the Board since that time. From January
1993 to November 1995, Mr. Smith was an independent distributor
of health and beauty products provided by NuSkin International, a
consumer products network marketing organization.
Theodore Stern retired as senior executive vice president
and member of the board of directors of Westinghouse Electric
Corporation at the end of 1992, after 34 years of service in a
variety of positions with that company. After retiring form
Westinghouse Electric, Mr. Stern served as vice chairman of the
board of directors 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
directors of Copperweld Corporation of Pittsburgh, Pennsylvania,
a privately-owned steel and cable manufacturer, and Northern
Power Systems of Waitsfield, Vermont, a manufacturer of renewable
generation systems. Mr. Stern is also self-employed as a
consultant to manufacturing companies.
Gary Smith was the founder, majority owner and former
President of HealthRider, Inc. From 1991 until sale of the
business in 1997, he managed and directed every phase of business
15
<PAGE>
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 investment
and financial consultant for the past five years. He is
currently a director of Tunex International, Inc., Gentner
Communications, National Environmental Services Corp., and
National Financial Corp.
G. Douglas Smith joined Buyers United in April 1997, and is
responsible for all aspects of marketing, including brand
strategy, advertising, promotions, corporate communication, and
product development. For six years prior to April 1997, Mr.
Smith served first as the Director of Media and then Senior Vice
President of HealthRider, Inc., an exercise equipment company
based in Salt Lake City, Utah. At HealthRider Mr. Smith was
responsible for infomercial marketing, which was 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 Western Area Manager in charge of 95
retail locations, and finally 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.
ITEM 6. EXECUTIVE COMPENSATION
Annual Compensation
The following table 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, 1998, 1997, and 1996, 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
executive officers of the end of the last completed fiscal year
whose annual salary and bonuses exceeded $100,000 (collectively,
the "Named Executive Officers").
Name and Long Term All Other
Principal Position Annual Compensation Compensation Compensation
_____________________ ____________ ____________
Year Salary ($) Options/
SARs (#)
Rod Smith 1998 69,829 141,250 7,468
Chairman, President 1997 75,050 250,000 0
Chief Executive 1996 0 0 0
Officer
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Employment and Other Arrangements
Rod Smith, G. Douglas Smith, and Paul Jarman each receive a
salary of $6,500 per month for their respective services to
Buyers United as executive officers. Buyers United does not have
a written employment agreement with any of its executive
officers. All executive officers participate in insurance and
benefit programs established by Buyers United for its full time
employees.
In January 1998, Buyers United entered into an informal
consulting agreement with Gary Smith under which he agreed to
commit a substantial portion of his time and effort to the
development of retail sales programs for Buyers United's products
and services. Mr. Smith received $5,000 per month under the
agreement until June 1999, when it terminated.
Stock Options
The following table sets forth certain information with
respect to grants of stock options during 1998 and the first six
months of 1999 to the Named Executive Officers.
% of Total
Number of Options/SARs
Securities Granted to Exercise or
Name and Underlying Employees in Base Price Expiration
Principal Position Options Granted Fiscal Year ($/Sh) Date
Rod Smith 291,250 43.7 2.00 March 2008
Chairman, President 100,000 15.0 2.00 June 2009
Chief Executive
Officer
The following table sets forth certain information with
respect to unexercised options held by the Named Executive
Officers as of July 2, 1999. No outstanding options held by the
Named Executive Officers were exercised in 1998 or through July
2, 1999.
Number of Securities Value of Unexercised
Name and Principal Underlying Unexercised Options In-the-Money Options
Position At July 2, 1999 (#) at July 2, 1999 ($)(1)
Exercisable/Unexercisable Exercisable/Unexercisable
Rod Smith, Chairman 391,250/ -0- $1,173,750/ -0-
President and Chief
Executive Officer
___________________________________________
(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 July 2, 1999. The fair market
value of the Company's common stock at July 2, 1999, is
determined by the last sale price on that date, which was $5.00
per share.
17
<PAGE>
Description of Long Term Stock Incentive Plan
The purpose of the Long Term Stock Incentive 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 June 30,
1999, Buyers United and its affiliates employed approximately 25
individuals and retained approximately two consultants who are
eligible to participate in the plan. A committee of the board or
the entire 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 committee or the Board of Directors has discretion to
determine the terms of a plan award, 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 30,000 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. No outstanding stock
option or other award under the plan has been granted.
A maximum of 600,000 shares of common stock that 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 which 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 of Directors 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.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996 and 1997, Gary Smith advanced $1,100,000 to Buyers
United for working capital and other corporate purposes. Under
an informal agreement with Buyers United, the advances by Gary
Smith accrued interest at the rate of 20% per annum and were
unsecured. In consideration for making these loans and for other
services provided, Buyers United issued to Gary Smith 259,567
shares of the common stock, and granted to him options to
purchase 55,622
18
shares of common stock at a price of $2.024 per
share, and additional options to purchase 185,405 shares at an
exercise price of $5.392 per share. Of the options exercisable
at $5.392, Gary Smith subsequently conveyed options for 27,811
shares to G. Douglas Smith and 18,541 shares to Paul Jarman as
inducements for them to accept employment with Buyers United.
In September 1997, Gary Smith and Rod Smith entered into
a Restructuring Agreement with Buyers United, which provides for
formalization of the debt obligation of Buyers United to Gary
Smith and the return of shares of common stock for cancellation.
Buyers United issued to Gary Smith an unsecured promissory note
in the principal amount of $1,300,000 (which included $200,000
borrowed by Rod Smith from Gary Smith and loaned to Buyers
United), bearing interest at 20% per annum. Principal was
payable in three installments during 1997 and 1998. Under the
Restructuring Agreement, Gary Smith returned to Buyers United for
cancellation 74,162 shares of common stock, and Rod Smith
returned to Buyers United for cancellation 37,081 shares of
common stock.. Buyers United was unable to meet the interest and
principal payments under the note to Gary Smith, which resulted
in a further restructuring of the obligation in January 1998. Of
the $1,300,000 loaned to Buyers United, $1,000,000 was provided
to Gary Smith by George Brimhall. Under the new restructuring,
Gary Smith assigned a portion of the repayment obligation to Mr.
Brimhall, which is represented by a note payable by the Company
in the principal amount of $1,000,000 bearing interest at 10
percent per annum with interest payable monthly in arrears
commencing February 1, 1998, and all principal and accrued
interest due and payable on November 15, 1998. The promissory
note given to Mr. Brimhall is guaranteed by Gary Smith. In
consideration of the guaranty given by Gary Smith, Buyers United
issued to him 74,162 shares of common stock. In addition, Buyers
United issued to Gary Smith a new promissory note in the
principal amount of $300,000 bearing no interest and providing
for payments of $10,000 per month commencing February 1, 1998 and
continuing through February 1, 1999, when all remaining principal
is due and payable.
In September 1998, the $1,000,000 note payable to Mr.
Brimhall was restructured to include $50,000 of accrued interest
and to extend the due date to April 2000, with monthly interest
payments of $8,750 commencing on October 15, 1998. As
consideration for the restructuring, Buyers United issued to Mr.
Brimhall 15,625 shares of common stock and granted to him the
right to convert $500,000 of the note into shares of common stock
at a price of $4.00 per share through April 15, 1999.
ITEM 8. DESCRIPTION OF SECURITIES
General
The authorized capitalization of Buyers United consists of
20,000,000 shares of common stock, par value $0.0001, and
5,000,000 shares of preferred stock, par value $0.0001, of which
2,000,000 shares are designated Series A Convertible Preferred
Stock. There are approximately 3,017,308 common shares
outstanding and 2,000,000 shares of Series A Convertible
Preferred Stock outstanding.
19
<PAGE>
Common Stock
Holders of common stock are entitled to one vote for each
share held on all matters submitted to a vote of shareholders and
do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of all common stock outstanding entitled
to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of funds legally available
therefor. Upon the liquidation, dissolution or winding up of the
Company, the holders of all shares of common stock are entitled
to receive ratably the net assets of the Company available after
the payment of all debts and other liabilities. Holders of
common stock have no preemptive, subscription, redemption or
conversion rights.
Preferred Stock
General
The Board of Directors is authorized to classify any shares
of its authorized but unissued preferred stock as preferred stock
in one or more series. With respect to each series, the Board of
Directors shall determine the number of shares which shall
constitute such series; the rate of dividend, if any, payable on
shares of such series; 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; 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; 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; the sinking fund provisions, if
any, for the redemption of shares of such series; the voting
rights, if any, of the shares of such series; 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; 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
involuntary dissolution, liquidation, or winding up of the
affairs of Buyers United, or otherwise; and any other
characteristics, preferences, limitations, rights, privileges,
immunities or terms not inconsistent with the provisions of the
Certificate of Incorporation. 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 authorized 2,000,000 shares of Series A
Convertible Preferred Stock (the "Series A Stock"). Cumulative
dividends accrue on the Series A Stock at the rate of 8% per
annum from the date of original issue and are payable semi-
annually on June 30 and December 31 of each year out of funds
legally available for the payment of dividends. Dividends are
payable in cash or common stock, at the election of Buyers
United. If paid in common stock, the
20
<PAGE>
number of shares issued
will be based on the average of the closing bid prices for the
common stock over the five trading days immediately prior to the
dividend payment date. If Buyers United fails to pay any
dividend within 60 days of its due date, the conversion price
will be adjusted downward by $0.25 per share per occurrence.
The Series A Stock is convertible to common stock at any
time at the election of the holder. Buyers United can convert
the Series A Stock to common stock by written notice to the
holders at any time when the closing bid prices for the common
stock of Buyers United for a period of 30 consecutive trading
days equals or exceeds $4.00 per share, and the common stock is
registered for resale under the Securities Act of 1933 or can be
sold without registration under Rule 144(k) promulgated under the
Securities Act of 1933. The conversion rate is one share for one
share, subject to adjustment in the event of a recapitalization,
reorganization, or other corporate restructuring or in the event
Buyers United shall sell or otherwise issue securities at a price
below $2.00 per share or the then adjusted conversion price.
The Series A Stock can be redeemed at Buyers United's
election at any time commencing January 1, 2005, at a redemption
price of $2.00 per share plus all accrued dividends as of the
redemption date. Buyers United must give not more than 60 nor
less than 30 days advance written notice of the redemption date,
during which period the holder may convert to common stock.
The Series A Stock has no voting rights, except as required
by the General Corporation Laws of Delaware that require class
votes on certain corporate matters and matters affecting the
rights of the holders of the Series A Stock. The Series A Stock
is superior in right of payment in the event of liquidation and
with respect to dividends to the common stock and all other
series of preferred stock that may be subsequently authorized.
"Penny Stock" Trading Regulations Applicable to the Common
Stock
The Securities Exchange Act of 1934 and regulations
promulgated thereunder place restrictions on trading activities
in "penny stocks." Penny stocks are defined as equity securities
priced under $5.00, which are not listed for trading on a
national exchange or Nasdaq and are securities of issuers with a
net tangible book value less than $2,000,000 (if in business for
three years), a net tangible book value less than $5,000,000 (if
in business less than three years), and average annual revenues
less than $6,000,000 for the prior three years. Under this
definition, the common stock of Buyers United is a penny stock.
Brokers dealing in penny stocks are subject to special rules of
disclosure to their clients regarding the risks of penny stock
transactions, current market price, and trading activity and
compensation to the broker. In addition, brokers are required to
determine the suitability of penny stock transactions for each of
their clients and obtain from each client written consent to
participation in penny stock transactions. These regulatory
burdens discourage a number of brokers from becoming involved in
a security until it is no longer a penny stock, which may
adversely affect the depth and liquidity of any market in the
common stock of Buyers United.
21
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Buyers United trades sporadically in the
over-the-counter market. There was no trading market for the
common stock prior to the first quarter of 1998. The following
table sets forth for the respective periods indicated the prices
of the common stock in the over-the-counter market, as reported
and summarized on the OTC Bulletin Board. Such prices are based
on inter-dealer bid and asked prices, without markup, markdown,
commissions, or adjustments and may not represent actual
transactions. In April 1999, Buyers United effected a 1-for-4
reverse split in the issued and outstanding common stock in
connection with the change of its domicile to Delaware. All
prices have been adjusted to reflect the reverse split.
Calendar Quarter Ended High Bid ($) Low Bid ($)
March 31, 1998 12.00 7.00
June 30, 1998 14.00 6.00
September 30, 1998 9.00 5.00
December 31, 1998 4.50 2.00
March 31, 1999 4.25 1.00
June 30, 1999 3.00 3.00
Since its inception, no dividends have been paid on the
common stock. Buyers United intends to retain any earnings for
use in its business activities, so it is not expected that any
dividends on the common stock will be declared and paid in the
foreseeable future. At June 30, 1999, there were approximately
3,795 holders of record of the common stock.
ITEM 2. LEGAL PROCEEDINGS
Buyers United is not a party to any material pending legal
proceedings, and to the best of its knowledge, no such
proceedings by or against Buyers United have been threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in or disagreements with
accountants since the Company's organization.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1997, Buyers United issued approximately
2,498,044 shares to the former shareholders of WealthNet,
Incorporated, in connection with the acquisition of WealthNet,
Incorporated as a wholly owned subsidiary. These shares were
issued in reliance on the
22
<PAGE>
exemptions from registration under
Sections 3(b) and/or 4(2) of the Securities Act of 1933. No
broker was involved in the transaction and no commissions were
paid to any person.
From May 5, 1997, to September 9, 1997, Buyers United
sold 170,670 shares of stock to 23 accredited investors at a
gross purchase price of $514,808 in reliance on the exemption
from registration set forth in Section 4(2) of the Securities Act
of 1933. No brokers were involved in the transactions and no
commissions were paid to any person. All purchasers had access
to the information on Buyers United necessary to make an informed
investment decision and each purchaser provided written
confirmation of its status as an accredited investor.
From May 5, 1997, to September 9, 1997, Buyers United
issued 155,829 shares to 28 individuals as compensation in lieu
of salary for services rendered valued at $470,670. The shares
were issued in reliance on the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933. The
services were performed by employees during 1996 and 1997. On
the basis of their employment with Buyers United and access to
management and financial statements, each of the employees had
such knowledge of the business and financial condition of Buyers
United so as to make an informed investment decision.
From January 9, 1998, through November 9, 1998, Buyers
United issued 327,308 shares of common stock for cash in the
amount of $1,174,708. The shares were sold to approximately 58
accredited investors in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act of
1933. No brokers were involved in the transactions and no
commissions were paid to any person. All purchasers had access
to the information on Buyers United necessary to make an informed
investment decision and each purchaser provided written
confirmation of its status as an accredited investor.
From January 9, 1998, through November 9, 1998, Buyers
United issued 46,975 shares to approximately 23 persons for
compensation in lieu of salary for services rendered valued at
$93,950. These shares were issued in reliance on the exemption
from registration set forth in 4(2) Securities Act of 1933. The
services were performed by employees during 1998. On the basis
of their employment with Buyers United and access to management
and financial statements, each of the employees had such
knowledge of the business and financial condition of Buyers
United so as to make an informed investment decision.
On May 29, 1998, Buyers United converted a $70,000 note
payable and related accrued interest of $12,834 held by Todd
Crosner, a shareholder, to 41,417 shares of common stock at a
price of $2.00 per share. On December 21, 1998, Buyers United
also converted an 8% convertible debenture, held by Dallin
Bagley, who subsequently became a director of Buyers United, in
the amount of $400,000 to 468,330 shares of common stock at a
price of $0.85 per share based on the contractual terms of the
debenture. Additionally, on February 6, 1998, Buyers United
issued 74,162 shares of common stock to Gary Smith, a Direct of
Buyers United, valued at $148,324 or $2.00 per share as
consideration for his guarantee of Buyers United's $1,000,000
note payable held by George Brimhall, an otherwise unrelated
party. On December 21, 1998, Buyers United also issued 31,250
shares of common stock valued at $62,500 or $2.00 per share to
George Brimhall in connection with restructuring the $1,000,000
note payable. These shares
23
<PAGE>
were issued in reliance on the
exemption from registration set forth in 4(2) Securities Act of
1933. These individuals had access to the information on Buyers
United necessary to make an informed investment decision and each
individual provided written confirmation of its status as an
accredited investor
From December 11, 1998, through March 24, 1999, Buyers
United sold 44,000 share of common stock for $176,000 in cash to
approximately 40 investors in reliance on the exemption from
registration under Rule 504, promulgated under the Securities Act
of 1933. No broker was used in the offering and no commissions
were paid to any person.
In July 1999, Buyers United sold 2,000,000 shares of its
8% Series A Convertible Preferred Stock, par value $0.0001 at an
offering price of $2.00 per share, or a total of $4,000,000. The
Series A Preferred Stock was sold to 60 accredited investors (as
defined in Rule 501 of Regulation D) in reliance on Rule 506 of
Regulation D. The shares were offered through First Level
Capital, Inc., a member firm of the NASD, which received a
commission of $400,000, a non-accountable expense allowance of
$120,000, and 500,000 shares of Buyers United common stock at a
purchase price of $5,000. In addition, Buyers United entered
into a three-year consulting agreement with First Level Capital,
Inc., providing for the payment of a monthly fee in the amount of
$3,000. First Level Capital, Inc., has a right of first refusal
to participate in future financings of Buyers United for a term
of five years. Buyers United plans to use the proceeds for
general corporate uses of sales and marketing, new product
implementation, working capital, short term debt repayment, and
accounts payable obligations.
From May 7, 1997, through June 30, 1997, and on February
6, 1998 Buyers United issued 3,708 shares of common stock valued
at $20,000 and 10,197 shares of common stock, valued at $55,000,
respectively, to repurchase prepaid teleconferencing units that
Buyers United had sold to 18 individuals during 1996. On
February 11, 1999 Buyers United issued 19,468 shares of common
stock to these same 18 individuals in exchange for their royalty
interest granted by Buyers United in 1996 for certain of Buyers
United's telecommunications services. These individuals had
access to the information on Buyers United necessary to make an
informed investment decision and each individual provided
confirmation of their status as an accredited investor.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Buyers United's Certificate of Incorporation provides that,
to the fullest extent that limitations on the liability of
directors and officers are permitted by the Delaware General
Corporation Law (the "DGCL"), no director or officer of the
Company shall have any liability to Buyers United or its
stockholders for monetary damages. The DGCL provides that a
corporation's charter may include a provision which restricts or
limits the liability of its directors or officers to the
corporation or its stockholders for money damages except: (1) to
the extent that it is provided that the person actually received
an improper benefit or profit in money, property or services, for
the amount of the benefit or profit in money, property or
services actually received, or (2) to the extent that a judgment
or other final adjudication adverse to the person is
24
<PAGE>
entered in a
proceeding based on a finding in the proceeding that the person's
action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. Buyers United's Certificate of
Incorporation and Bylaws provide that it shall indemnify and
advance expenses to its currently acting and its former directors
to the fullest extent permitted by the DGCL and that Buyers
United shall indemnify and advance expenses to its officers to
the same extent as its directors and to such further extent as is
consistent with law.
The Certificate of Incorporation and Bylaws provide that
Buyers United will indemnify its directors and officers and may
indemnify employees or agents to the fullest extent permitted by
law against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices
with Buyers United. However, nothing in the Certificate of
Incorporation or Bylaws of Buyers United 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 has been successful in defense of any proceeding,
the DGCL provides that he shall be indemnified against reasonable
expenses incurred in connection therewith.
PART F/S
FINANCIAL STATEMENTS
The financial statements of Buyers United appear at the end
of this registration statement beginning with the Index to
Financial Statements on page F-1.
PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
Copies of the following documents are included as exhibits
to this report.
Exhibit Form 1-A Title of Document Location*
No. Ref. No.
1 (8) Agreement and Plan of Merger dated
March 15, 1999 Initial Filing
Page E-1
2 (2) Certificate of Incorporation Initial Filing
Page E-5
3 (2)&(3) Certificate of Designation of Preferred Stock Initial Filing
Page E-9
4 (2) By-Laws Initial Filing
Page E-20
5 (6) Options granted to Rod Smith Initial Filing
Page E-35
6 (6) Options granted to Gary Smith Initial Filing
Page E-41
7 (6) Options granted to G. Douglas Smith Initial Filing
Page E-47
8 (6) Options granted to Paul Jarman Initial Filing
Page E-53
9 (6) Long-Term Stock Incentive Plan Initial Filing
Page E-59
10 (6) Commercial Lease Initial Filing
Page E-69
11 (6) SISNA Agreement dated October 12, 1998 This Filing
Page E-1
12 (6) United Buyers Advantage Agreement This Filing
dated January 19, 1999 Page E-10
13 (6) Restructuring Agreement dated This Filing
September 29, 1997 Page E-20
14 (6) Promissory Note to Gary Smith dated This Filing
October 1, 1997 Page E-23
15 (6) Promissory Note to Gary Smith dated This Filing
January 9, 1998 Page E-25
16 (6) Promissory Note to George Brimhall This Filing
dated January 9, 1998 Page E-27
17 (6) Guaranty of Gary Smith dated January This Filing
9, 1998 Page E-29
18 (6) Memorandum of Agreement with Gary Smith This Filing
dated May 11, 1999 Page E-31
19 (6) Memorandum of Agreement with Mogans Smed This Filing
Page E-32
20 (6) I-Link Reseller Agreement This Filing
Page E-33
21 (6) I-Link Settlement Agreement This Filing
Page E-42
22 (6) IXC Service Agreement, without exhibits This Filing
Page E-44
23 (15) Financial Data Schedules **
* Exhibits identified as in the "Initial Filing" are
incorporated herein by this reference to the Registration
Statement on Form 10-SB filed by Buyers United with the
Securities and Exchange Commission on August 3, 1999, and the
page references are to the page location of the exhibit in said
filing. Exhibits identified as in "This Filing" are included as
exhibits to this Amendment No. 1 to the Registration Statement on
Form 10-SB/A, and the page references are to the page location of
the exhibit in this filing.
** The Financial Data Schedule is presented only in the
electronic filing with the Securities and Exchange Commission.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be
signed on its behalf by the undersigned thereunto duly
authorized.
BUI, INC.
Date: September 20, 1999 By: /s/ Rod Smith, President
27
<PAGE>
In accordance with the Exchange Act, this registration
statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Dated: September 20, 1999 /s/ Rod Smith, Chief Executive Officer
and Director
Dated: September 20, 1999 /s/ Paul Jarman, Chief Financial Officer
Dated: September 20, 1999 /s/ Theodore Stern, Director
Dated: September 16, 1999 /s/ Gary Smith, Director
Dated: September 16, 1999 /s/ Edward Dallin Bagley, Director
28
<PAGE>
BUI, INC. AND SUBSIDIARY
Index to Financial Statements
Condensed, Consolidated Financial Statements (Unaudited) as of June 30, 1999
and for the Six-Month Periods Ended June 30, 1999 And 1998
Condensed, Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998 F-2
Condensed, Consolidated Statements of Operations (unaudited)
for the three-month periods ended June 30, 1999 and 1998 F-3
Condensed, Consolidated Statements of Operations (unaudited)
for the six-month periods ended June 30, 1999 and 1998 F-4
Condensed, Consolidated Statements of Cash Flows (unaudited)
for the six-month periods ended June 30, 1999 and 1998 F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6
Consolidated Financial Statements as of December 31, 1998 and 1997
and for the years then ended
Report of Independent Public Accountants F-8
Consolidated Balance Sheet as of December 31, 1998 F-9
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 F-10
Consolidated Statements of Shareholders' Deficits for the years ended
December 31, 1998 and 1997 F-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-12
Notes to Consolidated Financial statements F-14
F-1
<PAGE>
BUI, INC. AND SUBSIDIARY
Condensed, Consolidated Balance Sheets
(Unaudited)
Jun. 30, 1999 Dec. 31, 1998
Assets
Current Assets:
Cash $ 1,459,833 $ 22,690
Restricted Cash 43,507 42,263
Accounts receivable, net 729,524 631,324
Other current assets 19,149 3,124
Total Current Assets 2,252,013 699,401
Property and Equipment, net 91,558 112,262
Total Assets $ 2,343,571 $ 811,663
Liabilities and Stockholders Deficit
Current Liabilities:
Accounts Payable $ 485,261 $ 680,607
Accrued liabilites 417,828 349,359
Current portion of long-term debt 483,675 472,285
Accrued founders settlement 0 9,000
Preferred series A dividend payable 2,740 0
Total Current Liabilities 1,389,504 1,511,251
Long Term Debt, less current portion 1,000,000 1,050,000
Shareholders Deficit:
Preferred stock, $0.0001 par value;
5,000,000 shares authorized
Series A 8% convertible preferred
stock; 1,112,618 and 0 shares issued,
respectively 867,351 0
Common stock, $0.0001 par value;
20,000,000 shares authorized;
3,514,162 and 2,949,549 shares issued,
respectively 351 295
Additional paid in capital 4,809,068 3,610,152
Treasury stock (141,800) (141,800)
Options outstanding 17,889 52,411
Accumulated deficit (5,598,792) (5,270,646)
Total Shareholders Deficit (45,933) (1,749,588)
Total Liabilities and Stockholders
Deficit $ 2,343,571 $ 811,663
See accompanying notes to consolidated condensed financial statements.
F-2
<PAGE>
BUI, INC AND SUBSIDIARY
Condensed, Consolidated Statements of Operations
(Unaudited)
Three months ended June 30,
1999 1998
Revenues:
Telecommunications services $ 1,231,164 $ 1,445,850
Net commissions on
telecommunications services 0 152,872
Other 17,882 26,391
1,249,046 1,625,113
Operating Expenses:
Cost of telecommunications services 747,357 1,305,358
General and administrative 396,327 286,133
Selling and promotion 189,180 259,402
Depreciation and amortization 18,453 15,828
1,351,317 1,866,720
Loss From Operations (102,271) (241,607)
Other Income (Expense):
Interest income 1,363 0
Interest expense (31,903) (42,069)
Other Expense, Net (30,540) (42,069)
Loss Before Series A Preferred Stock Dividend (132,811) (283,676)
Series A Preferred Stock Dividends (2,740) 0
Net Loss Applicable to Common Shareholders $ (135,551) $ (283,676)
Net Loss Per Common Share:
Basic and diluted $ (0.04) $ (0.13)
Weighted Average Common Shares Outstanding:
Basic and diluted 3,045,607 2,171,577
See accompanying notes to consolidated condensed financial statements.
F-3
<PAGE>
BUI, INC AND SUBSIDIARY
Condensed, Consolidated Statements of Operations
(Unaudited)
Six months ended June 30,
1999 1998
Revenues:
Telecommunications services $ 2,513,563 $ 1,737,520
Net commissions on
telecommunications services 0 222,674
Other 57,216 58,556
2,570,779 2,018,750
Operating Expenses:
Cost of telecommunications services 1,613,302 1,586,263
General and administrative 864,055 750,888
Selling and promotion 319,224 413,170
Depreciation and amortization 35,579 30,576
2,832,160 2,780,897
Loss From Operations (261,381) (762,147)
Other Income (Expense):
Interest Income 1,519 116
Loan guarantee expense 0 (118,659)
Interest expense (65,544) (113,178)
Other Expense, net (64,025) (231,721)
Loss Before Series A Preferred Stock Dividend (325,406) (993,868)
Series A Preferred Stock Dividends (2,740) 0
Net Loss Applicable to Common Shareholders $ (328,146) $ (993,868)
Net Loss Per Common Share:
Basic and diluted $ (0.11) $ (0.48)
Weighted Average Common Shares Outstanding:
Basic and Diluted 3,005,116 2,077,426
See accompanying notes to consolidated condensed financial statements.
F-4
<PAGE>
BUI, INC AND SUBSIDIARY
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30,
1999 1998
Operating Activities:
Net Loss $ (328,146) $ (993,868)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 35,579 30,576
Issuance of common shares for services 0 89,843
Issuance of common shares in connection
with debt agreements 0 188,659
Changes in operating assets and liabilities-
Increase in restricted cash (1,244) (72,093)
Increase in accounts receivable (98,200) (525,962)
Increase in other current assets (16,025) 0
(Decrease) increase in accounts payable (195,346) 12,187
Increase in accrued liabilities 62,209 366,415
Decrease in unearned revenue 0 (40,000)
Net cash used in operating activities (541,173) (944,243)
Investing Activities:
Purchase of equipment, furniture and fixtures (14,875) (28,535)
Net cash used in investing activities (14,875) (28,535)
Financing Activities:
Proceeds from borrowings under notes payable 57,348 1,483,903
Principal payments on notes payable (95,957) (1,539,916)
Issuance of common shares for cash and expense
of options 164,449 1,180,335
Net cash proceeds from issuance of
series A preferred stock 1,867,351 0
Net cash provided by financing activities 1,993,191 1,124,322
Increase in cash 1,437,143 151,544
Cash at beginning of period 22,690 0
Cash at end of period $ 1,459,833 $ 151,544
Supplemental disclosures of cash flow information
Cash paid for interest $ 59,000 $ 27,610
See accompanying notes to consolidated condensed financial statements.
F-5
<PAGE>
BUI, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include
the accounts of BUI, Inc., a Delaware company, and its
wholly owned subsidiary, Buyers United, Inc. (together,
the "Company"). All significant intercompany balances
and transactions have been eliminated in consolidation.
The financial statements have been prepared, without
audit, in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion
of management, the accompanying financial statements
include all adjustments which are necessary for a fair
presentation of the results for the interim periods
presented, such adjustments being of a normal recurring
nature. Certain information and footnote disclosures
have been condensed or omitted pursuant to such rules
and regulations. The December 31, 1998, condensed
consolidated statement of financial position was
derived from, the audited balance sheet of the Company
for the year then ended. It is suggested that these
condensed consolidated financial statements and notes
thereto be read in conjunction with the audited
financial statements of the Company for the year ended
December 31, 1998. Results of operations in interim
periods are not necessarily indicative of results to be
expected for a full year.
Note 2. Private Offering of Series A Convertible Preferred Stock
On April 21, 1999, the Board of Directors authorized an
offering of a minimum of 600,000 shares or a maximum of
2,000,000 shares of 8% Series A Convertible Preferred
Stock (see Note 6) at an offering price of $2.00 per
share. The Series A Preferred Stock provides for a
cumulative dividend of 8 percent per annum payable semi-
annually on June 30 and December 31 beginning December
31, 1999 out of funds legally available therefore.
Dividends may be paid in cash or common stock at the
election of the Company. If the Company fails to pay
any dividend within 60 days of its due date the
conversion price will be adjusted by $0.25 per share.
The Series A Preferred Stock is convertible into shares
of common stock at an initial conversion price of $2.00
per share at the election of the holder at any time and
under limited circumstances at the election of the
Company.
In connection with the Offering, the Company agreed to
pay First Level Capital, Inc. (the "Placement Agent") a
sales commission equal to 10 percent of the gross
proceeds from the sale of the Series A Preferred Stock.
The Company also agreed
F-6
<PAGE>
to pay to the Placement Agent a
non-accountable expense allowance equal to 3 percent of
the gross proceeds. As additional compensation, the
Company agreed to sell to the Placement Agent at the
closing of the minimum number of shares offered 500,000
shares of the Company's common stock at a price of
$0.01 per share. The Series A Preferred Stock was
offered by the Placement Agent on a "best efforts/ all-
or-none" basis as to the first 600,000 shares with a
total subscription price of $1,200,000 and a "best
efforts" basis thereafter. The Company also agreed to
enter into a two-year consulting agreement with the
Placement Agent. For investment banking and advisory
services provided to the Company, the Placement Agent
will receive $3,000 per month. The Placement Agent
upon completion of the offering may designate two
members of the Company's Board of Directors for two
years.
As of July 16, 1999, the 2,000,000 shares of Series A
Convertible Preferred Stock were sold with the Company
receiving net proceeds of $3,480,000.
Note 3. Net Loss Per Common Share
Basic net loss per common share ("Basic EPS") excludes
dilution and is computed by dividing net loss by the
weighted average number of common shares outstanding
during the year. Diluted net loss per common share
("Diluted EPS") reflects the potential dilution that
could occur if stock options or other contracts to
issue common stock were exercised or converted into
common stock. The computation of Diluted EPS does not
assume exercise or conversion of securities that would
have an antidilutive effect on net loss per common
share.
Options to purchase 1,339,645 shares of common stock at
weighted average exercise price of $2.82 per share as
of June 30, 1998, was not included in the computation
of diluted EPS. The inclusion of the options and
warrants would have been antidilutive, thereby
decreasing net loss per common share.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BUI, Inc.:
We have audited the accompanying consolidated balance sheet of
BUI, Inc. (formerly Buyers United International, Inc.) (a
Delaware corporation) and subsidiary as of December 31, 1998 and
the related consolidated statements of operations, shareholders'
deficit and cash flows for the years ended December 31, 1998 and
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of BUI, Inc. and subsidiary as of December 31,
1998, and the results of their operations and their cash flows
for the years ended December 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 16, 1999
F-8
<PAGE>
BUI, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 22,690
Restricted cash 42,263
Accounts receivable 631,324
Other current assets 3,124
Total current assets 699,401
EQUIPMENT, FURNITURE AND FIXTURES,
net of accumulated depreciation of $159,726 112,262
Total assets $ 811,663
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of notes payable $ 472,285
Accounts payable 680,607
Accrued liabilities 349,359
Accrued Founders settlement 9,000
Total current liabilities 1,511,251
NOTES PAYABLE, net of current portion 1,050,000
COMMITMENTS AND CONTINGENCIES (Notes 1, 5, 6 and 8)
SHAREHOLDERS' DEFICIT:
Preferred stock, $0.0001 par value; 5,000,000
shares authorized -
Common stock, $0.0001 par value; 20,000,000
shares authorized; 2,949,549 shares issued 295
Additional paid-in capital 3,610,152
Treasury stock, 74,162 shares, at cost (141,800)
Options outstanding 52,411
Accumulated deficit (5,270,646)
Total shareholders' deficit (1,749,588)
Total liabilities and shareholders' deficit $ 811,663
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
BUI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
REVENUES:
Telecommunications services $ 4,580,575 $ -
Net commissions on
telecommunications services 428,382 770,758
Other 78,404 91,994
5,087,361 862,752
OPERATING EXPENSES:
Cost of telecommunication services 3,088,344 -
Cost of other revenues 52,606 51,108
General and administrative 1,950,854 1,706,407
Selling and promotion 1,073,440 1,276,549
6,165,244 3,034,064
LOSS FROM OPERATIONS (1,077,883) (2,171,312)
OTHER INCOME (EXPENSE):
Interest and other income 274 20,315
Interest expense (388,973) (542,405)
Total other expense, net (388,699) (522,090)
NET LOSS $(1,466,582) $(2,693,402)
NET LOSS PER COMMON SHARE:
Basic and diluted $ (0.66) $ (1.41)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted 2,228,702 1,907,329
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
BUI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Treasury Stock Options Accumulated
Shares Amount Capital Shares Amount Outstanding Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 1,462,904 $ 146 $ 309,447 - $ - $ - $(1,110,662) $ (801,069)
Sale of common shares for cash 170,670 17 514,808 - - - - 514,825
Issuance of common shares for srevices 155,829 16 470,654 - - - - 470,670
Issuance of common shares in connection
with debt issuance 74,162 7 223,993 - - - - 224,000
Issuance of common shares in merger
with Lingusitix, Inc. 151,299 15 31,995 - - - - 32,010
Issuance of common shares in settlement
of Founders agreements 3,708 - 20,000 - - - - 20,000
Surrendor of common shares for
cancellation by major shareholders (74,162) (7) 7 - - - - -
Repurchase of common shares for cash - - - 74,162 (141,800) - - (141,800)
Net loss - - - - - - (2,693,402) (2,693,402)
BALANCE, December 31, 1997 1,944,410 $ 194 $1,570,904 74,162 $(141,800) $ - $(3,804,064) $(2,374,766)
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
BUI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 (CONTINUED)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Treasury Stock Options Accumulated
Shares Amount Capital Shares Amount Outstanding Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 1,944,410 $194 $1,570,904 74,162 $(141,800) $ - $(3,804,064) $(2,374,766)
Sale of common shares for cash 332,808 33 1,196,708 - - - - 1,196,741
Issuance of common shares for services 46,975 5 93,945 - - - - 93,950
Issuance of common shares in
connection with conversion of
debt and related accrued interest 509,747 51 482,783 - - - - 482,834
Issuance of common shares in
connection with loan guarantee
and loan extension 105,412 11 210,813 - - - - 210,824
Issuance of common shares in settlement
of Founders agreements 10,197 1 54,999 - - - - 55,000
Issuance of options to purchase
common shares - - - - - 52,411 - 52,411
Net loss - - - - - - (1,466,582) (1,466,582)
BALANCE, December 31, 1998 2,949,549 $295 $3,610,152 74,162 $(141,800) $52,411 $(5,270,646) $(1,749,588)
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
BUI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Increase (Decrease) in Cash
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,466,582) $(2,693,402)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Depreciation and amortization 62,174 75,981
Issuance of common shares for services 93,950 470,670
Issuance of common shares in connection
with debt agreements 210,824 224,000
Issuance of common shares as payment
for interest 12,834 -
Expense for options to purchase common shares 52,411 -
Gain on sale of equipment, furniture and
fixtures - (4,783)
Changes in operating assets and liabilities-
Increase in restricted cash (42,263) -
(Increase) decrease in accounts receivable (617,421) 200,000
Increase in other current assets (2,559) (565)
(Decrease) increase in checks written
in excess of cash balance (10,721) 10,721
Increase in accounts payable 350,266 254,067
Increase in accrued liabilities 168,887 88,324
(Decrease) increase in unearned revenue (81,788) 81,788
(Decrease) increase in accrued Founder
settlement (6,000) -
Net cash used in operating activities (1,275,988) (1,293,199)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in merger with Linguistix - 32,010
Proceeds from the sale of equipment,
furniture and fixtures - 12,500
Purchase of equipment, furniture and fixtures (28,535) (154,331)
Net cash used in investing activities (28,535) (109,821)
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
BUI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Increase (Decrease) in Cash
1998 1997
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under notes payable 238,000 793,000
Principal payments on notes payable (107,528) (26,187)
Net advances from major shareholder - 22,797
Issuance of common shares for cash 1,196,741 514,825
Repurchase of common shares - (141,800)
Net cash provided by financing
activities 1,327,213 1,162,635
NET INCREASE (DECREASE) IN CASH 22,690 (240,385)
CASH AT BEGINNING OF PERIOD - 240,385
CASH AT END OF PERIOD $ 22,690 $ -
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 187,955 $ 306,443
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable to common shares $ 470,000 $ -
Issuance of common shares in settlement
of Founders agreements 55,000 20,000
Assumption of debt from major shareholder - 200,000
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
BUI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS
The Company was originally incorporated in Utah on January 16,
1996 as WealthNet Incorporated ("WealthNet"). On November 13,
1997, WealthNet was merged into Linguistix Acquisition Inc.
("LAI"), a Utah corporation and wholly owned subsidiary of
Linguistix, Inc. ("Linguistix")(the "Linguistix Merger"). LAI
was the surviving corporation and effective with the Linguistix
Merger changed its name to Buyers United, Inc. ("Buyers United").
The Linguistix Merger was approved, with the recommendation of
the Board of Directors of WealthNet, to enhance the ability of
WealthNet to raise debt and equity capital needed for operations.
Linguistix was a Utah corporation organized in August 1994 as a
vehicle to receive the assets of Twin Creek Exploration Co., Inc.
("Twin Creek") prior to a business reorganization. Prior to the
Linguistix Merger, Linguistix' operations were limited to
receiving minimal oil and gas royalties, which have not
continued, and as of the date of the merger the only significant
identifiable asset consisted of $32,010 of cash. There were no
liabilities assumed in the merger. In connection with the
Linguistix Merger, Linguistix changed its name to Buyers United
International, Inc. ("BUII").
The merger of WealthNet with Buyers United and BUII has been
reflected in the accompanying consolidated financial statements
as a reverse acquisition accounted for as a purchase. WealthNet
has been presented as the continuing accounting entity with the
equity accounts and common shares outstanding being retroactively
restated to reflect the effect of the exchange ratio established
in the Linguistix Merger. BUII is presented as the acquired
entity with its assets and liabilities being recorded at
estimated fair value as of the merger date and the results of
operations of BUII being included in the accompanying
consolidated financial statements from the date of the Linguistix
Merger. Following the Linguistix Merger, BUII has pursued the
business of WealthNet.
BUI, Inc. was incorporated in the state of Delaware on March 15,
1999 for the purpose of reincorporating BUII as a Delaware
corporation. Effective April 9, 1999, BUII was merged into BUI,
Inc. (the "BUI Merger"). In the BUI Merger, each four shares of
BUII common stock and each four options to purchase shares of
BUII's common stock were converted into one share of common stock
of BUI, Inc. or options to purchase one share of BUI Inc.'s
common stock. The equity accounts and the common shares
outstanding in the accompanying consolidated financial statements
have been retroactively restated to reflect the effect of the BUI
Merger.
BUI, Inc., BUII, Buyers United, and WealthNet are collectively
referred to herein as the "Company."
The Company is a consumer buying organization with the objective
of providing high quality consumer products and services at
favorable prices to its consumer members. The Company has begun
to form strategic alliances and joint ventures with various
consumer service
F-15
<PAGE>
providers in an effort to combine the purchasing
power of its consumer members to negotiate favorable prices from
these providers. The Company markets its products and services
by offering incentives to its consumer members to attract
additional consumers with whom they have ongoing relationships to
the Company's products and services. As of December 31, 1998,
the Company provided discounted long distance telecommunication
services to its consumer members.
As of December 31, 1998, the Company had a working capital
deficit of $811,850, a shareholders' deficit of $1,749,588 and
has incurred net losses of $1,466,582, and $2,693,402 during the
years ended December 31, 1998 and 1997, respectively. Subsequent
to December 31, 1998, the Company has raised $173,000 of
additional equity capital through the sale of common shares and
has raised $3,480,000 in an offering of 2,000,000 shares of 8%
Series A Convertible Preferred Stock at an offering price of $2
per share (see Note 8). In addition, the Company received
$160,000 in May 1999 under an 8% unsecured convertible promissory
note due June 1, 2000 and five-year warrants to purchase shares
of common stock at an exercise price of $1.25 per share.
The Company is subject to certain risk factors frequently
encountered by companies lacking adequate capital and which are
in the early stages of developing a business line that may impact
its ability to become a profitable enterprise. These risk
factors include:
a) The consumer buying organization industry is characterized
by intense competition, and many of the Company's competitors are
substantially larger than the Company with greater financial and
other resources. In addition, the Company is currently marketing
telecommunications services, including long distance services, to
its consumer members. The U.S. long distance telecommunications
industry is highly competitive and significantly influenced by
the marketing and pricing strategies of the major industry
participants, which are significantly larger than the Company and
have substantially greater resources.
b) The Company's ability to effectively provide
telecommunications services to its members depends on its ability
to form strategic alliances and joint ventures with third party
telecommunications service providers that provide high quality
services at competitive prices. The Company currently obtains
its telecommunications services from one supplier. Although
there are a limited number of telecommunication service
providers, a change in suppliers could cause a disruption in
service and possible loss of revenues, which could affect
operating results adversely.
c) The Company's relationship marketing system is or may be
subject to or affected by extensive government regulation,
including without limitations, state regulation of marketing
practices and federal and state regulation of the offer and sale
of business franchises, business opportunities, and securities.
Long distance telecommunications carriers currently are subject
to extensive federal and state government regulation.
d) Additional funds will be required to finance the Company's
operations until profitability can be achieved and to fund the
repayment of debt obligations and other liabilities. There can
be no assurance that the additional funding will be available or,
if available, that it will be available on acceptable terms or in
required amounts.
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost. Major
additions and improvements are capitalized, while minor repairs
and maintenance costs are expensed when incurred. Depreciation
is computed using the straight-line method over the estimated
useful lives of the related assets which are as follows:
Computer and office equipment 3 years
Furniture and fixtures 3 years
When equipment, furniture and fixtures are retired or otherwise
disposed of, the book value is removed from the asset and related
accumulated depreciation accounts, and the net gain or loss is
included in the determination of net income (loss).
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying consolidated
balance sheets for cash, receivables, and accounts payable
approximate fair values because of the immediate or short-term
maturities of these financial instruments. The fair value of the
Company's notes payable also approximate fair value based on
current rates for similar debt instruments.
Revenue Recognition and Related Arrangements
Beginning in January 1997, the Company's long distance service
was provided under a Strategic Member Reseller Agreement (the
"Reseller Agreement") with I-Link WorldWide, Inc. ("I-Link").
Under the Reseller Agreement, the Company functioned as a
commissioned agent for selling I-Link's long distance service.
The commissions received by the Company were based on revenues
collected by I-Link from the Company's members. Under the
Reseller Agreement, I-Link provided all provisioning, tariffing,
negotiating and securing local exchange carrier agreements,
billing and collection services, status tracking, accounting and
reporting. Accordingly, the Company recognized commission
revenue monthly as received from I-Link.
Due to difficulties encountered under the arrangement with I-
Link, in May 1998, the Company and I-Link entered into a business
separation agreement to provide for the separation of their
business relationship and a mutual release of all claims which
may have arisen between them prior to the date of the Reseller
Agreement. Under the separation agreement, the Company agreed to
undertake at its own expense on a "best efforts" basis to collect
all current and past due accounts receivable relating to I-Link
services utilized by the Buyers United customers after January 1,
1997. All collected funds were to be distributed fifty percent
to the Company and fifty percent to I-Link; provided, however,
that the first $200,000 collected was to be allocated to
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the Company and the second $200,000 collected was to be allocated to
I-Link. Thereafter, any collected funds would be distributed on
a 50/50 basis to the Company and I-Link. As of December 31,
1998, the Company had received the initial $200,000 and
management does not expect to receive any additional amounts
under the separation agreement.
In December 1997, the Company entered into a three year
Service Agreement with IXC Communications, Inc. ("IXC") (the "IXC
Service Agreement"). Under the IXC Service Agreement, IXC agreed
to sell to the Company telecommunications services at certain
rates and the Company has the rights to resell the services to
its members. Pursuant to the IXC Service Agreement, the Company
is billed monthly for the long distance line costs incurred by
the Company's members and the Company has the obligations to
perform all tariffing, billing and collections. Accordingly,
revenues from telecommunications services under the IXC Service
Agreement are recognized as the services are provided and billed
to the customers with a provision for uncollectable accounts and
cost of revenues are recognized as the services are provided by
IXC.
Initially the Company contracted to have IXC provide certain
billing , status tracking, accounting and reporting services.
Pursuant to the IXC Service Agreement, the Company has granted to
IXC a first priority security interest in the Company's
receivables from its customers and has directed its customers to
make all payments directly to a lockbox account for the benefit
of IXC. As of December 31, 1998, the lockbox account had a
balance of $42,263, which is reflected in the accompanying
consolidated balance sheet as restricted cash, and the Company
had a payable to IXC of $525,734, secured by the Company's
accounts receivable of $631,324.
Revenues from sales of products are recognized upon shipment
of the products to the customers.
Income Taxes
The Company recognizes a liability or asset for the deferred
income tax consequences of all temporary differences between the
tax bases of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or
deductible amounts in future years when the reported amounts of
the assets and liabilities are recovered or settled. These
deferred income tax assets or liabilities are measured using the
enacted tax rates that will be in effect when the differences are
expected to reverse.
Net Loss Per Common Share
Basic net loss per common share ("Basic EPS") excludes dilution
and is computed by dividing net loss by the weighted average
number of common shares outstanding during the year. Diluted net
loss per common share ("Diluted EPS") reflects the potential
dilution that could occur if stock options or other contracts to
issue common stock were exercised or converted into common stock.
The computation of Diluted EPS does not assume exercise or
conversion of securities that would have an antidilutive effect
on net loss per common share.
Options to purchase 622,930 and 1,339,645 shares of common stock
at weighted average exercise prices of $3.49 and $2.82 per share
as of December 31, 1997 and 1998, respectively, were not included
in the computation of diluted EPS. The inclusion of the options
and warrants would have been antidilutive, thereby decreasing net
loss per common share.
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Reclassifications
Certain reclassifications have been made to the 1997 and 1996
financial statements to be consistent with the 1998 presentation.
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<PAGE>
(3) NOTES PAYABLE
Notes payable consist of the following as of December 31, 1998:
Note payable to an individual; interest at 10
percent payable monthly, principal due on
April 15, 2000 ($500,000 of principal is
convertible to common stock at $4 per share
at the option of the holder on or before
April 15, 2000); secured by certain assets
of a shareholder of the Company (see
discussion below) $ 1,050,000
Note payable to a shareholder; interest at 20
percent through January 9, 1998 and 6
percent thereafter payable monthly; due on
demand; unsecured (see discussion below) 251,312
Note payable to a shareholder; interest at 10
percent; due on demand (convertible to
common stock at $2.00 per share at the
option of the holder); unsecured 150,000
Note payable to a limited liability company;
interest at 10 percent , principal and
interest due in monthly installments of
$9,578, secured by interest in accounts
receivable 48,771
Note payable to a shareholder; interest at 10
percent; due on demand; unsecured 22,202
Total notes payable 1,522,285
Less current portion (472,285)
Notes payable, net of current portion $1,050,000
As of December 31, 1996, the Company had borrowed $163,300 from
Rod Smith, the Company's president, major shareholder and
founder, under an unsecured note payable arrangement providing
interest at 9 percent per annum with the principal and accrued
interest due on June 30, 1997. In October 1997, this amount was
repaid to Rod Smith in connection with the Company assuming a
$200,000 obligation of Rod Smith's to his father, Gary Smith, and
was included in the $1,300,000 note payable to Gary Smith as of
December 31, 1997 included above.
During 1996 and 1997, Gary Smith advanced $1,100,000 to the
Company for working capital and other corporate purposes. Under
an informal agreement with the Company, the advances by Gary
Smith accrued interest at the rate of 20 percent per annum and
were unsecured. In consideration for making these loans and for
other services provided, the Company issued to Gary Smith 185,405
and 74,162 shares of common stock during 1996 and 1997,
respectively, and granted options to purchase 55,622 shares of
common stock at $2.02 per share and 185,405 shares of common
stock at $5.39 per share. The estimated fair market value of the common
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<PAGE>
shares issued to Gary Smith has been reflected as
additional interest expense or administrative expense in the
accompanying consolidated financial statements.
In October 1997, Gary Smith and Rod Smith entered into a
Restructuring Agreement with the Company, which provided for
formalization of the debt obligation of the Company to Gary Smith
and the return of shares of common stock for cancellation by both
Rod Smith and Gary Smith to assist the Company in obtaining
additional capital (see Note 6). The Company issued to Gary
Smith an unsecured promissory note in the principal amount of
$1,300,000 (which included the $200,000 borrowed by Rod Smith
from Gary Smith and loaned to the Company), bearing interest at
20 percent per annum.
In January 1998, the Company restructured the $1,300,000 note
payable to Gary Smith. The Company transferred $1,000,000 of the
$1,300,000 note payable to an individual. The new $1,000,000
note payable included interest at ten percent payable monthly
with all principal and accrued interest to be due November 15,
1998. The $1,000,000 note payable was guaranteed by Gary Smith.
As consideration for Gary Smith's guarantee of the $1,000,000
note payable, the Company issued 74,162 shares of common stock to
Gary Smith. The terms of the remaining $300,000 were initially
changed to be non-interest bearing and to include monthly
principal payments of $10,000 commencing February 1, 1998 and
continuing thereafter to February 1, 1999, when all remaining
principal was due and payable. Subsequently, the terms of the
remaining $300,000 were modified to include interest at 6 percent
payable monthly with the principal due as the Company has
available resources. The remaining principal balance of $251,312
as of December 31, 1998 has been included as a current note
payable in the accompanying financial statements.
In September 1998, the $1,000,000 note payable was restructured
to add $50,000 of accrued interest to the principal balance,
extend the due date to April 15, 2000 with monthly interest
payments commencing on October 15, 1998, and secure the note with
certain assets of Gary Smith and terminate the guarantee. As
consideration, the individual was issued 31,250 shares of common
stock and was granted an option to convert $500,000 of the note
into shares of common stock at a price of $4.00 per share through
April 15, 2000. The $1,050,000 is classified as a noncurrent
liability in the accompanying December 31, 1998 consolidated
balance sheet.
(4) INCOME TAXES
The components of the net deferred income tax assets as of
December 31, 1998 are as follows:
Net operating loss carryforwards $ 1,428,100
Writeoff of WealthNet System for financial
reporting purposes 138,900
Reserves and accrued liabilities 37,000
Total deferred income tax assets 1,604,000
Valuation allowance (1,604,000)
Net deferred income tax assets $ -
As of December 31, 1998, the Company had net operating loss
carryforwards for federal income tax reporting purposes of
approximately $3,860,000. For federal income tax purposes,
utilization of these carryforwards is limited if the Company has
had more than a 50 percent
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<PAGE>
change in ownership (as defined by the
Internal Revenue Code) or, under certain conditions, if such a
change occurs in the future. The tax net operating loss
carryforwards will expire beginning in 2011.
No benefit for income taxes has been recorded during the years
ended December 31, 1998 and 1997. As discussed in Note 1,
certain risks exist with respect to the Company's future
profitability and management has concluded that, due to these
uncertainties, the related deferred income tax assets may not be
realized. Accordingly, a valuation allowance has been recorded
to offset the deferred income tax assets.
(5) COMMITMENTS AND CONTINGENCIES
Legal Matters
Teleconference Units - As discussed in Note 6, in 1996 the
Company entered into agreements with certain investors pursuant
to which they were entitled to receive 1,000 teleconference
units, each unit entitling the holder to one 30-minute conference
call for up to 200 participants through December 1998. As of
December 31, 1998, the Company has reacquired all of the units
except for 900 units granted to Mr. Ray Gray. On October 15,
1997, the Company made a formal demand on Mr. Gray to surrender
all 1,000 teleconferencing units he received as an original
investor in the Company in exchange for $10,000, as provided in
the original agreement. On December 16, 1997, the Company was
served with a complaint filed in the Third Judicial District
Court, Salt Lake County, Utah, alleging that the Company breached
a contract to provide teleconferencing units resulting in damages
to the plaintiff, It Makes Cents ("IMC"), of at least $270,000.
IMC is allegedly the assignee of 900 teleconferencing units
originally granted to Mr. Gray. The Company is of the opinion
that the purported assignment of the units is a breach of the
Company's contract with Mr. Gray.
The teleconferencing units were granted to the original investors
based on certain beliefs regarding the cost of providing the
teleconferencing units. Subsequently, the Company determined
that the costs to provide the teleconferencing units would be
higher than originally estimated. The original investors,
including Mr. Gray, agreed not to sell any of the
teleconferencing units without first contacting the Company. Mr.
Gray did not contact the Company prior to his alleged sale of
teleconferencing units to IMC.
The Company, by way of defense, asserts that Mr. Gray agreed to
not market or sell the teleconferencing units and that Mr. Gray
is in breach of that contractual agreement. The Company also
asserts that the plaintiff is not in privity of contract with the
Company and therefore, the Company owes no contractual duty to
Plaintiff. A pre-trial conference has been held at which the
complaint was dismissed without prejudice for failure of the
plaintiff to appear. If the plaintiff does not refile the
complaint within one year, it will be barred from doing so under
the applicable statute of limitations. Based on the foregoing
circumstances and after discussion with legal counsel, management
believes that the ultimate outcome of this matter will not have a
material effect on the Company's financial position or results of
operations.
Bountiful - As discussed in Note 7, commencing in January 1996,
the Company was involved in a series of transactions with
Bountiful. Bountiful originally obtained funds for its
operations in 1995 by selling income participation interests to a
small group of individuals ("Participants") and borrowing certain
funds from the Participants. Bountiful was formed for the purpose of
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<PAGE>
developing a multi-level marketing training system
known as the "WealthNet System," and an infomercial for marketing
the system primarily to NuSkin distributors. Bountiful was
unable to market its program to NuSkin distributors and sought to
market the WealthNet System to other multilevel distributors
through marketing companies and the infomercial. This also
proved unsuccessful. On January 23, 1998, the Participants filed
a lawsuit in Federal District Court, District of Utah against Rod
Smith, individually, Bountiful, and the Company. The complaint
alleged that Rod Smith and Bountiful committed fraud in
connection with the offer and sale of the revenue participation
interests to the Participants, that Rod Smith and Bountiful
violated securities registration requirements of federal and
state securities laws in connection with the offer and sale of
those interests, and that Rod Smith and Bountiful wrongfully
diverted funds and other assets of Bountiful to the Company. The
Participants sought rescission of their investment in Bountiful
in the amount of approximately $675,000 and asked by way of
relief that the stock of the Company owned by Rod Smith be
declared to be held in trust for the benefit of the Participants.
The Participants further demanded unspecified damages against the
Company for the conversion of the assets of Bountiful.
Subsequent to December 31, 1998, two of the plaintiffs and Rod
Smith entered into a settlement agreement. Under the settlement
agreement, the Company will grant to the two plaintiffs options
to purchase a total of 50,000 shares of the Company's common
stock at a price of $2.00 per share exercisable through July 15,
1999. The plaintiffs will dismiss their claims against the
Company with prejudice, and will indemnify the Company against
all claims and causes of actions which were or could be brought
against the Company by the remaining two plaintiffs. Management
believes, after discussion with legal counsel, that the ultimate
outcome of this matter will not have a material effect on the
Company's financial position or results of operations.
The Company is the subject of certain other legal matters, which
it considers incidental to its business activities. It is the
opinion of management, after discussion with legal counsel, that
the ultimate disposition of these legal matters will not have a
material impact on the financial position, liquidity or results
of operations of the Company.
(6) CAPITAL TRANSACTIONS
Authorized Capitalization
As a result of the reincorporation as a Delaware corporation
discussed in Note 1, the authorized capitalization of the Company
consists of 20,000,000 shares of common stock, par value $0.0001,
and 5,000,000 shares of preferred stock, par value $0.0001. In
the reincorporation, each four shares of common stock previously
issued and outstanding and each four outstanding options to
purchase shares of common stock were converted into one share of
common stock or options to purchase one share of common stock, a
one for four reverse stock split. The equity accounts and the
common shares outstanding in the accompanying consolidated
financial statements have been retroactively restated to reflect
the reverse stock split.
Preferred Stock - The Board of Directors is authorized to
classify any shares of the Company's authorized but unissued
preferred stock in one or more series. With respect to each
series, the Board of Directors is authorized to determine the
number of shares which constitute such series; the rate of
dividend, if any, payable on shares of such series; whether the
shares of such series shall be cumulative, non-cumulative or
partially cumulative as to dividends, and the
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<PAGE>
dates from which
any cumulative dividends are to accumulate; 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; 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 the Company; the
sinking fund provisions, if any, for the redemption of shares of
such series; the voting rights, if any, of the shares of such
series; the terms and conditions, if any, on which shares of such
series may be converted into shares of capital stock of the
Company of any other class or series; whether the shares of such
series are to be preferred over shares of capital stock of the
Company of any other class or series as to dividends, or upon the
voluntary or involuntary dissolution, liquidation, or winding up
of the affairs of the Company, or otherwise; and any other
characteristics, preferences, limitations, rights, privileges,
immunities or terms.
Series A Convertible Preferred Stock - The Board of Directors has
authorized 2,000,000 shares of Series A Convertible Preferred
Stock (the "Series A Preferred Stock"). Cumulative dividends
accrue on the Series A Preferred Stock at the rate of 8% per
annum from the date of original issue and are payable semi-
annually on June 30 and December 31 of each year out of funds
legally available for the payment of dividends. Dividends are
payable in cash or common stock at the election of the Company.
If paid in common stock, the number of shares issued will be
based on the average of the closing bid prices for the common
stock over the five trading days immediately prior to the
dividend payment date. If the Company fails to pay any dividend
within 60 days of its due date, the conversion price (see below)
is adjusted downward by $0.25 per share for each occurrence.
The Series A Preferred Stock is convertible to common stock at
any time at the election of the holder and under limited
circumstances at the election of the Company. The conversion
rate is one share for one share, subject to adjustment in the
event of a recapitalization, reorganization, or other corporate
restructuring or in the event the Company shall sell or otherwise
issue securities at a price below $2.00 per share or the then
adjusted conversion price. The Series A Preferred Stock can be
redeemed at the Company's election at any time commencing January
1, 2005, at a redemption price of $2.00 per share plus all
accrued dividends as of the redemption date.
The Series A Preferred Stock has no voting rights, except as
required by the General Corporation Laws of Delaware that require
class votes on certain corporate matters and matters affecting
the rights of the holders of the Series A Preferred Stock. The
Series A Preferred Stock is superior in right of payment in the
event of liquidation and with respect to dividends to the common
stock and all other series of preferred stock that may be
subsequently authorized.
As discussed in Note 8, subsequent to December 31, 1998 the
Company sold the 2,000,000 shares of Series A Preferred Stock in
a private offering.
Merger of WealthNet into LAI
As discussed in Note 1, on November 13, 1997 WealthNet was merged
into Buyers United, a wholly owned subsidiary of BUII, formerly
Linquistix. The merger of WealthNet with Buyers United has been
reflected in the accompanying consolidated financial statements
as a reverse acquisition accounted for as a purchase. WealthNet
has been presented as the continuing accounting entity with the
equity accounts and common shares outstanding being retroactively
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<PAGE>
restated to reflect the effect of the exchange ratio established
in the merger. BUII is presented as the acquired entity with its
assets and liabilities being recorded at estimated fair value as
of the merger date. Prior to the merger, BUII's operations were
limited to receiving minimal oil and gas royalties, which have
not continued, and as of the date of the merger the only
significant identifiable asset consisted of $32,010 of cash.
There were no liabilities assumed in the merger. The 151,299
shares (post reverse stock split) of common stock of BUII
outstanding at the date of the merger have been recorded at the
value of the cash obtained in the merger.
Stock Issued for Services
During the years ended December 31, 1997 and 1998, the Company
has issued shares of common stock to certain officers, key
employees and others for services provided to the Company. The
shares issued have been valued by the Company's Board of
Directors at estimated fair values based on other shares issued
for cash and on the terms of the related transactions. The
Company has issued 46,975, and 155,829 shares of common stock to
other key employees, directors, and promoters for services
rendered during the years ended December 31, 1998 and 1997,
respectively. These shares were valued at $2.00 per share during
1998 and at $3.02 per share during 1997.
In connection with the Linguistix Merger and the Company's
efforts to obtain additional financing, in September 1997 Rod
Smith and Gary Smith (the "Shareholders") entered into a
Restructuring Agreement with the Company. Pursuant to the
agreement, the Shareholders agreed to surrender 37,081 and 74,162
shares of common stock, respectively, to the Company for
cancellation. The shares surrendered were previously issued to
the Shareholders for services as described above. The 37,081
shares of common stock to be surrendered by Rod Smith were not
actually returned to the Company, but rather were transferred to
new investors who purchased common shares in 1998 as discussed
below.
Private Offerings of Common Stock
During the year ended December 31, 1997, the Company sold 170,670
shares of common stock for cash at prices ranging from $1.96 to
$5.40 per share resulting in net proceeds of $514,825. The
Company also repurchased 74,162 shares of common stock from a
shareholder in exchange for $141,800 in cash and the issuance of
options to purchase 4,635 shares of common stock at $4.00 per
share through October 15, 1999.
In February 1998, the Board of Directors authorized a best
efforts private offering of 500,000 shares of common stock at a
price of $4.00 per share. The shares were offered directly by
the Company. During 1998, the Company sold 286,288 shares of
common stock at a price of $4.00 per share. With respect to the
investors that acquired 260,038 of the 286,288 shares of common
stock, as additional incentive to invest in the Company Rod Smith
agreed to transfer to the investors one share of common stock
from his personal shares for each share acquired resulting in the
investors effectively paying $2.00 per share. The 260,038 shares
of common stock transferred by Rod Smith to the investors
included the 37,081 shares he had committed to return to the
Company in 1997 as discussed above. Additionally, the Company
sold 41,020 shares of common stock to certain employees at a
price of $2.00 per share, based on the effective price of $2.00
per share paid during the year by a majority of investors.
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<PAGE>
During 1998, the Company also sold 5,500 shares of common stock
to investors at a price of $4.00 per share in connection with an
offering of shares in the State of New York. The New York
offering was completed to satisfy a public offering requirement
related to the Founders agreements discussed below.
Debt Conversions and Related Agreements
As discussed in Note 3, during the year ended December 31, 1998
the Company converted an 8% convertible debenture in the amount
of $400,000 to 468,330 shares of common stock at a price of $0.85
per share based on the contractual terms of the debenture. The
Company also converted a $70,000 note payable and related accrued
interest of $12,834 to 41,417 shares of common stock at a price
of $2.00 per share. In connection with the conversion of the
$70,000 note payable, the Company granted options to purchase
6,250 shares of common stock at $4.00 per share to the debt
holder.
Additionally, the Company issued 74,162 shares of common stock to
Gary Smith valued at $148,324 or $2.00 per share as consideration
of his guarantee of the Company's $1,000,000 note payable. The
Company also issued 31,250 shares of common stock valued at
$62,500 or $2.00 per share in connection with restructuring the
$1,000,000 note payable. As discussed in Note 3, certain of the
Company's notes payable are convertible to common stock at the
option of the holders at prices ranging from $2.00 to $4.00 per
share.
Founders Agreements
On January 16, 1996, the Company entered into agreements
("Founders Agreements") with 19 individuals and/or entities that
had previously provided $105,000 of funding to Rod Smith for the
purpose of acquiring certain telecommunications services. The
funds paid to Rod Smith were used for the benefit of the Company.
The Founders also provided services to the Company in promoting
the original members for the consumer buying organization. Under
the Founders Agreements, the Company agreed to pay each Founder
one-twentieth of 1 percent of the gross receipts from certain
telecommunications services for a term of 60 years, or until such
time that the Company sells its assets to a third party or makes
a public offering of its common stock. At the time of a public
offering, the Founders in aggregate were to receive options to
purchase 19,468 shares of common stock at a price of $0.06 per
share in exchange for the royalty interests. As discussed above,
the Company sold certain shares of common stock during 1998 in
the State of New York, which was determined by the Company to
satisfy the requirement of a public offering. Accordingly, the
royalty interest was terminated and options to purchase 19,468
shares of common stock at $.06 per share were issued to the
Founders. The estimated fair value of the options granted of
$38,156 was recorded by the Company as additional royalty expense
in 1998 with the corresponding credit recorded as outstanding
options.
The Founders also received the right to transfer, assign, or sell
an aggregate of 21,000 teleconferencing units, as defined in the
Founders Agreements, at any price deemed appropriate by the
Founders until December 31, 1998. The Company reserved the right
to purchase back or cancel any untransferred, unassigned, or
unsold units at any time prior to December 31, 1998 for a price
of $10 per unit.
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As discussed in Note 5, subsequent to entering into the Founders
Agreements the Company determined that the teleconferencing units
were granted based on certain beliefs regarding the cost of
providing the teleconferencing units. Subsequently, the Company
determined that the costs to provide the teleconferencing units
would be higher than originally estimated and the Company
proceeded with purchasing back the units. As of December 31,
1998, the Company had issued 35,226 shares of common stock for
19,000 of the teleconferencing units rather than purchasing the
units at a price of $10 per unit and had paid $11,000 for 1,100
of the remaining units. As of December 31, 1998, the Company had
recorded the contract price of $10 per unit for the 900 units not
repurchased as accrued Founder settlement in the accompanying
consolidated balance sheet. As discussed in Note 5, the
remaining 900 units are subject to certain legal proceedings.
The Company has, in effect, issued shares of common stock to the
Founders in exchange for their initial cash investments and for
the promotion services rendered to the Company. The amount of
the initial investments has been recorded as proceeds from the
issuance of stock and the additional cost to repurchase the
telecommunication units has been expensed with a credit to
shareholders' equity for the shares issued.
Stock Options
The Company's Board of Directors has from time to time authorized
the grant of stock options to directors, officers and key
employees as compensation and in connection with obtaining
financing. The following tables summarize the option activity
for the period from inception (January 16, 1996) to December 31,
1996 and for the years ended December 31, 1997 and 1998.
Weighted
Options Price Range Average Exercise
Price
Balance, December 31, 1996 259,567 $2.02 - 5.39 $4.43
Granted 363,363 2.70 - 5.40 2.82
Balance, December 31, 1997 622,930 2.02 - 5.40 3.49
Granted 969,840 0.06 - 9.00 2.71
Cancelled or expired (253,125) 4.00 - 9.00 4.06
Balance, December 31, 1998 1,339,645 $0.06 - 9.00 $2.82
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The weighted average fair value of options granted during the
years ended December 31, 1998 and 1997 was $0.39 and $0.10,
respectively. A summary of the options outstanding and options
exercisable at December 31, 1998 is as follows:
Options Outstanding Options Exercisable
____________________________________________________ _____________________
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Options Contractual Average Options Average
Prices Outstanding Life Exercise Exercisable Exercise
Price Price
0.06 - 1.99 19,468 0.5 years $ 0.06 19,468 $ 0.06
2.00 - 3.99 1,070,762 6.6 years 2.22 959,519 2.16
4.00 - 5.99 221,290 4.0 years 5.20 221,290 5.20
6.00 - 9.00 28,125 2.6 years 9.00 15,625 9.00
0.06 - 9.00 1,339,645 6.0 years $ 2.82 1,215,902 $ 2.77
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its grants of
options to purchase common shares to employees. SFAS No. 123,
"Accounting for Stock-Based Compensation," requires pro forma
information regarding net income (loss) as if the Company had
accounted for its stock options granted under the fair value
method of the statement. The fair value of the stock options was
estimated at the grant date by the Company based on the Black-
Scholes option pricing model. The following assumptions were
used in the Black-Scholes model: a risk-free interest rate of 6.0
percent, a dividend yield of 0.0 percent, and weighted-average
expected lives of 7.5 years and 3.0 years for the years ended
December 31, 1998 and 1997 respectively. The pro forma net
losses under SFAS No. 123 for the years ended December 31, 1998
and 1997 are $1,948,191, and $2,837,384, respectively, as
compared to the reported net losses of $1,466,582 and $2,693,402,
respectively.
Due to the nature and timing of option grants, the resulting pro
forma compensation cost may not be indicative of future years.
(7) RELATED-PARTY TRANSACTIONS
Bountiful, Inc.
Effective February 1, 1996, WealthNet entered into a license
agreement with Bountiful, Inc. ("Bountiful"), a Utah corporation
owned by WealthNet's founder and major shareholder, Rod Smith.
Under the License Agreement, WealthNet licensed the rights to the
"WealthNet System" and to an infomercial produced to market the
WealthNet System in exchange for a one-time license fee of
$150,000, future royalties on sales of the WealthNet System and
278,107 shares of WealthNet's common stock. The WealthNet System
was designed to provide training regarding forming and operating
a home-based business using relationship marketing to sell
products and services.
F-28
<PAGE>
Bountiful sold certain of the 278,107 shares of common stock of
the Company to investors for proceeds of $613,653. From the
proceeds received by Bountiful, Bountiful made cash advances to
the Company of $190,000, paid expenses on behalf of the Company
of $223,283, and used $200,370 to further develop the WealthNet
System and related infomercial. As of December 31, 1996, the
Company had a receivable from Bountiful of $225,370. During
1997, the Company and Bountiful agreed that the Company would
forgive the receivable from Bountiful in exchange for Bountiful's
remaining interest in the WealthNet System. Accordingly, the
receivable was reclassified to investment in the WealthNet
System. As of December 31, 1996 the Company was no longer
selling the WealthNet System; therefore, the Company determined
that the total investment of $375,370 in the WealthNet System
should be written off.
IXC Service Agreement
In connection with the IXC Service Agreement discussed in Note 2,
the Company was required to establish with IXC a $100,000 letter
of credit upon execution of the Agreement to secure the Company's
performance. The requirement to provide letters of credit was
released under the IXC Service Agreement upon the Company
granting to IXC a first priority security interest in the
Company's receivables from its end users and directing the end
users to make payments directly into a lockbox account for the
benefit of IXC (see Note 2).
In December 1997, the Company obtained the initial letter of
credit required for the IXC Agreement under an agreement with
Gary Smith (the "LC Agreement"). The LC Agreement provided that
Gary Smith would make available to the Company upon its request a
letter of credit in the principal amount of $100,000 issued
through a bank for a term of six months. In the event any amount
was drawn on the letter of credit and not repaid within five days
following the date of the draw, the amount drawn was to bear
interest at the rate of 20 percent per annum. If the letter of
credit was not replaced by another credit facility by the end of
the initial six month term, then the letter of credit was
automatically extended for a term of six additional months and in
consideration for such extension interest would accrue on the
principal amount of the letter of credit at the rate of 20
percent per annum, excluding any amounts drawn against the line
of credit. In addition, the Company agreed to issue to Gary
Smith shares of common stock in number equal to the principal
amount of the letter of credit, excluding any amount representing
a draw under the agreement. As consideration for the LC
Agreement, the Company agreed to extend the term of options to
purchase 139,054 shares of common stock at $5.40 per share and
options to purchase 55,622 shares of common stock at $2.04 per
share held by Gary Smith. The option exercise period was
extended from October 15, 1998 to October 15, 1999.
On July 1, 1998, the Company extended the term of the LC
Agreement and modified the consideration to be paid to Gary Smith
to include the issuance of five-year options to purchase 27,500
shares of common stock at $2.00 per share. The estimated fair
value of the options of $14,255 was recorded as interest expense
during the year ended December 31, 1998 and as outstanding
options in the accompanying December 31, 1998 consolidated
balance sheet.
Consulting Agreement
In January 1998, the Company entered into a one year consulting
agreement with Gary Smith pursuant to which the Company agreed to
pay $5,000 per month to Gary Smith for marketing and other
related consulting services. The agreement was subsequently
modified to cancel the
F-29
<PAGE>
consulting payments during 1998 and to
continue the consulting agreement for an additional one-year term
beginning January 1, 1999.
(8) SUBSEQUENT EVENTS
Long-Term Stock Incentive Plan
Effective March 11, 1999, the Company established the Buyers
United International, Inc. Long-Term Stock Incentive Plan (the
"Stock Plan"). The Stock Plan provides for a maximum of 600,000
shares of common stock of the Company to be awarded to
participants and their beneficiaries. The Committee, as
determined by the Board of Directors, determines and designates
the eligible participants and awards to be granted under the
Stock Plan. The Committee may grant incentive stock options, non-
qualified options, stock appreciation rights ("SAR") and, on a
limited basis, grant stock awards. The terms and exercise prices
of options and SARs will be established by the Committee; except
that the exercise prices cannot be less than 100 percent of the
fair market value of a share of common stock on the date of
grant.
Private Offering Of Series A Preferred Stock
On April 21, 1999, the Board of Directors authorized an offering
of a minimum of 600,000 shares or a maximum of 2,000,000 shares
of 8% Series A Convertible Preferred Stock (see Note 6) at an
offering price of $2.00 per share. The Series A Preferred Stock
provides for a cumulative dividend of 8 percent per annum payable
semi-annually on June 30 and December 31 beginning December 31,
1999 out of funds legally available therefore. Dividends may be
paid in cash or common stock at the election of the Company. If
the Company fails to pay any dividend within 60 days of its due
date the conversion price will be adjusted by $0.25 per share.
The Series A Preferred Stock is convertible into shares of common
stock at an initial conversion price of $2.00 per share at the
election of the holder at any time and under limited
circumstances at the election of the Company.
In connection with the Offering, the Company agreed to pay First
Level Capital, Inc. (the "Placement Agent") a sales commission
equal to 10 percent of the gross proceeds from the sale of the
Series A Preferred Stock. The Company also agreed to pay to the
Placement Agent a non-accountable expense allowance equal to 3
percent of the gross proceeds. As additional compensation, the
Company agreed to sell to the Placement Agent at the closing of
the minimum number of shares offered 500,000 shares of the
Company's common stock at a price of $0.01 per share. The Series
A Preferred Stock was offered by the Placement Agent on a "best
efforts/ all-or-none" basis as to the first 600,000 shares with a
total subscription price of $1,200,000 and a "best efforts" basis
thereafter. The Company also agreed to enter into a two-year
consulting agreement with the Placement Agent. For investment
banking and advisory services provided to the Company, the
Placement Agent will receive $3,000 per month. The Placement
Agent upon completion of the offering may designate two members
of the Company's Board of Directors for two years.
As of July 16, 1999, the 2,000,000 shares of Series A Convertible
Preferred Stock have been sold with the Company receiving net
proceeds of $3,480,000.
F-30
E-1
Exhibit No. 11
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
AGREEMENT
THIS AGREEMENT is made and entered into this 12th
day of October, 1998, by and between SISNA, Inc., a Utah
corporation (hereinafter sometimes referred to as
"SISNA"), having an address at 265 Fast 100 South, Suite
310, Salt Lake City, Utah 841 11 and Buyers United Inc.,
a Utah company (hereinafter sometimes referred to as
"Buyers United"), having an address at 66 East Wadsworth
Park Drive, Suite 101, Draper, Utah 84020
WHEREAS, SISNA operates as an Internet Service
Provider and has expertise in connection with the
Internet; and
WHEREAS, BUYERS UNITED desires to have a presence on
the Internet; and
WHEREAS, SISNA has the capability and the expertise
to allow BUYERS UNITED to function as a virtual Internet
Service Provider ("ISP") using SISNA'S equipment; and
WHEREAS, BUYERS UNITED desires to engage the
services of SI SNA to host an 1SF for BUYERS UNITED and
to perform certain services in Connection therewith.
NOW, THEREFORE, in consideration of the mutual
covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Hosting. BUYERS UNITED hereby engages SI SNA
to host a web presence for BUYERS UNITED consisting of an
1SF for BUYERS UNITED which shall be transparent to
customers of BUYERS UNITED.
2. Payment for Services. In connection with the
hosting by SISNA of an 1SF presence on the Internet,
BUYERS UNITED shall pay a fee of Ten Thousand Dollars (~
10,000.00), to be paid upon execution hereof. In
addition, BUYERS UNITED shall pay a monthly fee to SISNA
of Fourteen Dollars ($14.00) for each subscriber to the
BUYERS UNITED ISF, which shall be paid not later than the
tenth (10th) day of the succeeding month. In the event a
subscriber of the BUYERS UNITED 1SF subscribes for less
than a full month, a prorata share of the subscriber fee
shall be paid to SISNA.
3. Term. The term of this Agreement shall be
three years.
4. Billing and Accounting Services. SISNA agrees
to provide an automated accounting system for BUYERS
UNITED consisting of an automated billing system and
accounting information including A/R, and customer
management systems.
5. Customer Service. SISNA shall provide toll-
free customer support for BUYERS UNITED's customers at
least 15 hours per day.
6. Additional Services. In connection with
hosting the BUYERS UNITED ISP, SISNA shall provide the
following services without additional Cost:
a. A web portal site designed specifically for
BUYERS UNITED's customers that allows access to the
Internet and other links specified by BUYERS
UNITED.
b. Registration of a domain name to be chosen
BUYERS UNITED and which is available.
C. Sign-up services allowing Customers of the
BUYERS UNITED ISP to sign up for Internet service
with BUYERS UNITED.
d. The sign-up page shall be hosted via a secure server.
e. Web-based e-mail shall be provided for customers of the
BUYERS
UNITED ISF.
f. SISNA shall provide web-reporting services
indicating who has accessed the web portal site.
g. SISNA shall register the BUYERS UNITED
domain name with not less than 400 search engines
and a report regarding BUYERS UNITED's placement
among the search engines.
h. SISNA shall provide a master compact-disc
to BUYERS UNITED for replication purposes. The
replicated compact-discs can be used for
distribution to each customer of the BUYERS UNITED
ISP with sign-up software using such logo and
reasonable information provided by BUYERS UNITED to
SISNA. The CD software package shall allow BUYERS
UNITED customers remote sign-up capability and
applications for access to the various aspects of
the Internet, including applications such as
Microsoft Internet Explorer, Netscape Navigator,
Eudora Light, FTP Voyager, Free Agent, Personal
Stock Monitor, The Palace, Atrieva, IP Utilities,
TCP/IP Stack, and anti-virus software.
7. Marketing Materials. In addition, SISNA agrees
to provide at the request of BUYERS UNITED marketing
materials including custom designed T-shirts, mouse pads,
mugs and refrigerator magnets.
8. Notices. All demands, notices, and other
communications to be given hereunder. if any, shall be in
writing and shall be sufficient for all purposes if
personally delivered, sent by facsimile, sent by
nationally-recognized courier service, or if sent by
registered or certified United States mail, return
receipt requested, postage prepaid, and addressed to the
respective party at the postal address set forth below or
to such other address or addresses as such party may
hereafter designate in writing to the other party as
herein provided. The present addresses of the parties
hereto are as set forth above. If personally delivered,
notice under this Agreement shall be deemed to have been
given and received and shall be effective when personally
delivered. Notice by facsimile and nationally-recognized
courier service shall be deemed to have been given when
received. Notice by mail shall be deemed effective and
complete two (2) days after deposit in the United Stales
mail.
9. No Partnership. Nothing in this Agreement
shall be construed to constitute a partnership between
the parties hereto, and the parties expressly agree that
no such partnership is intended. No person or entity
other than the parties hereto shall have, be deemed to
have or claim any third party, direct or indirect rights
or Claims to this Agreement or the matters described
herein.
10. Binding Agreement. This Agreement shall be
binding upon and inure to the benefit of the respective
parties hereto, their heirs, legal representatives,
successors, and assigns.
11. Entire Agreement. This Agreement contains the
entire agreement between the parties. No promise,
representation, warranty, or covenant not included in
this Agreement has been or is relied upon by either
party. Any prior negotiations, correspondence, or
understandings related to the subject matter of this
Agreement shall be deemed to be merged in this Agreement
and shall be of no further force or effect. Each party
has relied upon such party's own examination of the full
Agreement and the provisions thereof, and the
representations and covenants expressly contained in this
Agreement itself The failure or refusal of either party
to inspect the Agreement or other documents, or to obtain
legal advice or other advice relevant to this
transaction, constitutes a waiver of any objection,
contention, or claim that might have been based upon such
reading, inspection, or advice. No modification or
amendment of this Agreement shall be of any force or
effect unless in writing executed by all of the parties.
12. Interpretation. Unless otherwise provided, all
terms shall have the meaning given them in the ordinary
English usage and as customarily used. Words in any
gender shall include both other genders. Whenever the
context requires, the singular shall include the plural,
the plural shall include the singular, and the whole
shall include any part thereof.
13. Invalidity. The invalidity or unenforceability
of any particular provision of this Agreement shall not
effect the other provisions hereof, and the Agreement
shall be construed in all respects as if such invalid
provisions were omitted.
14. Headings. The paragraph and other headings
contained in this Agreement are for purposes of reference
only and shall not limit, expand, or otherwise affect the
construction of any of the provisions of this Agreement.
15. Counterparts. This Agreement may be executed
in any number of counterparts, each of which when
executed and delivered shall be deemed to be an original,
and all of which shall together constitute one and the
same instrument.
16. No Waiver. Acceptance by either party of any
performance less than required hereby shall not be deemed
to be a waiver of such party to enforce all of the terms
and conditions hereof. No waiver of any such right
hereunder shall be binding unless reduced to writing and
signed by the party to be charged therewith.
17. Authorized Execution. The individuals signing
below each represent and warrant (i) that they are
authorized to execute this Agreement for and on behalf of
the party for whom they are signing, (ii) that such party
shall be bound in all respects hereby, and (iii) that such
execution presents no conflict with any other agreement of
such party.
18. Default. If any party shall breach any of the
provisions of this Agreement, the nonbreaching party shall
be entitled to recover from the other party all costs and
expenses incurred by the nonbreaching party in connection
with the breach, including reasonable attorneys' fees,
whether such costs and expenses are incurred without or
without suit or before or after judgment.
19. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State
of Utah as applied to agreements made and wholly
performable in Utah between Utah residents.
20. Facsimile Signatures. The parties hereto agree
that transmission to the other party of this Agreement
with its facsimile signatures shall bind the party
transmitting this Agreement by facsimile in the same
manner as if such party's original signature had been
delivered. Without limiting the foregoing, each party who
transmits this Agreement with its facsimile signature
covenants to deliver the original thereof to the other
party as soon as possible thereafter.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
SISNA, Inc., a Utah
corporation
By /s/ Martin S. Gomez Vice
President
BUYERS UNITE Inc., a Utah
company
By /s/ Rod Smith, President
Buyers United Inc.
On Line Services
Virtual Server - 200MB total Buyers
United cost @$40.00 per month
Registration - hosting - 100MB
100 MB e-mail aliasing
SISNA Web Trends site report included
E-Commerce Package Buyers United cost
@$49.OO per month
SISNA E-commerce Solution
30 meg web/ftp storage
Domain registration (Intemic Not included)
SISNA Web Trends site report included
I virtual E-mail account/with 4 email
Two Analog/ISDN/XDSL accounts
Full access to Www, FTPNews
Personal Dial-Up Accounts
Standard Analog Dial-up Buyers United cost
@$14.00 each
Single analog dial-up account with
(2) e-mail accounts,
10 MB Web/FTP storage,
Unlimited Internet access,
NNTP News, FTP, WWW
Family Account Buyers United cost
@$24.00 each
(2) Two analog, ISDN, or xDSL accounts,
One filtered account and one un-filtered
(4) e-mail accounts,
(2) 10 MB Web/FTP storage,
Unlimited Internet access,
NNTP News, FTP, WWW
Business Dial-Up Accounts
Basic Analog/lSDN/xDSL Account Buyers United cost
@$22.00 each
Dial-up 56k V.90 / ISDN/ xDSL
Unmetered Internet access
Full access to Www, FTP, News
2 simultaneous logins
4 E-mail addresses
30 meg web/ftp storage
Premium AnaIlog/ISDN/xDSL Account Buyers United cost
@$44.oo each
Dial-up 56k V.90/ ISDN/ xDSL
Unmetered Internet access
Full access to WWW, FTP, News
4 simultaneous logins
8 E-mail addresses
30 megs of web/ftp storage
SISNA
Rod Smith
Buyers United
66 East Wadsworth Park Drive
Suite 101
Draper, Utah 84020
801.301.3144 cell
801.523.8929 ext.1000
Dear Rod,
The pricing of Twelve Dollars ($12.00) per month per
subscriber will apply
to the following Areas:
Salt Lake City, Utah*
Provo, Utah*
Ogden, Utah*
Boise, Idaho
Idaho Falls, Idaho
Phoenix, Arizona
Portland, Oregon
Las Vegas, Nevada
All other areas for subscribers will be at Fourteen
Dollars ($14.00) per month per subscriber. As the
costs are reduce for additional SISNA owned areas
Buyers United may be able to take advantage of the
better pricing at that time.
At the Fourteen Dollar price per user Toll-free
customer support is included. In the Twelve Dollar
per user areas Buyers United must supply the Toll-
free connection for customer support (with the
exception of Salt Lake, Ogden and Provo)
Best Regards
Martin S. Gome
Exec. VP
Acknowledgment
Buyers United
SISNA
Buyers United Inc.
66 East Wadsworth Park Drive,
Suite 101,
Draper, Utah 84020
Amendment 001(2.3.99)
Dear Paul Jarman,
This is to confirm the pricing for,
(1) the X-Stop filtering @ $ no additional cost
to the Buyers United base cost of $14.00,
(2) E-mail - five (5) will be included with each
account and your cost will be $1.00 for five (5)
more additional e-mail.
We will accept payment terms of Five Thousand
Dollars ($5,000.00) at signing of contract (2.3.
99) and Five Thousand Dollars ($5,000.00) payable on
the nineteen of February (2.19.99).
Sincerely
Martin S Gomez Exec VP
E-10
Exhibit No. 12
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
Benefit and Service Agreement
This AGREEMENT, entered into this 19th day of January, 1999,
by and between United Buyers Advantage, Inc. (hereinafter
referred to as "UBA") and Buyers United International, Inc.
(hereinafter referred to as "CLIENT').
WHEREAS. UBA has developed a 'variety of Programs (UBA
Programs) which include a variety of money saving benefits and
services. The Benefits and Services included in the UBA Programs
are listed in Schedule A of this Agreement.
WHEREAS, CLIENT wishes to provide one or more of the UBA
Programs to CLIENT's Customers and members (collectively
"Members") under the control and direction of UBA
follows:
NOW, THEREFORE, for and in consideration of the mutual
covenants contained herein, it is agreed as
1. DUTIES OF CLIENT. UBA hereby authorizes CLIENT to
provide the UBA Programs its Members using such methods and in
such geographic areas as approved by UBA and CLIENT hereby
accepts such authorization, for the purpose of providing the UBA
Programs to its Members subject to the following conditions,
representations and warranties, each of which is material.
a. CLIENT covenants and agrees that it shall not use
written materials or scripts, other than those authorized by UBA,
in connection with the UBA Programs, nor will CLIENT make any
representations or warranties not specifically authorized by UBA
or its designee.
b. CLIENT will pay the appropriate fees, for each
enrolled Member, as stated in Schedule B of this Agreement,
c. CLIENT covenants and agrees that during the term
of this agreement. neither it nor any affiliate or related
entity. Will contact or use a benefit supplier in the UBA Program
as a benefit supplier to its Members. That applies to any
individual benefit or service that UBA provides. The only
exception is with UBA approval, which must be communicated in
writing.
2. DUTIES OF UBA
a. UBA will provide Customer Service lines for
CLIENT's Members to utilize for additional information on the UBA
Programs, enrollment in the UBA Programs or implementation of one
or more of the benefits or services included in the UBA Programs.
B. UBA will pay CLIENT a fee calculated in accordance
with the terms arid conditions outlined in Schedule A and
Schedule B, attached to this Agreement and incorporated by
reference herein.
3. WARRANTIES AND GUARANTEES
a. The benefits and services offered through the UBA
Programs are provided directly by independent benefit and service
providers and UBA does not warrant or guarantee any of the
benefits or services provided in the UBA Programs. Any
warranties or, guarantees or representations provided are those
of the individual benefit and\or service providers and not UBA.
b. It is understood by CLIENT that the benefits and
services included in the UBA Programs are based upon agreements
made between UBA and certain benefit and service providers
("Provider Agreements"). During the term of this Agreement,
certain Provider Agreements may be terminated or altered. UBA
shall give CLIENT written notice of any benefit or service being
eliminated or altered, not less than thirty (30) days prior to
the effective date of these changes. If a benefit or service is
terminated or altered, UBA shall, on a best efforts basis,
replace the altered or terminated benefit or service with a
comparable benefit or service.
4. TERM AND TERMINATION
a. The term of this Agreement is for one (1) years
and shall automatically renew on a yearly basis, unless CLIENT or
UBA provides the other party with written notice within ninety
(90) days of tile annual anniversary of this Agreement.
b. Either party shall have the right to terminate
this Agreement if the other party is in material breach of this
Agreement and fails after thirty (30) days written notice to cure
any such breach.
c. If termination of this Agreement occurs, pursuant
to the terms set forth in paragraph 4(a) of this Agreement, the
termination shall not affect the obligation of UBA to service the
balance of the Members enrolled in the UBA Programs pursuant to
paragraph 2, as long as all appropriate enrollment fees are paid
up to date and CLIENT is not in breach of this Agreement. If
CLIENT is in breach of this Agreement, all services due and owing
CLIENT may cease immediately and CLIENT will be liable for all
consequential damages.
d. In the event either party wishes to exercise its
right to terminate this agreement pursuant to this paragraph,
notice to terminate must be made pursuant to paragraph 8 of this
Agreement.
5. ASSIGNMENT.
a. Either party may assign this Agreement;
i. To an affiliate so long as such affiliate
assumes the obligations hereunder, or;
ii. In connection with a merger or consolidation
involving either party or a sale of all or substantially all of
either party's assets to the surviving company or purchaser as
the case may be, so long as such assignee assumes the obligations
of the appropriate party hereunder.
6. CONFIDENTIALITY AND PROPRIETARY INTERESTS
a. UBA agrees that during the term of this Agreement
and any time thereafter, CLIENT's customer lists shall remain the
sole property of CLIENT arid cannot be utilized for any other UBA
or UBA successor's internal promotions, list enhancements or
other list promotions by other companies without the written
permission of CLIENT.
b. CLIENT agrees that all sales materials provided to
CLIENT or modified for CLIENT by UBA are and remain the property
of UBA and may not be used by CLIENT without express written
authorization of UBA. CLIENT further agrees to return or destroy
all such materials at the request of UBA or upon termination of
this Agreement.
C. CLIENT agrees that CLIENT may not gain any
proprietary interest or right in any UBA benefit or service
provider in the UBA Programs. CLIENT further grants UBA the
exclusive right to provide CLIENT with the benefits arid services
in the UBA Programs during the term of this Agreement.
Furthermore if CLIENT attempts to contact any benefit or service
provider or do business with any benefit or service provider that
UBA uses to provide the benefits and service, including but not
limited to the individual local providers, in the UBA Programs,
without receiving express written permission from UBA, UBA may
terminate this Agreement and CLIENT will be liable for all
consequential damages.
7. ENTIRE AGREEMENT. This Agreement together with
Schedule A and Schedule B attached, represents the entire
understanding of the parties with respect to its subject matter
and supersedes all previous discussion and correspondence with
respect thereto, and no representations, warranties or Agreement,
express or implied, of any kind with respect to such subject
matter have been made by either party to the other.
8. NOTICES. Any notice to be given to UBA and CLIENT
shall be in writing and shall be deemed to have been given on the
same day as mailed by certified mail, postage pre-paid, return
receipt requested, addressed to the respective parties as
follows, unless and until either party notifies the other in
writing of a different address:
IF TO UBA:
United Buyers Advantage,
Inc.
11336 Wiles Rd.
Coral Springs, FL 33076
IF TO CLIENT:
Buyers United International,
Inc.
66 East Wadsworth Park Dr.
Draper, UT 88020
9. GOVERNING LAW. Disagreement and all questions as to
interpretations, performance and enforcement and the rights and
remedies of the parties hereunder shall be determined in
accordance with the laws of the State of Florida. Should any
provision contained in this Agreement violate the laws of any
State in which this Agreement is to be performed, that provision
shall be deemed void to the extent it is so violated without
invalidating any other provision contained herein. Parties
mutually and knowingly agree that any suit arising out of or
relating this Agreement shall be filed and adjudicated by a court
in Broward County, in the State of Florida.
IN WITNESS WHEREOF, the parties have hereunto executed this
Agreement the day and year first above written,
Witness United Buyers Advantage, Inc. By
/s/ By /s/ William R. Beccker, VP
Name & Title (Print)
Witness CLIENT
/s/ By /s/ Paul Jarman, VP
Name & Title (Print)
SCHEDULE A
The following benefits and services an included In the UBA Value
Added Program.
Discount Shopping Network
Discount Dining
Discount Travel Service*
Discount Car Rentals
FREE New Car Pricing
FREE Used Car Pricing
Discount New Car Buying Service
Discount Real Estate Service
Discount Moving Service
Discount Mortgage Service
FREE Mortgage Acceleration Printout
Investment and Retirement Services
FREE Financial Needs Analysis
* Includes $300 in Travel Cash Back Coupons
The following benefits and services an included In the UBA
Consumer Plus Program.
Discount Shopping Network
Discount Dining
Discount Travel Service*
Discount Car Rentals
FREE New Car Pricing
FREE Used Car Pricing
Discount New Car Buying Service
Discount Real Estate Service
Discount Moving Service
Discount Mortgage Service
FREE Mortgage Acceleration Printout
Investment and Retirement Services
FREE Financial Needs Analysis
Grocery Coupon Program**
Discount Movie Tickets
Discount Amusement Park Tickets
Discount Legal Program
***Hotel/Motel Program
Discount Rental Car Program
Discount Condo Program
** *Golf Program
Discount Golf Travel Packages
Driving Range Discounts
* Includes $600 in Travel Cash Back Coupons
** Includes $500 in Grocery Coupon Certificates
***The Member has a choice of either the Hotel/Motel Program or
the Golf Program for FREE. If the Member would like both, there
will be a $19.95 printing and handling fee for the directory and
membership card.
The following benefits and service, are included in the UBA
Health Plus Program.
Discount Shopping Network
Discount Dining
Discount Travel Service*
Discount Car Rentals
FREE New Car Pricing
FREE Used Car Pricing
Discount New Car Buying Service
Discount Real Estate Service
Discount Moving Service
Discount Mortgage Service
FREE Mortgage Acceleration Printout
Investment and Retirement Services
FREE Financial Needs Analysis
FREE Health Insurance Analysis
Discount Mail Order Pharmacy
Discount vision Service
Discount Chiropractic
Discount Dental Program
* Includes $600 in Travel Cash flack Coupons
SCHEDULE B
VALUE-ADDED PROGRAM PRICING
I. Pricing: Pursuant to the following terms and conditions,
CLIENT will pay the following fees per and enrolled in the UBA
Programs, each year.
Type of
Program Benefits & Services Cost Per Member
Value Added Listed in Schedule A $.50 per Member
per month
Consumer Plus " $9.95 per New Member
enrolled, plus $2.95
(Monthly) per month per Active Member
Consumer Plus " $29.95 per New Member
enrolled
(Annual)
Health Plus " $9.95 per New
Member enrolled, plus $4.95
(Monthly) per month per Active Member
Health Plus " $49.95 per New
Member enrolled
(Annual)
a. The above mentioned fees represents Member enrollment
in the UBA Programs arid computer system according to UBA
computer specifications. THIS DOES NOT' INCLUDE printing,
shipping, postage or handling charges.
2 Initial payment Terms: CLIENT shall pay for and enroll
its Members in the following manner:
a. CLIENT shall pay $3,000 upon execution of this
Agreement and an additional 3,000 within 30 days. The $6,000
shall be used towards the fees described in this Agreement.
3. Membership Enrollment and Payments: In order to enroll
its Members, CLIENT must follow the following procedures:
a. MONTHLY NEW MEMBERS and PAYMENT: CLIENT shall provide
UBA with the information listed below on each New Member being
enrolled in the UBA Programs. The frequency of New Member
enrollment shall be determined by CLIENT and UBA, based upon
volume. CLIENT shall also at the same time, wire to UBA the fees
outlined in paragraph 1 above per New Monthly Member enrolled in
the UBA Programs. These Members will have access to the UBA
Programs for one (1) month.
- - Member Name
- -Address
- - Phone Number
- - Social security # or Unique Membership #
b. GROUP ASSIGNMENT: All New Members enrolled in the UBA
Programs will be assigned to a group, according to the date USA
receives the New Member enrollment information as outlined above.
The group assignments are outlined in the schedule below. The
group that a New Member is assigned to shall determine the future
monthly billings of that New Member:
Date Group
1st - 7th A
8th- 14th B
15th- 21st C
22nd- 31st D
C. GROUP BILLING: Each week CLIENT shall also provide UBA
with a list of Members that WILL NOT have access to the UBA
Programs the following month (Terminated Members). UBA shall
determine which group the Terminated Members are in and delete
the Terminated Members from the file. The balance of the
Membership remaining are considered Active Members. UBA shall
bill CLIENT, via fax, the fees outlined in paragraph 1 above for
each Active Member, according to the following schedule below.
Within 48 hours of receiving the bill via fax, CLIENT shall wire
the Active Member fees to UBA This will entitle the Active
Members to have access to the UBA Programs for an additional
month.
Dates Group Billing Date
1st -7th A 8th
8th- 14th B 15th
15th- 21st C 22nd
22nd- 31st D 1st
4. Annual Membership Enrollment and Payments: In order to
enroll its Members, CLIENT must follow the following procedures:
a. New Members arid Payment: CLIENT shall provide UBA with
the information listed below, according to the UBA computer
specifications required, on each New Member being enrolled in the
UBA Program. The frequency of New Member enrollment shall be
determined by CLIENT and UBA, based upon volume. CLIENT shall
also at the same time, wire to UBA the lees outlined in section 1
above for each New Annual Member enrolled in the UBA Program. All
New Members enrolled prior to the 15th Of the month shall have
access to the UBA Program for the following twelve (12) month
period commencing on the 1st of the month following enrollment of
the New Member by CLIENT.
Required Enrollment Information
- - Member Name
- - Address
- - Mailing Address
- -Phone Number
- -Social security # or Unique Membership #
b. Group Assignment: All New Members enrolled in the UBA
Programs will be assigned to a group, according to the date UBA
receives the New Member enrollment information, as outlined
above. The group that a New Member is assigned to shall determine
the date when a Member's Renewal fees are due. An example of the
group assignments are outlined in the schedule below.
Enrollment Dates Group
04/16/98-05/15/98 06/98
05/l6/98- 06/I5/98 07/98
06/16/98-07/15/98 08/98
07/16/98-08/15/98 09/98
08/16/98-09/l5/93 10/98
09/16/98-10/l5/98 11/98
10/16/98-11/15/98 12/98
11/16/98-12/15/98 01/99
C. GROUP RENEWAL BILLING: CLIENT shall periodically
provide UBA with a list of Members that WILL NOT have access to
the UBA Program the following year (Terminated Members). UBA
shall determine which group the Terminated Members are from and
delete those Members from the appropriate Group Billing file. The
balance of the Members remaining are considered Active Members.
On the 1st day of the 11th month of a Member being enrolled in
the UBA Program, UBA shall provide CLIENT with a list of Active
Members that UBA intends on renewing their access to the UBA
Program for an additional 12 months. CLIENT shall have until the
10th of the month, to provide UBA with any additional Terminated
Members. On the 15th of the month UBA shall provide CLIENT with a
final reconciliation of all Active Members to be renewed for an
additional 12 months, accompanied with a bill. CLIENT shall wire
the Renewal fees to UBA within 48 hours of receiving the Group
renewal bill from UBA. All Group Members renewed according to the
terms described in this paragraph, shall have access to the UBA
Program for an additional twelve (12) month period, commencing on
the 1st of the month following the renewal payment. This
procedure is followed each annual renewal period. An example of
how the group billing will work is outlined in the schedule
below,
Group 1st Notification Client Reconciliation
Renewal Group Billing
06/98 05/01/99 05/10/99 05/15/99
07/98 06/01/99 06/10/99 06/15/99
08/98 07/01/99 07/10/99 07/15/99
09/98 08/01/99 08/10/99 08/15/99
10/98 09/01/99 09/10/99 09/15/99
11/98 10/01/99 10/10/99 10/15/99
12/98 11/01/99 11/10/99 11/15/99
06/98 12/01/99 12/10/99 12/15/99
For example: If CLIENT enrolled 1,000 New Members between
05/01/98 and 5/15/98, those Members would be assigned to group
06/98. During the next 11 months 100 Members were terminated by
CLIENT. UBA would provide CLIENT a computer generated file on
05/01/99 (1st Notification), which would include a listing of the
900 renewable Members that UBA had on file that were due to be
renewed for the following 12 months and the amount due. On
05/10/99, CLIENT notifies UBA of another 100 Members that CLIENT
wishes to terminate (Client Reconciliation). On 05/15/99, UBA
will provide a Renewal Group Billing which would include 800
billable Members and the fee due. These fees will be wired to UBA
within 48 hours of receiving the Renewal Group Billing. The
renewing members will have access to the UBA Program from
06/01/99 through 06/01/00.
E-20
Exhibit No. 13
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
RESTRUCTURING AGREEMENT
This Restructuring Agreement is made and entered into this
29th day of September, 1997, by and between WEALTHNET
INCORPORATED, a Utah corporation ("Company"), GARY SMITH, a
stockholder of the Company ("GS"), and ROD SMITH, a stockholder
of the Company ("RS").
Recitals
A. The Company is in the process of implementing a
proposed business reorganization with Linguistix, Inc., a Utah
corporation ("Linguistix"), pursuant to which the Company will be
merged with a subsidiary of Linguistix and the stockholders of
the Company will receive common stock of Linguistix, all for the
purpose of facilitating the transition of the Company from a
private to public corporation. This change will enhance the
ability of the Company and Linguistix to obtain additional
capital through offers and sales of equity securities, the
proceeds of which will be used to pay outstanding debt
obligations to GS and be used in the operations of the Company to
improve the value of the Company and Linguistix for the
stockholders, including GS and RS.
B. The ability of Linguistix to succeed with its future
financing is dependent, in part, on its capitalization. In order
to improve the capitalization of Linguistix and enhance its
ability to raise capital which will directly and indirectly
benefit GS and RS, GS and RS are prepared to restructure their
respective debt and equity relationships with the Company and
Linguistix as provided herein.
Agreement
Now, therefore, in consideration of the foregoing recitals
incorporated herein and the terms and conditions hereinafter set
forth, the parties hereto agree as follows:
1. Stock Cancellation. On or before October 1, 1997, GS
shall surrender to the Company for cancellation 800,000 shares of
common stock of the Company represented by certificate number 22
by surrendering said certificate to the Company, duly endorsed by
GS and his spouse. On or before October 1, 1997, RS shall
surrender to the Company for cancellation 200,000 shares of
common stock of the Company represented by certificate number 1
by surrendering said certificate to the Company, duly endorsed by
GS and his spouse. Upon cancellation, the shares will be
returned to the authorized and unissued shares of the Company,
and neither GS nor RS nor their respective spouses shall have
right or interest in respect thereof.
2. Promissory Note. On or before October 1, 1997, the
Company shall deliver to GS a promissory note in the principal
amount of $1,300,000 in the form attached hereto as Exhibit A.
3. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the state of Utah. Any action
brought to enforce any of the terms and conditions of this
Agreement or any of the exhibits attached hereto shall be brought
in the state or federal courts sitting in the State of Utah, and
the parties hereby consent to the subject matter and personal
jurisdiction of the state and federal courts in Utah.
(b) This Agreement shall be binding on and shall inure to
the benefit of the successors and assignees to the parties
hereto.
(c) This Agreement, including the exhibit hereto,
represents the entire agreement between the parties with respect
to the debt obligations of the Company to GS and the equity
ownership (and rights to acquire equity) in the Company, and all
prior negotiations, discussions, understandings, and agreements
are superseded and replaced by this Agreement.. This Agreement
alone fully and completely expresses the agreement of the parties
with respect thereto. There are no other courses of dealing,
understandings, agreements, representations, or warranties,
written or oral, except as set forth herein.
(d) In any action to enforce the terms and conditions of
this Agreement or any of the exhibits attached hereto, the
prevailing party shall be entitled to reimbursement by the non
prevailing party of all costs of such action, including
reasonable attorneys fees.
AGREED and entered into as of the day and year above
written.
WEALTHNET INCORPORATED
By /s/ Rod Smith, President
/s/ Gary Smith
/s/ Rod Smith
ADDENDUM TO RESTRUCTURING AGREEMENT
This Addendum to the Restructuring Agreement dated September
29, 1997, is made and entered into this 21st day of November,
1997, by and between BUYERS UNITED, INC., formerly Wealthnet
Incorporated, a Utah corporation ("Company"), GARY SMITH, a
stockholder of the Company ("GS"), and ROD SMITH, a stockholder
of the Company ("RS").
1. This Addendum is to correct a typographical error in
the original Restructuring Agreement. Paragraph 1 entitled
"Stock Cancellation is hereby amended to read as follows:
On or before October 1, 1997, GS shall surrender to the
Company for cancellation 400,000 shares of common stock of
the Company represented by certificate number 158 by
surrendering said certificate to the Company, duly endorsed
by GS and his spouse. On or before October 1, 1997, RS
shall surrender to the Company for cancellation 200,000
shares of common stock of the Company represented by
certificate number 1 by surrendering said certificate to the
Company, duly endorsed by GS and his spouse. Upon
cancellation, the shares will be returned to the authorized
and unissued shares of the Company, and neither GS nor RS
nor their respective spouses shall have right or interest in
respect thereof.
2. In all other respects the Restructuring Agreement shall
remain unchanged by this Addendum.
AGREED and entered into as of the day and year above
written.
BUYERS UNITED, INC.
By /s/ Rod Smith, President
/s/ Gary Smith
/s/ Rod Smith
E-23
Exhibit No. 14
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
US$1,300,000.00 October 1, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, WEALTHNET INCORPORATED,
a Utah corporation, referred to hereinafter as the "Maker,"
promises to pay to the order of GARY SMITH, an individual,
referred to herein as the "Holder," at his address at 1353
Princeton, Salt Lake City, Utah 84105, the principal amount of
ONE MILLION THREE HUNDRED THOUSAND AND NO/100's Dollars
(US$1,300,000.00), together with interest thereon which shall
accrue on a daily basis at the rate of TWENTY PERCENT (20%) per
annum of the unpaid principal.
1. Payments. The principal amount of this Note shall be
payable as follows:
(a) $500,000 on or before December 31, 1997;
(b) $500,000 on or before May 15, 1998; and
(c) $300,000 on or before September 1, 1998.
Interest on the unpaid principal shall be payable monthly
commencing November 1, 1997. All accrued and unpaid interest is
due and payable at the time all principal is paid.
2. Prepayment. Prepayment in whole or in part at any time
and from time to time of the obligations under this Promissory
Note may be made without penalty.
3. Default. On the occurrence of any one or more of the
events hereinafter enumerated, the entire unpaid balance of the
principal shall become immediately due and payable, without
presentment, demand, protest, notice of protest, or other notice
of dishonor, all of which are hereby waived by Maker. Such
events of default being as follows:
(a) Default in the payment within 10 days following
its due date of any installment of principal or interest on
this Promissory Note, whether as scheduled herein, at
maturity, by acceleration, or otherwise;
(b) The Maker shall (i) file a voluntary petition in
bankruptcy or a voluntary petition seeking reorganization;
(ii) file an answer admitting the jurisdiction of the court
and any material allegations of an involuntary petition
filed pursuant to any act of Congress relating to bankruptcy
or to any act purporting to be amendatory thereof; (iii)
make an assignment for the benefit of creditors; (iv) apply
for or consent to the appointment of any receiver or trustee
for the Maker; or (v) make an assignment to an agent
authorized to liquidate any substantial part of the Maker's
business; or
(c) An order shall be entered pursuant to any act of
Congress relating to bankruptcy or any act purporting to be
amendatory thereof approving an involuntary petition seeking
reorganization of Maker or an order of any court shall be
entered appointing any receiver or trustee of or for Maker
or of or for all or any substantial portion of its property,
and such order approving a petition seeking reorganization
or appointing a receiver or trustee is not vacated or stayed
or any writ, warrant of attachment, or similar process is
not released or bonded within sixty (60) days after its levy
or entry.
4. Waivers and Assent to Extension, Indulgence, or
Release. Every Maker, endorser, and guarantor of this Promissory
Note or the obligation represented hereby waives presentment,
demand, notice, protest, notice of protest, or enforcement of
this Promissory Note and assents to any extensions or
postponements of the time of payment or any other indulgence and
to the addition or release of any other party or person primarily
or secondarily liable. None of the rights and remedies of the
Holder hereunder are to be waived or affected by failure or delay
in exercising them. All remedies conferred on the Holder of this
Promissory Note shall be cumulative, and none is exclusive. Such
remedies may be exercised concurrently or consecutively, at the
Holder's option.
5. Attorney's Fees. If this Promissory Note is placed
with an attorney for collection, suit be instituted for
collection, or any other remedy permitted by law is pursued by
the Holder hereof because of any event of default in the terms
and conditions herein, then in such event, the Maker agrees to
pay reasonable attorney's fees, costs, and other expenses
incurred by the Holder hereof in so doing and in enforcing or
collecting any judgment rendered therein.
6. Construction and Governing Law. This Promissory Note
is entered into and shall be governed and construed in accordance
with the laws of the state of Utah. The state and federal courts
of the state of Utah shall have exclusive jurisdiction in any
litigation arising under or pertaining to this Promissory Note,
and by the execution and acceptance hereof the Maker and Holder
irrevocably submit to the personal and subject matter
jurisdiction of such Utah courts.
WealthNet Incorporated
By /s/ Rod Smith, President
E-25
Exhibit No. 15
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
US$300,000.00 January 9, 1998
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, BUYER UNITED, INC., a
Utah corporation, referred to hereinafter as the "Maker,"
promises to pay to the order of GARY SMITH, an individual,
referred to herein as the "Holder," at his address at 1353
Princeton, Salt Lake City, Utah 84105, the principal amount of
THREE HUNDRED THOUSAND AND NO/100's Dollars (US$300,000.00).
1. Payments. The principal amount of this Note shall be
payable $10,000 per month commencing February 1, 1998 and
continuing on the first day of each month thereafter to February
1, 1999, when all remaining principal is due and payable.
2. Prepayment. Prepayment in whole or in part at any time
and from time to time of the obligations under this Promissory
Note may be made without penalty.
3. Default. On the occurrence of any one or more of the
events hereinafter enumerated, the entire unpaid balance of the
principal shall become immediately due and payable, without
presentment, demand, protest, notice of protest, or other notice
of dishonor, all of which are hereby waived by Maker. Such
events of default being as follows:
(a) Default in the payment within 10 days following
its due date of any installment of principal on this
Promissory Note, whether as scheduled herein, at maturity,
by acceleration, or otherwise;
(b) The Maker shall (i) file a voluntary petition in
bankruptcy or a voluntary petition seeking reorganization;
(ii) file an answer admitting the jurisdiction of the court
and any material allegations of an involuntary petition
filed pursuant to any act of Congress relating to bankruptcy
or to any act purporting to be amendatory thereof; (iii)
make an assignment for the benefit of creditors; (iv) apply
for or consent to the appointment of any receiver or trustee
for the Maker; or (v) make an assignment to an agent
authorized to liquidate any substantial part of the Maker's
business; or
(c) An order shall be entered pursuant to any act of
Congress relating to bankruptcy or any act purporting to be
amendatory thereof approving an involuntary petition seeking
reorganization of Maker or an order of any court shall be
entered appointing any receiver or trustee of or for Maker
or of or for all or any substantial portion of its property,
and such order approving a petition seeking reorganization
or appointing a receiver or trustee is not vacated or stayed
or any writ, warrant of attachment, or similar process is
not released or bonded within sixty (60) days after its levy
or entry.
4. Waivers and Assent to Extension, Indulgence, or
Release. Every Maker, endorser, and guarantor of this Promissory
Note or the obligation represented hereby waives presentment,
demand, notice, protest, notice of protest, or enforcement of
this Promissory Note and assents to any extensions or
postponements of the time of payment or any other indulgence and
to the addition or release of any other party or person primarily
or secondarily liable. None of the rights and remedies of the
Holder hereunder are to be waived or affected by failure or delay
in exercising them. All remedies conferred on the Holder of this
Promissory Note shall be cumulative, and none is exclusive. Such
remedies may be exercised concurrently or consecutively, at the
Holder's option.
5. Attorney's Fees. If this Promissory Note is placed
with an attorney for collection, suit be instituted for
collection, or any other remedy permitted by law is pursued by
the Holder hereof because of any event of default in the terms
and conditions herein, then in such event, the Maker agrees to
pay reasonable attorney's fees, costs, and other expenses
incurred by the Holder hereof in so doing and in enforcing or
collecting any judgment rendered therein.
6. Construction and Governing Law. This Promissory Note
is entered into and shall be governed and construed in accordance
with the laws of the state of Utah. The state and federal courts
of the state of Utah shall have exclusive jurisdiction in any
litigation arising under or pertaining to this Promissory Note,
and by the execution and acceptance hereof the Maker and Holder
irrevocably submit to the personal and subject matter
jurisdiction of such Utah courts.
Buyers United, Inc.
By /s/ Rod Smith, President
E-27
Exhibit No. 16
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
US$1,000,000.00 January 9, 1998
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, BUYERS UNITED, INC., a
Utah corporation, referred to hereinafter as the "Maker,"
promises to pay to the order of GEORGE H. BRIMHALL and BRENDA J.
BRIMHALL, individuals, referred to herein as the "Holder," at
their address at 9211 north Martingale Rd., Paradise Valley, AZ
85253, the principal amount of ONE MILLION AND NO/100's Dollars
(US$1,000,000.00), together with interest thereon which shall
accrue on a daily basis at the rate of TEN PERCENT (10%) per
annum of the unpaid principal.
1. Payments. Interest only is payable monthly in arrears
commencing February 1, 1998, and continuing on the first day of
each month thereafter until November 15, 1998, when all principal
and accrued interest is due and payable.
2. Prepayment. Prepayment in whole or in part at any time
and from time to time of the obligations under this Promissory
Note may be made without penalty.
3. Default. On the occurrence of any one or more of the
events hereinafter enumerated, the entire unpaid balance of the
principal shall become immediately due and payable, without
presentment, demand, protest, notice of protest, or other notice
of dishonor, all of which are hereby waived by Maker. Such
events of default being as follows:
(a) Default in the payment within 10 days following
its due date of any installment of principal or interest on
this Promissory Note, whether as scheduled herein, at
maturity, by acceleration, or otherwise;
(b) The Maker shall (i) file a voluntary petition in
bankruptcy or a voluntary petition seeking reorganization;
(ii) file an answer admitting the jurisdiction of the court
and any material allegations of an involuntary petition
filed pursuant to any act of Congress relating to bankruptcy
or to any act purporting to be amendatory thereof; (iii)
make an assignment for the benefit of creditors; (iv) apply
for or consent to the appointment of any receiver or trustee
for the Maker; or (v) make an assignment to an agent
authorized to liquidate any substantial part of the Maker's
business; or
(c) An order shall be entered pursuant to any act of
Congress relating to bankruptcy or any act purporting to be
amendatory thereof approving an involuntary petition seeking
reorganization of Maker or an order of any court shall be
entered appointing any receiver or trustee of or for Maker
or of or for all or any substantial portion of its property,
and such order approving a petition seeking reorganization
or appointing a receiver or trustee is not vacated or stayed
or any writ, warrant of attachment, or similar process is
not released or bonded within sixty (60) days after its levy
or entry.
4. Waivers and Assent to Extension, Indulgence, or
Release. Every Maker, endorser, and guarantor of this Promissory
Note or the obligation represented hereby waives presentment,
demand, notice, protest, notice of protest, or enforcement of
this Promissory Note and assents to any extensions or
postponements of the time of payment or any other indulgence and
to the addition or release of any other party or person primarily
or secondarily liable. None of the rights and remedies of the
Holder hereunder are to be waived or affected by failure or delay
in exercising them. All remedies conferred on the Holder of this
Promissory Note shall be cumulative, and none is exclusive. Such
remedies may be exercised concurrently or consecutively, at the
Holder's option.
5. Attorney's Fees. If this Promissory Note is placed
with an attorney for collection, suit be instituted for
collection, or any other remedy permitted by law is pursued by
the Holder hereof because of any event of default in the terms
and conditions herein, then in such event, the Maker agrees to
pay reasonable attorney's fees, costs, and other expenses
incurred by the Holder hereof in so doing and in enforcing or
collecting any judgment rendered therein.
6. Construction and Governing Law. This Promissory Note
is entered into and shall be governed and construed in accordance
with the laws of the state of Utah. The state and federal courts
of the state of Utah shall have exclusive jurisdiction in any
litigation arising under or pertaining to this Promissory Note,
and by the execution and acceptance hereof the Maker and Holder
irrevocably submit to the personal and subject matter
jurisdiction of such Utah courts.
Buyers United, Inc.
By /s/ Rod Smith, President
E-29
Exhibit No. 17
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
GUARANTY
For good and valuable consideration, GARY SMITH, an
individual (the "Guarantor"), absolutely and unconditionally,
guarantees and promises the due and punctual payment of any and
all amounts to be paid by BUYERS UNITED, INC., ("BUI"), pursuant
to and in accordance with the terms of the Promissory Note of
even date herewith in the principal amount of $1,000,000 (the
"Obligation"), issued to GEORGE H. BRIMHALL and BRENDA J.
BRIMHALL, individuals, (collectively "Brimhall"), together with
all renewals of, extensions of, modifications of, refinancings
of, consolidations of, and substitutions for the Obligation.
1. Guarantor promises and agrees that in the event BUI
shall default in the payment of the Obligation, Guarantor will
promptly make such payments when the same shall become due as if
the Guarantor was jointly and severally liable therefor.
2. Guarantor agrees that its liability under this Guaranty
shall remain at all times undiminished, unreleased, and
undischarged to any extent until payment in full of the
Obligation.
3. Guarantor agrees that upon default, Brimhall, at his
option, may proceed directly and at once, without notice, against
the Guarantor to collect and recover the full amount of the
Obligation. The duty of the Guarantor under this Guaranty is
joint and several, and independent of BUI, and a separate action
or actions may be brought and prosecuted against Guarantor
regardless of whether any action is brought against BUI or
whether BUI is joined in any such action.
4. Guarantor authorizes Brimhall, without further notice
to or further consent by Guarantor, and without affecting
Guarantor's liability under this Guaranty, from time to time, in
whole or in part, to: (a) renew, extend, accelerate or otherwise
change the time for payment or otherwise change the terms of the
Obligation or any part thereof; (b) take and hold security for
the payment of this Guaranty or the Obligation, and exchange,
surrender, compromise, release, enforce, waive, or deal with such
security in any manner Brimhall may deem necessary, whether or
not this security was provided by BUI or Guarantor, or any one of
them; (c) apply such security and direct the order or manner of
sale as Brimhall may determine; and (d) release or substitute any
one or more of the endorsers or Guarantor.
5. Guarantor expressly waives any right: (a) to notice of
action or non-action on the part of BUI; (b) to notice of
acceptance of this Guaranty; (c) to the creation, renewal,
extension of the Obligation guaranteed hereby; (d) to notice of
default or nonpayment and notice of dishonor to or upon
Guarantor, BUI, or any other party liable for the Obligation
under this Guaranty; (e) to notice after the sale, exchange,
compromise, or other disposition of any and all collateral; (f)
to all other notices to which Guarantor might otherwise be
entitled in connection with this Guaranty of the Obligation.
6. Guarantor agrees to pay reasonable attorneys' fees and
court costs if this Guaranty is placed with an attorney for
collection or enforcement or if suit be instituted upon it,
including attorneys' costs and fees on appeal.
7. This Guaranty will continue in full force and effect
with respect to any Obligations until paid in full.
8. This Guaranty shall be construed under the laws of the
state of Utah.
9. This Guaranty represents the valid and binding
obligation of the Guarantor enforceable in accordance with its
terms, except as limited by bankruptcy and insolvency laws and by
other laws affecting the rights of creditors generally.
DATED this 9th day of January, 1998.
/s/ Gary Smith
E-31
Exhibit No. 18
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
To: Gary Smith
From: Doug Smith/ Buyers United
Date: 5-11-99
RE: To formalize verbal changes to promissory note and consulting
arrangement from January 1998 through today
Dear Gary:
In connection with the audit of Buyers United, Inc.'s financial
statements as of and for the year ended December 31, 1998, the
auditors have requested that I formalize our verbal changes. As
you are aware, we agreed to make the following changes to your
promissory note date January 9, 1998 and your consulting
arrangement with BUI during 1998.
Effective January 9, 1998, we agreed to change the terms of the
promissory note to include interest at 6% per anthem and to
criminate any consulting payments during 1998. As a result,
during 1998 BUI made total payments of $710,225 to you which have
been allocated $21,537 to interest ($5,699 of which relates to
the original $1,300,000 note for the period January 1, 1998 to
January 9, 1998) and $48,688 to principal on the $300,000 note
resulting in a balance of $251,312 at the end of 1998.
In January 1999, we agreed to change the agreement whereby we
will continue to pay you monthly interest payment of
approximately $1,250 on the $251,312.00 balance due and
consulting payment of approximately $3,750 per month for the
entire year of 1999. Additionally, we agreed to make best
efforts to repay as much of the principal balance a possible.
Please sign below to represent your agreement and understanding
of the above.
/s/ G. Douglas Smith, BUI
/s/ Gary Smith
E-32
Exhibit No. 19
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
MEMORANDUM OF AGREEMENT
This will confirm the terms of the loan transaction between
Buyers United International, Inc., a Utah corporation
("Company")and Mogans Smed of #10 Smed Lane, Calgary, Alberta, CN
T2C 4T5 ("Lender"). The terms are as follows:
(1) Principal amount of the loan is $150,000;
(2) The loan is payable within 30 days following the date on
which demand for payment is made by the Lender to the Company in
writing;
(3) The loan bears interest at the rate of 10% per annum and is
payable at the time principal is paid;
(4) All principal and interest on the loan is convertible to
common stock at the rate of $0.50 per share, subject to
adjustment for stock splits and recapitalizations; and
(5) The loan was made as of September 8, 1998.
Buyers United International,
Inc.
By /s/ Duly Authorized Officer
/s/ Mogans Smed
E-33
Exhibit No. 20
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
I-LINK WORLDWIDE, INC
WEALTHNET INCORPORATED
STRATEGIC MEMBER RESELLER AGREEMENT
THIS STRATEGIC MEMBER RESELLER AGREEMENT is made and entered
into this of 31st day of January, 1997, to be effective as of the
1st day of January, by and between I-LINK WORLDWIDE, INC. (I-
Link), a Utah corporation located at 65 East Wadsworth Park
Drive, Draper, UT 84020, and WEALTHNET INCORPORATED
("WealthNet"), a Utah corporation located at 4710 East Falcon
Drive, Suite 1177 Mesa, Arizona 85215.
WHEREAS, I-Link is a provider of telecommunications services
(the "Services") and products (the "Products"); and
WHEREAS, WealthNet is an organization that seeks to provide
various services and products to people who join its organization
as members (the "Members"); and
WHEREAS, WealthNet desires to secure the right to market and
sell to its Members I-Link's Services and Products; and
WHEREAS, I-Link is willing to appoint WealthNet a Strategic
Members Reseller for such purpose upon the terms and conditions
hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises and
covenants contained herein, the parties agree as follows;
1. LICENSE AND APPOINTMENT. Subject to the terms and
conditions herein set forth, I-Link hereby grants WealthNet the
non-exclusive fight and license to market and sell, as an
authorized Strategic Member Reseller the I-Link Services and
Products
2. DIVISION OF RESPONSIBILITIES. WealthNet shall provide all
data entry services and shall timely provide the same to I-Link.
I-Link shall provide all provisioning, tariffing, negotiating and
securing LEC agreements, billing and collection services status
tracking, accounting and reporting, and, at the expense of
WealthNet as set forth below. Customer service and support. I-
Link shall dedicate and train a team of its employees to uniquely
work with WealthNet and its Members on all issues of
provisioning, customer service, billing and collecting (the "I-
Link WealthCom Team"). To cover these services, I-Link shall be
entitled to receive tile sum of $2.00 per month per provisioned
Member (the "MRC Fee") from the monthly recurring charge that
will be billed to each Member on behalf of WealthNet. The
staffing, performance and quality of the I-Link WealthCom Team
shall be reviewed on a monthly basis by the parties. As the
number of Members grows, additional I-Link personnel and
resources shall be added to the I-Link WealthCom Team as
reasonably required to adequately performing the WealthCom
services. WealthNet shall, at its expense, designate one of its
employees as a supervisor to work with the I-Link WealthCom Team,
and I-Link shall make office facilities available to such
supervisor. In order to facilitate 'real-time" communication
between the I-Link WealthCom Team and WealthNet, I-Link shall, at
WealthNet expense and subject to WealthNet approval, install and
maintain a high-speed telecommunications line linking I-Link and
WealthNet. The parties shall agree upon mutually acceptable
policies and procedures relating to billing adjustments.
3. TERMS AND CONDITIONS OF SALE. It is agreed that I-Link shall
sell the Services and Products to WealthNet solely upon the
following terms and conditions:
3.1 Service Rates/Product Prices. I-Link shall sell to
WealthNet its Services and Products at the rates and prices
set forth on Exhibit 3.1 attached hereto arid made a part of
this Agreement. In the event I-Link deems it necessary to
increase the rates arid/or prices set forth on Exhibit 3 - 1
I-Link shall provide WealthNet written notice of such
intended price increase. During the ninety (90) day period
following such written notice, I-Link and WealthNet shall
negotiate new rates and/or pricing. In the event the parties
shall be unable to reach agreement on the new rates and/or
pricing at the end of such ninety (90) day period each party
shall have the right to terminate this Agreement.
3.2 Resale of Services and Products. WealthNet shall be free to
determine tile price, terms, arid conditions of sale
surrounding the resale of the Services and Products to
WealthNet Members, provided that WealthNet shall not
undertake any activities that would result in harmful
pricing practices to the market.
3.3 Applications for Services and Products. WealthNet shall
submit Applications for Services and/or Products
("Applications") to I-Link for the services and Products
needed for WealthNet Members. All Applications for Services
and Products shall be sent by electronic transmission, fax
or mail directly to I-Link, and shall include all relevant
information necessary to process the Application and
provision tile Member. Applications shall be subject to
acceptance by I-Link and shall not be binding on I-Link
until so accepted. I-Link shall have the right to reject the
provision of Services and/or Products to any Member that
fails to meet I-Link's established written creditworthiness
requirements provided to WealthNet. Notwithstanding the
exclusivity provisions contained in Section 5 below,
WealthNet shall be permitted to provision any Member whose
Application is rejected by I-Link with another long-distance
carrier. In the event of a conflict between the terms of
this Agreement and any Application submitted to I-Link, the
terms of this Agreement shall govern.
3.4 Shipment of Products. All Products shall be sold to
WealthNet F.O.B. I-Link's facility and shall be shipped
directly to WealthNet's Members, as designated in the
purchase orders. Upon the placement of the Products with a
common carrier, the title and all risk shall pass to
WealthNet. WealthNet acknowledges that it is the Members
responsibility to pay to I-Link all and any tariffs, taxes,
duties, levies, and any other fee or charge associated with
the transportation of the Products Although the Members
shall pay to I-Link for all costs associated with the
transportation and insurance of the Products, I-Link shall
arrange for such transportation and insurance of ~e
Products. I-Link shall, at the Members expense, take such
steps as may be required to satisfy any laws or requirements
with respect to declaring, filing, recording, or otherwise
rendering this Agreement valid.
3.5 Invoicing and Collection. WealthNet shall require each of
tile Members to secure payment for Services and Products by
means of a credit card authorization, automatic bank account
withdrawal authorization, and/or a cash deposit in an amount
to be determined by the parties. I-Link shall invoice and
collect payment from the Members purchasing tile Services
and Products. All invoices sent by I-Link to the Members for
Services and Products shall be due net twenty (20) days from
the date of invoice. Unpaid invoices over twenty (20) days
may be assessed a late fee equal to 1.5% per month (18%
APR). Invoices unpaid after thirty (30) days may be
submitted for collection seven (7) days after notice to tile
Member, and I-Link may terminate a Member's subscription in
accordance with the provisions governing termination in the
Member subscription agreement. Members shall be responsible
for any costs incurred by I-Link in collecting any amount
payable, including costs of court and reasonable attorneys'
fees Notwithstanding the exclusivity provisions contained in
Section 5 below, WealthNet shall be permitted to provision
any Member terminated by I-Link with another long-distance
carrier.
3.6 Allocation of Member Revenues. All revenues collected from
tile Members arising from the Services and Products shall
be paid into a lockbox account maintained by a third-party
financial institution acceptable by both parties (the
"Bank"). The parties shall jointly instruct and authorize
the Bank to make disbursements from the lock-box account as
often as practicable based upon billing cycles and
collections received. All such disbursements shall be made
according to the following allocation:
(a) To I-Link in the amount of all amounts payable
for taxes to local, state and federal
authorities arising from the collected Member
revenues, and any PIC fees arising under Section
4 below,
(b) The balance according to the Schedules set forth
in Exhibit 3. 6~) attached hereto and made a
part of this Agreement.
In the event I-Link is required either (i) as a result of
non-payment by Members of accounts receivable in a timely
manner, or (ii) by an independent third-party provider
(such as, but not limited to, MCI) to direct the collection
and disbursement of Member revenues through a factoring
provider or other collection facilitator (a "Collector"), I-
Link shall cause such Collector to distribute directly to
WealthNet, at such times as finds are distribute from the
Collector to I-Link, the portions payable to WealthNet set
forth above, subject to the percentage discount payable to
such Collector on a pro-rata basis
3.7 Changes or Discontinuance. I-Link reserves the right during
the term of this Agreement either to vary or to discontinue
the production, sale, or distribution of any of its Services
or Products upon ninety (90) days prior written notice to
WealthNet. During such ninety (90) day notice period,
WealthNet shall be entitled to terminate the Agreement if
the variance or discontinuation of the production, sale or
distribution of the Service or Product constitutes a
material alteration of the Services and/or Products I-Link
shall incur no liability to WealthNet or the Members by
reason of any such change and/or termination.
3.8 Long-Distance Carrier. I-Link shall be entitled to provide
its Services to tile Members by means of whichever long-
distance carrier or carriers as it shall determine are best
suited for the provision of its Services; provided,
however, that I-Link shall comply with all applicable
federal and state regulations governing the establishment
or switching of long-distance carrier service when and
where required.
3.9 Member Communications Because of WealthNet status as a
member organization, and because of I-Link's designation as
the Members' long-distance carrier, both WealthNet and I-
Link shall be entitled to make use of all lists of Members
and to communicate with Members with respect to the
services and Products, both during the term of this
Agreement and thereafter; however, it is agreed that during
the duration of this Agreement all primary communications
with the Members shall be either through the I-Link
WealthCom Team or WealthNet and any communication with the
Members by I-Link during the term of this Agreement shall
be limited to the fulfillment of I-Link responsibilities
under this Agreement.
4. PROVISIONING. I-Link shall use all diligence to provision
the Members in a timelymanner. I-Link shall provide WealthNet
real-time access to all provisioning status information. Attached
to this Agreement, as Exhibit 4 is a listing of the geographic
areas the parties agree I-Link (through FTI Communications, Inc.)
is currently unable to adequately provision Members. Until such
time as I-Link is able to provision within a given exhibit 4
geographic area, WealthNet shall be permitted to provision
Members within such non-provisional Exhibit 4 geographic area
with other long-distance carriers. At such time as I-Link is able
to adequately provision Members within a given Exhibit 4
geographic area, WealthNet shall no longer provision new Members
with other carriers within such area, and shall cause all Members
provisioned with other carriers within such area to be re-
provisioned to I-Link or its designated long-distance carrier. At
such time as I-Link's proprietary telecommunications network (the
"I-Link Network") is operational, the Members shall bear the cost
and be invoiced for any PlC fees require to be paid in switching
the Members from the then current long-distance carrier to tile I-
Link Network.
5 EXCLUSIVITY. Other than as provided in Section 4 above, for
a period of one (1) year from the date of this Agreement
WealthNet shall cause all of its Members utilizing a long-
distance carrier through WealthNet/WealthCom to be provisioned
with I-Link or its designated long-distance carrier If, during
this one-year exclusivity period, I-Link is unable to provision
any Member within four (4) weeks from the date of initial
submission to I-Link of the Member Application, WealthNet shall
be entitled to provision such Member with another long-distance
carrier, regardless of the geographic area. Except as provided
above, during the exclusivity period, WealthNet shall not cause
any of the Members to be diverted to another long-distance
carrier.
6. MARKETING AND PROMOTION. During the 1-year exclusivity
period, WealthNet shall use reasonable and good faith efforts to
promote and market the Services to its Members and solicit
Members as subscribers for the Services and Products. WealthNet
shall at all times identify I-Link (or its designated long-
distance carrier) as the service provider with respect to the
Members utilizing the Services. WealthNet shall use only I-Link
approved subscription agreements and forms, and enrollment or
activation procedures in soliciting Member Applications.
WealthNet shall offer the Services and Products only to those
Members who meet I-Link written creditworthiness requirements.
WealthNet shall take all reasonable steps to confirm the accuracy
of information obtained from Members pursuant to such forms and
procedures. WealthNet shall have no right, power, or authority to
make any representations or warranties regarding the Services and
Products except as expressly approved by I-Link.
7. BUSINESS CONDUCT. In all dealings related to this Agreement
and the providing, Marketing and sale to the Members of the
Services and Products, the parties and their principals,
employees and Members shall be governed by the highest standards
of honesty, integrity, fair dealing, and ethical conduct. The
parties and their principals, employees and Members shall not
engage in any form of business practice or advertising that is
unethical or inconsistent with high community standards or that
would reflect negatively upon the other party or the Services and
Products. Conduct amounting to a breach hereof includes, but is
not limited to: (i) business practices; promotions and
advertising which may be injurious to the business goodwill of
the other party, (ii) falsification of any business records, or
(iii) misrepresentations to the other party or to any actual or
potential subscriber. Each party shall be fully responsible for
all acts and omissions of its principals, employees and Members,
and shall require that such persons comply with all terms of this
Agreement. A breach by any of either party's principals or
employees of any of the terms of this Agreement shall be
considered a breach by that party and shall entitle the other
party to pursue all such rights and remedies it may have under
the Agreement or under the law. A breach by any Member of the
terms of this Agreement such that the damage to I-Link resulting
from such breach cannot adequately be remedied within a sixty
(60) day cure period shall be considered a breach by WealthNet
and shall entitle I-Link to pursue all such rights and remedies
it may have under Section 12 of the Agreement I-Link shall have
the right to terminate the subscription of any Member who
materially breaches any term of this Agreement Each party shall
promptly report to the other party in writing all violations of
the Agreement by any of its principals, employees or Members.
8. CONFIDENTIALITY. As used in this Agreement, "Confidential
Information" means all information, not generally known to the
public, that relates to the business, technology, subscribers,
finances, plans, proposals, or practices of I-Link or WealthNet,
respectively, and it includes, without limitation, the identities
of all subscribers and prospects, all business plans and
proposals, all marketing plans and proposal all technical plans
and proposals, all research and development, all budgets and
projections all non-public financial Information, and all
Information I-Link or WealthNet designates as "confidential. Ml
Confidential Information will be considered trade secrets of I-
Link and WealthNet, respectively, arid shall be entitled to all
protections given by law to trade secrets. "Confidential
Information" shall apply to every form in which information shall
exist, whether written, film, tape, computer disk, or other form
of media. The parties covenant and agree that, both during the
term of this Agreement and at all times thereafter, each of them
and their principals and employees and any successor entity,
shall not use or disclose to any person, firm, corporation or
other business entity any Confidential Information of the other,
shall not in any other way publicly or privately disseminate any
Confidential Information of the other, and shall not help anyone
else to do any of these things Upon termination of this
Agreement, all Confidential Information of the other party in the
possession of a party, its principals or employees or any
successor entity (originals and all copies) shall be promptly
returned to the other Each party shall be responsible for
ensuring compliance with this paragraph by its
Principals, employees and agents.
9. RECORDS. Both parties agree to maintain at their principal
place of business, for four years or for the period legally
required from the date of their preparation, whichever is longer,
complete and accurate records of their business conducted
pursuant to this Agreement. Upon reasonable notice, I-Link shall
be entitled to full access to all records of WealthNet, and
WealthNet shall be entitled to full access to all records of I-
Link pertaining to the Services and Products provided to the
Members.
10. SERVICE MARKS, TRADEMARKS AND TRADENAMES. I-Link shall
immediately cause FTI Communications, Inc. To amend all federal
and state tariff and long-distance carrier applications and
filings it has made to change the name "WealthCom" to another
name not incorporating the word WealthNet Upon completion and
effectiveness of these amendments, I-Link shall cause FTI to
assign to WealthNet all d/b/a filings of the name "WealthCom",
together with all state and/or federal
trademark/tradename/service name applications and registrations.
It is the intent of the parties that once the name "WealthCom"
becomes disassociated with FTI by virtue of the amendment of
federal and state tariff and long-distance applications and
fillings the name and mark "WealthCom" shall be wholly owned and
controlled by WealthNet Subject to the foregoing, the parties
understand and acknowledge that the rights to use all service
marks, trademarks and trade names of each party (collectively,
the "Marks") are the property of that party, arid the other party
shall not use any of the other party's Marks without the other
party's specific prior written approval Each party shall comply
with all rules and procedures pertaining to use of the other
party's Marks Any unauthorized use of the Marks of one party, by
the other party or its principals or employees, shall constitute
infringement of the first party's rights and shall constitute a
material breach of this Agreement. Each party acknowledges that
it has no rights in or to the Marks of the other party except as
provided herein and shall not acquire any rights in the other
party's Marks or expectancy to their use as a result of any use
of the Marks. Following the termination of this Agreement, each
party shall immediately discontinue use of any of the other
party's Marks
11. DEFAULT. The following events and occurrences shall
constitute "defaults" of this Agreement:
(a) Any material breach by either party of this
Agreement which is not fully cured within sixty
(60) days after written notice of default is sent
by the other party
(b) The conviction or a plea of guilty or nolo
contender to any felony offense or to any
misdemeanor offense involving dishonesty,
embezzlement or theft by either party or their
respective executive officers; or
(c) Subject to a ninety (90) day cure period, the
insolvency of either party, either party becoming
the subject of a petition in bankruptcy, the
appointment of a receiver for either party's
business, or the entry by either party into any
arrangement with or assignment for the benefit of
creditors
12. TERM AND TERMINATION. Subject to the termination of the
exclusivity oblation as provided in Section 5 above, this
Agreement shall remain in force for a three (3) year Term
commencing as of the date stated on the first page of this
Agreement, unless sooner terminated under the terms herein. The
Agreement shall automatically renew for additional one-year terms
unless either party gives the other party written notice of its
intent not to renew at least One Hundred Twenty (120) days prior
to the termination of the then current term. In the event of a
default (as defined in Section 11 above) by a party, this
Agreement may be immediately terminated by the non-defaulting
party upon the sending of a written notice of termination. In the
event I-Link's acquisition of FTI is either not ultimately
consummated or rescinded, I-L~ shall have the right to identify
another long-distance carrier to provision the Members and
renegotiate new pricing of the services with WealthNet In the
event the parties are unable to agree on new pricing within
ninety (90) days, either party shall be able to terminate this
Agreement without liability to the other party, other than for
collected Member revenues to be allocated as provided in Exhibit
3.6; provided however, that no such termination shall relieve I-
Link and/or FTI from their obligations under Section 10 with
respect to the "WealthCom" name, so long as WealthNet shall take
no action to hinder the collection by I-Link and/or FTI of any
bona-fide accounts receivable owed by tile Members.
13. CROSS INDEMNIFICATION. In the event any willful misconduct
or negligent act or omission of either party or its principals
employees, agents or authorized representatives causes or results
in (a) loss, damage to, or destruction property of ~ other party
or third parties, and/or (b) death or injury to persons
including, but not limited to, employees or invitees of either
party, then such party shall indemnify, defend, and hold the
other party harmless from and against any and all claims,
actions, damages, demands, liabilities, costs, and expenses,
including reasonable attorney's fees and expenses, resulting
therefrom. The indemnifying party shall pay or reimburse the
other party promptly for all such loss, damage, destruction, or
injury.
14. LIMITATION ON LIABILITY.
14.1 IN NO EVENT, WHETHER BASED IN CONTRACT OR TORT (INCLUDING
NEGLIGENCE) SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY
FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PROFITS
DAMAGES OF ANY KIND OR FOR LOSS OF REVENUE OR PROFITS, LOSS
OF DATA, LOSS OF BUSINESS OR OTHER FINANCIAL LOSS OR COSTS
ARISING OUT OF OR IN CONNECTION WITH THE SALE, INSULATION,
USE, PERFORMANCE, FAILURE OR INTERRUPTION OF THE PRODUCTS
AND/OR SERVICES PURCHASED WEALTHNET AND PROVIDED PURSUANT TO
THIS AGREEMENT.
14.2 I-Link liability to any person whatsoever, other than
WealthNet, its principals, employees, agents or authorized
representatives, arising out of or in connection with any
sale, use or other employment of any Products or Services
provided to WealthNet and/or its Member hereunder, whether
such liability arises from any claim based upon any
contract, warranty, tort or otherwise, shall in no case
exceed the actual amount paid to I-Link for Services and
Products delivered pursuant to this Agreement.
15. NOTICES. All notices given pursuant to this Agreement shall
be in writing and addressed as set forth below. Addresses may be
modified at any time by written notification to the other party.
Any such notice or other communication shall be deemed given and
effective when delivered personally or by fax or three (3) days
after the postmark dated if mailed by certified or registered
mail, postage prepaid, return receipt requested.
If to WealthNet If to I-LINK
4710 East Falcon Drive 13751 S. Wadsworth Park Dr.
Suite 117 Suite 200
Mesa, AZ 85215 Draper, UT 84020
Attention: Terry L. Lambert Attention: Karl S.
Ryser, Jr., CFO
Fax: (602) 641-2628 Fax: (801) 5764295
16. INDEPENDENT CONTRACTOR STATUS This Agreement is intended to
secure the Marketing and promotional activities of WealthNet as
an independent contractor. This Agreement shall in no way be
construed as, nor is it intended to appoint WealthNet as a legal
representative of I-Link or to create a partnership, joint
venture, or other joint interest between WealthNet and I-Link.
Except as expressly provided herein, neither party has any right
or authority to act for or on behalf of the other, or to assume
or to create any obligation or responsibility, express or
implied, on behalf of or in the name of the other in any manner
whatsoever without the express written approval of the other.
17. FORCE MAJEURE. Any delay in or failure of performance by
either party under this Agreement (other than payment
obligations) shall not be considered a breach of this Agreement
and shall be excused if and to the extent it is caused by any
occurrence beyond the reasonable control of the party affected,
including, but not limited to. Act of God or the public enemy;
fire; flood; embargoes; governmental restrictions; strikes or
labor difficulties; riots; wars or other military action; civil
disorders; shortages of labor, fuel, power, materials, supplies
or transportation; or delays in deliveries by suppliers. The
affected party shall use reasonable commercial efforts to
mitigate or eliminate the cause of such delay or its effects. The
affected party shall notify the other in writing promptly of any
failure or delay in, and the effect on, its performance under
this Agreement.
18. ADMINISTRATIVE PROVISIONS.
18.1 Amendments. The provisions of this Agreement may not he
amended, altered, or waived, in whole or in part, except by
the written consent of both parties.
18.2 Assignment; Successors and Assigns. It is hereby agreed that
this Agreement is personal to each party and that neither
party shall assign, sells license, or otherwise transfer to
any person or entity, any of the obligations,
responsibilities, rights, privileges, and interests which
are set forth and established by this Agreement without
obtaining the prior written consent of the other party,
which consent shall not be unreasonably withheld. In the
event of a permitted assignment hereunder, this Agreement
shall be binding on, and shall inure to the benefit of, the
parties to it and their respective successors, and assigns.
18.3 Waiver. The failure of either party at any time to require
performance by the other party of any provision hereof shall
in no way affect the full right to require such performance
at any time thereafter. Nor shall the waiver by either party
of a breach of any provision hereof be taken or held to be a
waiver of any succeeding breach of such provision or as a
waiver of such provision itself.
18.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
18.5 Arbitration of Disputes. Should the parties hereto be
unable to amicably resolve between themselves any disagreements
relating to or arising from any one or more of the provisions of
this Agreement, neither party shall seek redness against the
other in any country or tribunal in any part of the world, but
instead both parties shall submit such disagreement to binding
arbitration Association. Neither party shall have the right to
further appeal or redress in any other court or tribal except
solely for the purpose of obtaining execution of the judgment
rendered by such award, including reasonable attorney's fees,
together with all costs incurred in the collection process
including attorneys' fees relating thereto.
In Witness whereof, the parties hereto have caused this Agreement
to be executed by their duty authorized representatives.
I-Link WorldWide, Inc. WealthNet
Incorporated
By: John W Edwards By: Rod Smith
Date: ___1/30/97_________ Date: ___1/30/97_________
Acknowledged and Agreed to:
Family Telecommunications Incorporated
By: Robert Edwards
Date: ___1/30/97_________
E-42
Exhibit No. 21
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is made and entered into this 29th
day of January, 1997, by and between WEALTHNET INCORPORATED
("WealthNet"), a Utah corporation located at 4710 East Falcon
Drive, Suite 117, Mesa, Arizona 85215, FAMILY TELECOMMUNICATIONS
INCORPORATED ("FTI"), a Utah corporation located at 3800 N.
Central, #B-1, Phoenix Arizona 85012? and I-LINK Worldwide, INC.,
a Utah corporation, and its parent MEDCROSS, INC., a Florida
corporation (collectively "I-Link"), whose principal offices are
located at 65 East Wadsworth Park Drive, Draper, UT 84020.
In consideration of the mutual covenant and promises
contained herein the parties agree as follows:
1. Upon the execution of this Settlement Agreement, FTI
shall pay to WealthNet the cash sum of $200,000.00 WealthNet
agrees that it shall pay to I-Link the sum of $11,620.00 each
month for three consecutive months commencing February 1997 as
payment for telecommunications services provided by FTI and
utilized by WealthNet prior to December 31, 1996.
2. WealthNet and FTI agree that all contracts, agreements
arid understandings between them shall be deemed to have been
terminated and cancelled effective December 31, 1996, including,
without limitation, that certain Letter of Intent dated August
19, 1996.-Wealt~~et hereby assigns and transfers to FTI any and
all interest it 'nay have in all accounts receivable from the
members of the WealthNet/WealthCom organization (the "Members")
arising from the Members' use of telecommunications services
provided by ~ through December 31, 1996 (the "Services"). FTI
and/or I-Link shall make every effort to promptly resolve issues
of Member billings so as to collect only actual and correct
amounts payable by the Members for the Services. WealthNet agrees
to assist FTI and/or I-Link, as reasonably requested by FTI
and/or I-Link at no additional out-of-pocket expense to
WealthNet, in their efforts to resolve issues of Member billings
and to collect all actual and correct accounts receivable from
the Members arising from the Services
3. The parties agree that the business relationship
between them shall be established and governed by the Strategic
Member Reseller Agreement (the " I-Link / WealthNet Agreement")
entered into by I-Link and WealthNet simultaneous with the
execution of this Settlement Agreement, and that the I-Link
/WealthNet Agreement shall be deemed to be effective as of
January 1, 1997 and shall govern billings to the Members for
telecommunications services provided through FTI\I-Link for
January 1997 and thereafter. The parties agree and acknowledge
that the termination of contracts, agreements and understandings
and the mutual releases provided for in this Settlement Agreement
shall not affect I-Link /WealthNet Agreement and the parties'
duties, rights and obligations thereunder The parties further
agree that any subsequent termination of the I-Link / WealthNet
Agreement pursuant to its terms shall not affect the termination
of contracts, agreements and understandings and the mutual
releases provided for in this Settlement Agreement.
4. FTI and I-Link for themselves and on behalf of their
affiliates, principals) employees and agents (collectively FTI/I-
Link"), hereby release WealthNet and its affiliates, principals
employees and agents (collectively WealthNet)from all claims,
liabilities, demands and damages, whether known or unknown, that
FTI/ I-Link may have as against WealthNet resulting from any and
all contracts, agreements and understandings between the parties,
and from any and all acts of or omissions to act by WealthNet,
existing or occurring at any time prior to the execution of this
Settlement Agreement. FTI/I-Link specifically do not release the
Members from their payment obligations arising from the Services.
5. WealthNet, for itself and on behalf of its affiliates,
principals, employees, agents and, to the extent it is legally
authorized to do so, the Members (collectively
WealtliNet/Wea1thCom"), hereby release FTI/I-Link from all
claims, liabilities, demands and damages, whether known or
unknown, that WealthNet/WealthCoin may have as against FTI/I-Link
resulting from any and all contracts, agreements and
understandings between the parties, and from any and all acts of
or omissions to act by FTI\I-Link, existing or occurring at any
time prior to the execution of this Settlement Agreement FTI and
I-Link agree that the Members should not be deemed to have waived
any rights they may have as against FTI for inaccuracies in
billings to the Members for the Services.
6. This Settlement Agreement may be executed in multiple
counterparts, provided that effectiveness shall occur only upon
execution by all parties of a counterpart.
7. The persons executing this Settlement Agreement
represent and warrant that they do so having all requisite power
and authority to sign on behalf of the entities indicated
IN WITNESS WHEREOF, the parties have executed this
Settlement Agreement as of the date first above written.
WEALTHNET INCORPORATED FAMILY TELECOMMUNICATIONS
INCORPORATED
By: /s/ Rod Smith President By: /s/ Robert Edwards, President
/s/ Jerald Nelson, Vice
President
I-LINK WORLDWIDE, INC. MEDCROSS, INC.
By: /s/ John Edwards, President By: /s/ John Edwards,
President
E-44
Exhibit No. 22
Form 10-SB
Amendment No. 1
BUI, Inc.
File No. 0-26917
IXC
MASTER SERVICE AGREEMENT
This Agreement for telecommunications services is made as of the
date of last execution below (the " Effective Date") and entered
into by and between IXC Carrier, Inc. / IXC Broadband Services,
Inc. (generically "IXC"), a Nevada/Delaware corporation with its
principal place of business at 5000 Plaza on the Lake, Suite 200,
Austin, Texas 78746 ("Supplier"), and Buyers United
International, Inc. a Utah corporation with its principal place
of business at 635 W. 5300 South Suite 204, Murray, Utah 84123
("Customer").
WHEREAS, Customer desires to obtain telecommunications services
as described below (the "Service") from Supplier, and Suppliers
is willing to provide the Service for the rates attached hereto.
NOW, THEREFORE, Customer and Supplier hereby mutually agree as
follows:
CREDIT REQUIREMENTS: Letter of Credit. Concurrently with the
execution hereof, Customer has established with Supplier the sum
of one hundred thousand dollars ($100,000.00) (the "Letter of
Credit") (i) upon completion of the first three (3) months
commencing with the Effective Date, Customer shall provide
Supplier with an additional "Letter of Credit" in the amount of
three hundred thousand ($300,000.00); (ii) upon completion of the
fist six (6) months form the Effective Date Customer shall
provide Supplier with an additional "Letter of Credit" in the
amount of seven hundred and fifty thousand ($750,000.00); (iii)
upon completion of the first twelve (12) Months from the
Effective Date Customer shall provide Supplier with an additional
"Letter of Credit" in the amount of three hundred and fifty
thousand ($350,000.00) for a total of $1,500,000.00 (the "Letter
of Credit"), as security for the full and faithful performance of
Customer of the terms, conditions and covenants of this
Agreement. If at any time during the term of the Agreement,
Customer defaults in the payment of any Usage Charges, or any
other amounts payable by Customer to Supplier hereunder, them
Supplier may appropriate and apply any portion of the Letter of
Credit reasonably necessary to remedy any such default. If
during the term of the Agreement, Supplier so applies all or any
portion of the Letter of Credit, then Customer shall restore the
amount of the Letter of Credit so applied by Supplier on or
before the next due payment of Usage Charges under this
Agreement. If however, invoices for Service during any month
provided by Supplier exceed one half of the Letter of Credit, at
the request if Supplier, Customer shall within five (5) days (i)
provide an additional Letter of Credit and/or a cash deposit; or
(ii) other form of security satisfactory to Supplier which in
either case, shall be in an amount equal to the amount by which
the invoice for such month exceeds one-half of the amount of the
Letter of Credit held by Supplier. In addition, if at any time
during the term of this Agreement there is a material and adverse
change in Customer's financial condition or business prospects,
which shall be determined by Supplier in its sole and absolute
discretion, then Supplier may demand that Customer increase the
amount of the Letter of Credit: provided, however, that in no
event shall the amount of the Letter of Credit ever exceed two
months' estimated Usage Charges and other amounts payable by
Customer to Supplier hereunder.
Release of Letter of Credit Notwithstanding anything
to the contrary in above paragraph, at any tie during the term
of the Agreement, Supplier shall release the Latter of Credit to
Customer, in consideration of Customer's undertaking of any of
the following actions: (i) obtaining for the benefit of Supplier
a cash deposit securing the prompt payment, when due, of the
estimated Usage Charges and other amounts due and payable by
Customer to Supplier hereunder any given two-month period; (ii)
(a) granting to Supplier a continuing, floating, first priority
security interest and lien in and to the Collateral (as defined
below) on the terms and subject to the conditions of a
security agreement in form and substance reasonably satisfactory
to Supplier', and (iii) directing all of Customer's End-Users to
deposit any money owed by such End-Users to Customer directly
into a lockbox account at Supplier's bank for the benefit of
Supplier, and authorize Supplier's bank to make automatic
clearing house find transfers from such lockbox account to the
account of Supplier in amounts initially agreed to by Customer
and Supplier, on the tennis and subject to the conditions of art
escrow agreement in form and substance reasonably satisfactory
to Supplier.
SERVICE, TERM AND RATES: Supplier agrees to provide and Customer
agrees to purchase Service(s) indicated below. This agreement,
including any terms and conditions, addenda, schedules,
supplements or exhibits which are attached hereto and
incorporated herein, constitutes the entire agreement (the
"Agreement") by Supplier and Customer pertaining to the subject
matter(s) hereof and supersedes all prior and contemporaneous
agreements and understandings in connection herewith.
Service Type:
Switched Service: Broadband Service:
______X___ Xclusive ________________ ATM
__________ Xnet ________________ Frame Relay
Private Line Service: ________________
Network Management Services
__________ Digital ________________
Training
__________ Optical Customer Interface:
________________ Rack Space &
Power
________________ Shelf Space
________________ Collocation
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date last written below.
IXC Buyers United International, Inc.
By: /s/ By: /s/
Date: December 18, 1997 Date: December 18, 1997
Full Business Address: Full Business Address:
5000 Plaza on the Lake, Suite 200 635 W. 5300 South
Suite 204
Austin, Texas 787461050 Murray, Utah 84123
Telephone: 512427-3700 Telephone: 80l-26~90I5
X 1000
Facsimile: 512-328-7902 Facsimile: 801-68~9254
Master Service Agreement
Terms & Conditions
1. Credit. All Services ordered hereunder are subject to
credit approval. Customer shall complete a credit application
form attached hereto as Exhibit A.
2. Provision of Balance Sheet. Prior to commencement of
Service, Customer shall provide Supplier with financial
statements including a consolidated balance sheet of Customer as
of the end of the most recent quarter and consolidated statements
of income and retained earnings of such quarter and the fiscal
year to date through such quarter, all in reasonable detail and
certified by Customer's chief all in reasonable detail and
certified by Customer's chief financial officer as having been
prepared in accordance with generally accepted accounting
principles, consistently applied. Customer shall provide updated
financial statements as reasonably requested by Supplier.
3. Payment Terms. Invoices for Service are due and payable
within thirty (30) days of the date of invoice (unless otherwise
indicated in the Credit Requirements section of the Master
Service Agreement), without demand or set off by Customer
Payments not received within thirty (30) days of the date of
invoice are considered past due. In addition to Supplier
undertaking any of the actions set forth in this Agreement, if
any invoice is not paid when due: (i) a late charge shall accrue
equal to 1-1/2% ( or maximum legal rate, if less) of the unpaid
balance per month; (ii) Supplier may require a Security Deposit
or other forms of security acceptable to Supplier, and/or (iii)
Supplier may take any action in connection with any other right
or remedy Supplier may have under this Agreement in law or in
equity.
4. Billing Disputes: If Customer in good faith disputes any
portion of any Supplier invoice, Customer shall submit to
Supplier, within 30 days following the date of the invoice, full
payment of the undisputed portion of the invoice and written
documentation identifying and substantiating the disputed amount.
If customer does not report a dispute within the 30 day period,
Customer shall have waived its dispute rights for that invoice.
Supplier and Customer agree to use their respective best efforts
to resolve any dispute within fifteen (15) days after Supplier
and Customer. Any disputed amounts resolved in favor of
Customer shall be credited to Customer's account on the next
invoice following resolution of the dispute. Any disputed
amounts determined to be payable to Supplier shall be due within
ten (10) days of the resolution of the dispute.
Any dispute arising out of or relating to this Agreement which
has not been resolved by the good faith efforts of the parties
will be settled by binding arbitration conducted expeditiously in
accordance with Section 16.
5. Additional Assurances: If at any time during the term of
this Agreement there is a material and adverse change in
Customer's financial contain or business prospects, which shall
be determined by Supplier in its sole and absolute discretion,
then Supplier may demand that Customer deposit with Supplier a
security deposit (the "Security Deposit"), pursuant to Supplier's
standard terms and conditions, as security for the full and
faithful performance of Customer of the terms, conditions and
convenient of this Agreement: provide, however, that in no event
shall the amount of the Security Deposit eve exceed two months'
estimated Usage Charges and other amounts payable by Customer to
Supplier hereunder.
6. Customer hereby represents and warrants that it is certified
to do business in all jurisdictions in which it conducts business
and is in good standing in all such jurisdictions. Customer
further represents and warrants that it is certified by the
proper regulatory agencies to provide interstate, intrastate and
international long distance services to End-Users in those
jurisdictions where such services are to be provided by Customer.
Customer shall keep current during the term of this Agreement,
copies of its Certificates of Public Convenience and Necessity or
similar documents certifying Customer'' interstate, intrastate,
or international operating authority in any local, state, or
federal jurisdiction (collectively, "Service Compliance
Certificates") and furnish copies thereof to Supplier reserves
the right to refuse or withhold Service in any jurisdiction in
which Customer's Service Compliance Certificate has not been
furnished to Supplier in a timely manner. Customer shall defend
and indemnify Supplier form any losses, expenses, demands and
claims in correction with Customer's failure to provide Supplier
with such Service Compliance Certificates. Such indemnification
includes coats and expenses (including reasonable attorney's
fees) incurred by Supplier in settling, defending or appealing
any claims or actions brought against it relating to Customer's
failure to provide such Service Compliance Certificates.
7. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the validity and performance
hereof, shall be governed by the laws of the State of Texas
without regard to its principles of choice of law.
8. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given
as of the date of delivery, facsimile transmission or mailing,
and if mailed, first class postage prepaid, certified or register
mail, return receipt requested to the following persons, unless
contrary instructions are given by the parties in writing:
If to Supplier: IXC
5000 Plaza on the Lake, Suite 200
Austin, Texas 78746
Attention: Contract Administration
If to Customer: Buyers United International, Inc.
635 W. 5300 South Suite 204
Murray, Utah 84123
9. Waiver of Breach or Violation not Deemed Continuing. The
waiver by either party of a breach or violation of any provision
of this Agreement shall not operate as or be construed to be a
waiver of any subsequent breach hereof.
10. Bankruptcy. In the event of the bankruptcy or insolvency of
either party hereto or if either party hereto shall make an
assignment of the benefit of creditors or take advantage of any
act or law for relief of debtors, the other party to this
Agreement shall have the right to terminate this Agreement
without further obligation or liability on its part.
11. Business Relationship. This Agreement shall not create any
agency, employment, joint venture, partnership, representation,
or fiduciary relationship between the parties. Neither party
shall have the authority to, nor shall any party attempt to,
create any obligation on behalf of the other party.
12. Indemnity. A. Each party shall indemnify, defend, release
and hold harmless the other party and all of its offices, agents,
directors, shareholders, shareholders, subsidiaries, employees
and other affiliates (collectively "Affiliates") form and against
any action, claim, court cost, damage, demand, expense,
liability, loss, penalty, proceeding or suit, (collectively,
together with related attorneys fees; including coats and
disbursements, "Claims") imposed upon either party by reason of
damages to property or injuries, including death, as the result
of an international or a negligent act or omission on the part of
the indemnifying party or any of its affiliates in connection
with: (i) the performance of this Agreement; or (ii) other
activities relation to the property or facilities which are the
subject of this Agreement whether or not the Claims result form a
sole negligent act or omission on the part of both parties, or
whether the Claims result form the negligent act or omission of
the indemnifying party and some other third party. In the event
a Claim related to the negligence of both parties, the relative
burden of the Claim shall be attributed equitably between the
parties in accordance with the principles of comparative
negligence. B. In the event any action shall be brought against
the indemnified party shall immediately notify the indemnifying
party in writing, and the indemnifying party, upon the request of
the indemnified party, shell assume the defense thereof on behalf
of the indemnified party and its Affiliates and shall pay all
expenses and satisfy all judgments which may be incurred by or
rendered against the indemnified party or is Affiliates in
connection therewith, provided that the indemnified party shall
not be liable for any settlement of any such action effected
without its written consent. C. Notwithstanding the termination
of this Agreement for any reason, this Section 12 shall survive
such termination.
13. Insurance. Throughout the term of this Agreement and any
extension thereof, each party shall maintain and, upon written
request, shall provide to the other proof of adequate liability
insurance: (i) Worker's compensation insurance up to the amount
of the statutory limit in the state or states where work is to be
performed; (ii) Employer's liability insurance with a limit of
not less than $200,000 per claim with an all-states endorsement;
(iii) Comprehensive general liability insurance with a limit of
not less than $1,000,000 per occurrence for bodily injury
liability and property damage liability, including coverage
extensions for blanket contractual liability, personal injury
liability and products and completed operations liability; and
(iv) Comprehensive Auto Liability insurance with a limit of not
less than $1,000,000 per accident for Bodily Injury Liability and
Property Damage Liability arising out of the ownership,
maintenance or use of any vehicle in the performance of this
Agreement.
14. Authorized Use of Supplier Name: Without Supplier's prior
written consent, Customer shall not (i) refer to itself as an
authorized representative of Supplier in promotional, advertising
or other materials; or (ii) use Supplier's logos, trade marks,
service marks, or any variations thereof in any of its
promotional, advertising or other materials or in any activity
using or displaying Supplier's name or the Service to be provided
by Supplier. Customer agrees to change or correct, at Customer's
expense, any such material or activity which Supplier, in its
sole judgment, determines to be inaccurate, misleading or
otherwise objectionable in relation to using or marketing
Suppliers services. Customer is explicitly authorized to only
use the following statements in its sales literature: (i)
"Customer utilizes the Supplier's network"; (ii) "Customer
utilizes Supplier's facilities'; (iii) "Supplier provides only
the network facilities"; and (iv) " Supplier is our network
service provider".
15. Assignment. Neither party hereto may assign this Agreement
without the express written consent of the other party hereto,
which consent shall not be unreasonably withheld.
Notwithstanding the foregoing: (i) a security interest in this
Agreement may be granted by Supplier to any lender to secure
borrowings by Supplier or any of its affiliates; (ii) Supplier
may assign all its rights and obligations hereunder to any
Affiliate; and (iii) any subsidiary of Supplier may assign any
amounts due from Customer under any Supplement to Supplier for
billing purposes.
16. Binding Arbitration. The parties will attempt in good faith
to resolve any controversy or claim arising out of or relating to
this Agreement promptly through discussions between themselves at
the operational level. In the event a resolution cannot be
reached, such controversy or claim shall be negotiated between
appointed counsel or senior executives of the parties who have
authority to settle the controversy. The disputing party shall
give the other party written notice of the dispute. If the
parties fail to resolve such controversy or claim within thirty
days of the disputing party's notice, either party may seek
arbitration as set forth below. Any controversy or claim
arising out of or relations to this Agreement, or a breach of
this Agreement, shall be finally settled by arbitration in
Austin, Texas and shall be resolved under there laws of there
State of Texas. The arbitration shall be conducted before a
single arbitrator in accordance with the commercial rules and
practices of the American Arbitration Association then in effect.
The arbitrator shall have the power to order specific performance
if requested. Any award, order, or judgment pursuant to such
arbitration shall be deemed final and binding and may be enforced
in any court of competent jurisdiction. The parties agree that
the arbitrator shall have no power or authority to make awards or
issue orders of any kind except as expressly permitted by this
Agreement, and in no event shall the arbitrator have the
authority to make any award that provides for punitive or
exemplary damages. All such arbitration proceedings hall be
conducted on confidential basis. The arbitrator may, as part of
the arbitration award, permit the substantially prevailing party
to recover all or of part of its attorney's fees and other out-of-
pocket costs incurred in connection with such arbitration.
Customer may, at ifs option, continue to accept what is considers
to be below-standard Services and pay the charges hereunder
relating thereto during such pendency of such arbitration,
without prejudice thereto.
17. Legal Construction. In the event one or more to the
provisions contained in this Agreement shall, for any reason be
held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality or unenforceablility shall not affect
any other provision hereof, and this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never
been contained herein.
18. No Personal Liability. Each action or claim of any party
arising under or relating to this Agreement shall be made only
against the other party as a corporation, and any liability
relating thereto shall be enforceable only against the corporate
assets of such party. No party shall seek to pierce the
corporate veil or otherwise seek to impose any liability
relating to, or arising form, this Agreement against any
shareholder, employee, officer or director of the other party.
Each of such persons is an intended beneficiary of the mutual
promises set forth in this Section and shall be entitled to
enforce the obligations of this Section.
19. Notice of Breach of Agreement. To be effective, written
notice of any material breach (except Payment Default) must
prominently contain the following sentences in capital letters:
"THIS IS FORMAL NOTICE OF A BREACH OF CONTRACT. FAILURE TO CURE
SUCH BREACH WILL HAVE SIGNIFICANT LEGAL CONSEQUENCES."
20. Limitation of Liability. Supplier's liability arising out of
delays on restoration of the Services to be preceded under this
Agreement or out of mistakes, accidents, omissions,
interruptions, or errors or defects in transmission in the
provision of Services or any other telecommunications services,
shall be subject to the limitations set for below and in the
applicable Tariff. IN NO EVENT SHALL SUPPLIER BE LIABLE TO
CUSTOMER OR ANY OF THE CUSTOMERS OWN CUSTOMERS OR ANY OTHER THIRD
PARTY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION, FOR ANY
DAMAGES, EITHER DIRECT, INDIRECT, DAMAGES, CONSEQUENTIAL,
SPECIAL, INCIDENTAL, ACTUAL, PUNITIVE, OR ANY OTHER DAMAGES, OR
FOR ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER, ARISING
OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS, INTERRUPTIONS, OR
DEFECTS IN TRANSMISSION, OR DELAYS, INCLUDING THOSE WHICH MAY BE
CAUSED BY REGULATORY OR JUDICIAL AUTHORITIES, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE OBLIGATIONS OF SUPPLIER
PURSUANT TO THIS AGREEMENT; AND IN NO EVENT SHALL SUPPLIER BE
LIABLE AT ANY TIME FOR ANY AMOUNT IN EXCESS OF THE AGGREGATE
AMOUNT IT HAS PRIOR TO SUCH TIME COLLECTED FROM CUSTOMER WITH
RESPECT TO SERVICES DELIVERED HEREUNDER. SUPPLIER MAKES NO
WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER
EXPRESS, IMPLIED, OR STATUTORY, AS TO THE DESCRIPTION, QUALITY,
MERCHANTABILITY, COMPLETENESS OT FITNESS FOR ANY PURPOSE OF ANY
SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY
OTHER MATTER, ALL OF WHICH WARRANTIES BY SUPPLIER ARE HEREBY
EXCLUDED AND DISCLAIMED. For purposes of this Section, the term
"Supplier" shall be deemed to include Supplier, its shareholders,
directors, officers and employees, and any person or entity
assisting Supplier in its performance pursuant to this Agreement.
21. System Maintenance. In the event Supplier determined to
interrupt Services for the performance of routine system
maintenance, Supplier will use reasonable efforts to notify
Customer prior to the interruption and to conduct such
maintenance during non-peak hours. In no event shall
interruption for system maintenance constitute a Failure of
Performance by Supplier.
22. Maintenance & Trouble Reporting. Supplier's Standard fees
for Customer maintenance support services are as follows:
Maintenance services shall be defined as all work performed by
Supplier on equipment provided by or on behalf of the Customer,
or supervision of the Customer's work within Supplier's terminal
facilities. Maintenance Service charges are not billed for
troubles found within that portion of a circuit provided by
Supplier. The following billing rates apply for these services:
A. $75 per hour (4 hour minimum-if dispatch is required) Monday
through Friday during the business hours of 8:00 a.m. - 5:00 p.m.
local time, exclusive of the following holidays: New Year's Day,
President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and the day after Thanksgiving and Christmas
Day. B. $95 per hour ( 4 hour minimum) for overtime work done
after business hours (defined above) and/or on holidays (defined
above) and/or all day on Saturday and Sundays. C. As requests
for maintenance services are typically made via telephone,
Supplier must be advised in writing as to the person(s) who are
authorized to request service. It is the Customer's
responsibility to keep Supplier apprised of any changes to its
list of representative(s). D. To request technical assistance
and help under the maintenance services, a call must be made to
Supplier's Network Control Center at 1/800/526/2488. This number
should be used for Supplier technical assistance, troubleshooting
or testing of circuits, not for service impairment or outages.
The person calling in must be on the authorized list in order to
commit for charges for this technical assistance. If that person
is not on the list, the request cannot be accommodated. The
Network Control Center personnel will take the call, record the
caller's name and phone number along with facts concerning the
assistance and support needed. The caller will then be given the
number of the " Assistance Ticker." Upon completion of work, this
"Assistance Ticket" will be given to Supplier's Accounting
Department, and the Customer will subsequently be billed based
upon the information on that ticket, A copy will be attached to
the invoice. Except for emergencies, Supplier's technicians
cannot be disputed unless requests are made in accordance with
the above call-out procedure.
23. Subject to Laws. This Agreement is subject to, and Customer
agrees to comply with, all applicable federal, state and local
laws and regulations, ruling and orders of governmental agencies,
including, but not limited to the Communications Act of 1934, the
Telecommunications Act of 1996, the Rules and Regulations of the
Federal Communications Commission ("FCC") and state public
utility or service commissions ("PSC"), tariffs and the obtaining
and continuance of any required certification, permit, license,
approval or authorization of the FCC and PSC or any governmental
body, including, but not limited to regulations applying to
feature group termination and Letter of Agencies ("LOA").
24. FCC Permits, Authorization and Fillings. Supplier shall take
all necessary and appropriate steps, as soon as possible, to
procure form the FCC the necessary authorizations, if any, to
deliver Services hereunder to Customer and whatever approvals are
necessary from any other federal or state agency. In the event
that Supplier cannot obtain all necessary federal, state or local
authority to provide Services hereunder, Supplier shall promptly
give written notice thereof to Customer, and such notice shall
constitute termination without liability of either party hereto
of all obligations hereunder.
25. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and
when taken together shall constitute one document.
26. Confidential Information and Non-solicitation. "
Confidential Information" shall mean all information disclosed
in writing by one party to the other party which is clearly
marked "CONFIDENTIAL" by the disclosing party at the time of
disclosure. "Confidential Information" shall also include certain
oral information disclosed by one party to the other party,
provided that the disclosing party designates such information as
confidential at the time of disclosure and gives recipient a
written summary of such information within five business days
after the oral disclosure was made. Notwithstanding the
foregoing, all information concerning the traffic
volume/distribution of Supplier, pricing rates, and customer
lists is hereby deemed to be Confidential Information regardless
of whether it is so identified. The term "Confidential
Information" does not include any information which: (i) was
already known by the receiving party free of any obligation to
keep it confidential at the time of its disclosure by the
disclosing party, (ii) becomes publicly known through no wrongful
act of the receiving party, (iii) is rightfully received from a
third person without knowledge of any confidentiality obligation,
(iv) is independently acquired or developed without violating any
of the obligations under this Agreement, (v) is disclosed to a
third person by the disclosing party without similar
confidentiality restrictions on such third persons rights, or
(vi) is approved for release by written authorization of the
disclosing party. Further, the recipient may disclose
Confidential Information Pursuant to any judicial or governmental
request, requirement or order. The recipient, however, shall
take reasonable steps to give the disclosing party sufficient
prior notice to contest such request, requirement or order.
Confidential Information shall remain the property of the
disclosing party, and shall be returned to the disclosing party
or destroyed upon request of the disclosing party. Supplier may
make such Confidential Information available to its lenders.
Accordingly, in event of a breach or threatened breach of the
foregoing provisions, Supplier shall be entitled to an injunction
or restraining order, in addition to such other rights or
remedies as may be available under this Agreement, at law or in
equity, including but not limited to money damages.
27. Force Majeure. Supplier shall not be liable for any failure
of performance hereunder due to causes beyond its reasonable
control, including, but not limited to: acts of God, fire
explosion, vandalism, cable cut, storm or other similar
catastrophes; any law, order, regulation, direction, action or
request of the United Stated government, or of any other
government, including state and local governments having
jurisdiction over either of the parties, or of any department,
agency, commission, court, bureau, corporation or other
instrumentality of any one or more of said governments, or of any
civil or military authority; national emergencies; insurrections;
riots; wars' or strikes, lock outs, work stoppages or other labor
difficulties.
28. Survival. The covenants and agreements of Customer contained
in this Agreement with respect to payment of amounts due,
confidentiality and indemnification shall survive any termination
of this Agreement. The rights and obligations under this
Agreement shall survive any merger or sale of either party and
shall be binding upon the successors and permitted assigns of
each party.
29. Regulatory. Customer is responsible for payment of, or
reimbursement to Supplier for, Universal Service Fund and
Lifeline Assistance Charges ( Presubscribed line charges) set
forth in the National Exchange Carrier Association (NECA) Tariff
FCC #5, sections 8.5., 8.5.2 and 17.14 (A) & (B), as the same may
be amended from time to time or any successor tariffs or
sections, with respect to any Customer ANI's subscribed to
Supplier. In addition, with respect to the Services, Customer is
responsible for payment of, or reimbursement to Supplier for: (i)
telecommunication relay service charges required by the Americans
with Disabilities Act or otherwise (both federal and state); (ii)
interexchange carrier fees payable to the FCC under the Omnibus
Budget Reconciliation Act of 1993 or otherwise; (iii) payphone
service provider compensation as determined by the FCC in CC
Docket No. 96-128; (iv) universal service fund charges,
intraLATA compensation charges; and (v) other federal or state
fees or charges imposed on Supplier. Supplier will furnish, at
Customer's request, documentation to support the fees or charges
payable by Customer to Supplier pursuant to this Section 29.
Customer shall furnish to Supplier valid and Appropriate tax
exemption certificates for all applicable jurisdictions (federal,
state and local) in which it performs customer billing. Customer
is responsible for properly charging tax to its subscribers and
for the proper and timely reporting and payment of applicable
taxes to the taxing authorities and shall defend and indemnify
Supplier form payment and reporting of all applicable federal,
state and local taxes, including, but not limited to, gross
receipts taxes, surcharges, franchise fees, occupational, excise
and other taxes (and penalties and interest thereon), relating to
the Services. Such indemnification includes costs and expenses
(including reasonable attorney's fees) incurred by Supplier in
setting, defending or appealing any claims or actions brought
against it relating to said taxes. If Customer fails to provide
and maintain the required certificates, Supplier may charge
Customer and Customer shall pay such applicable taxes. The
amounts payable by Customer under this Agreement do not include
any state of local sales or use taxes, or utility taxes, however
designated, which may be levied on the goods and services
provided by Supplier hereunder. With respect to such taxes, if
applicable, Customers shall furnish Supplier with an appropriate
exemption certificate or pay to Supplier, upon timely
presentation of invoices therefore, such amounts thereof as
Supplier may be by law required to collect or pay. Any and all
other taxes, including but not limited to franchise, net or gross
income, license, occupation, and real or personal property taxes,
shall be timely paid by Supplier. Customer shall pay to Supplier
any such taxes that Supplier may be required to collect or pay.
30. Obligations Several and Not Joint. Each party shall be
responsible only for its own performance under the Agreement
(including any attachments, exhibits, schedules or addenda) and
not for that of any other party.
31. Amendments. This Agreement may only be modified or
supplemented by an instrument in writing executed by each party.
32. Miscellaneous. Supplier shall not knowingly use information
received form Customer in order to solicit Services to Customer's
End-Users. In addition, within thirty (30) days of receiving
written notice form Customer concerning a potential End-User of
Customer. Notwithstanding the foregoing in the event of a
"Customer Default" as set forth in Section 9. Of the Xclusive
Services Supplement, this Section 32 shall not apply.
IXC Switched Service Supplement
Xclusive Services
1. Scope. Supplier is authorized: (i) to use its best efforts
(considering the needs of its other customers) to start
provisioning of Services (such services, together with the use of
the IXC Online Software, are referred to as the "Services") to
Customer on or before the Service Commencement Date, which is
scheduled to be the first date of order activation; and (ii) to
act as Customer's agent in placing orders with other carriers in
order to provide telecommunications services, if requested. Usage
charges ("Usage Charges") hereunder shall be based on: (i) the
rates for Services set forth in Exhibit A, as applicable; and
(ii) actual usage of Supplier's network from establishment of a
connection between the calling telephone and the called telephone
to termination, as determined by Supplier.
2. Term. This Agreement is for a term of three (3) years
commencing on the Effective Date, unless extended or earlier
terminated pursuant to its terms. This Agreement shall be
automatically extended at the expiration of the initial term on a
month-to-month basis at Supplier's then current month-to-month
rates unless: (i) earlier terminated; or (ii) written notice is
given by either party at least thirty (30) days before such
expiration that such party does not consent to such extension.
3. Customer Responsibilities.
A. General Duties. Customer shall use its best efforts to
solicit and market the Services in accordance herewith and with
applicable law. Customer shall at all times conduct its efforts
in a commercially reasonable and ethical manner. Customer shall
pay all its expenses in connection with its business and its
performance hereunder. Customer shall provide its own billing and
customer service to its customers ("End-Users"). Customer shall
obtain a letter of agency ("LOA") from each End-User in
compliance with applicable Federal Communications Commission
("FCC") and state regulations, however, Customer must obtain a
signed LOA from each End-User utilizing 300 service. Customer
shall retain the signed LOA's and promptly make originals
available upon request of Supplier, any local exchange carrier
("LEC") or any regulatory agency. Customer shall be responsible
for LEC Primary Interexchange Carrier change charges ("PlC
Charges") that may be imposed on Supplier as a result of End-
Users moving onto or off of the Supplier's network. In the event
of a dispute regarding a transfer to the Supplier's network,
including, but not limited to those resulting from Customer's
inability or refusal to provide original End-User LOA's when
requested, Customer shall pay Supplier such PlC Charges, and any
other expenses or damages suffered by Supplier relating to any
such transfer. To the extent Customer makes any statements or
representations to third parties (including End-Users) with
regard to Supplier, the Services, or the terms hereof, such
statements or representations shall be true and not misleading.
When applicable, Customer will be responsible for notifying each
End-User, in writing (or by any other means approved by the FCC
that: (i) a transfer charge will be reflected on such End-User's
LEC bill for effecting a change in primary interexchange
carriers, (ii) the entity name under which such End-User's
interstate, intrastate and/or operator services will be billed
(if different from Customer), and (iii) the "primary" telephone
number(s) to be used for maintenance and questions concerning
such End-User's long distance service and/or billing. Customer
shall send Supplier a copy of the documentation Customer uses to
satisfy the above requirements promptly upon request. Supplier
may change the foregoing requirements at any time in order to
conform with applicable FCC and state regulations.
Notwithstanding the foregoing, however, Customer shall be solely
responsible for ensuring that the transfer of End-Users to the
Supplier's network conforms with applicable FCC and state
regulations, including, without limitation, the regulations
established by the FCC with respect to verification of orders for
long distance service generated by telemarketing.
B. Volume Forecasts. Prior to the Service Commencement Date
and by the end of each quarter thereafter, Customer shall provide
Supplier with forecasts covering a good faith estimate of the
monthly traffic volume and distribution for the ordered Services
for the next three calendar months. Supplier shall provide
Customer with any information reasonably requested to help
Customer with its forecasts. The forecasts are to be in the
format attached hereto as Exhibit B.
C. Certification. Customer shall provide Supplier with a
written certification (the "Certification") of the percentage of
interstate (including international) and intrastate minutes of
use relevant to the minutes of traffic to be terminated in the
same state in which the Supplier HUB is located to which the
Service Interconnection is made. This Certification is attached
as Exhibit E and shall be provided by Customer prior to
commencement of Service for any Service Interconnection. It shall
be updated from time to time: (i) as desired by Customer; or (ii)
upon request of Supplier made no more than once each calendar
quarter. Any such modification or Certification shall be
effective as of the first day of the calendar month following
forty-five days notice to Supplier from Customer. In the event
Customer fails to make such Certification, the relevant minutes
of use will be deemed to be subject to the Intrastate Rates
provided for in the Exhibit A. In the event Supplier or any other
third party requires an audit of Supplier's interstate/intrastate
minutes of traffic, Customer agrees to cooperate in such audit at
its expense and make its call detail records, billing systems and
other necessary information reasonably available to Supplier or
any third party solely for the purpose of verifying Customer's
interstate/intrastate minutes of traffic. Customer agrees to
indemnify Supplier for any liability Supplier incurs in the event
Customer's Certification is not supported by such audit.
4. Excluded ANIs. Supplier has the right to reject any
automatic number identifier ("ANI") supplied by Customer for any
of the following reasons: (i) Supplier is not authorized to
provide or does not provide long distance services in the
particular jurisdiction in which the ANT is located; (ii) a
particular ANT submitted by Customer is not in compliance with
Supplier's then-current format, which shall be made available to
Customer upon request; (iii) Customer is not certified to provide
long distance services in the jurisdiction in which the ANI is
located; (iv) Customer is in default of this Agreement; (v)
Customer fails to cooperate with Supplier in implementing
reasonable verification processes determined by Supplier to be
necessary or appropriate in the conduct of business; or (vi) any
other circumstance reasonably determined by Supplier which
could adversely affect Supplier's performance under this
Agreement or Supplier's general ability to transfer its other
customers or other End-Users to the Supplier's network, including
without limitation, Supplier's ability to electronically effect
PTC changes with the LEC's. However, whether or not Supplier is
electronically connected to the LEC's, Supplier shall issue PlC
orders on behalf of Customer. In the event Supplier rejects an
ANI, Supplier will use its best efforts to notify Customer within
forty-eight hours of its decision specifically describing the
rejected ANI and the reason(s) for rejecting that ANT. Further,
any ANI requested by Customer for Service may be deactivated by
Supplier after five days written notice to Customer if no Service
billings relevant thereto have been generated in any prior period
of three (3) consecutive calendar months.
5. Records. Customer will maintain documents and records
supporting Customer's re-sale of Service, including, but not
limited to, appropriate and valid LOAs from End-Users for a
period of not less than twelve (12) months or such other longer
period as may be required by applicable law, rule or regulation.
Customer shall indemnify Supplier for any costs, charges or
expenses incurred by Supplier arising from disputed PlC
selections involving Service to be provided to Customer for which
Customer cannot produce an appropriate LOA relevant to the ANI
and PlC Charge in question, or when Supplier is not reasonably
satisfied that the validity of a disputed LOA has been resolved.
6. Fraudulent Calls. Customer shall indemnify and hold
Supplier harmless from all costs, expenses, claims or actions
arising from fraudulent calls of any nature which may comprise a
portion of the Service to the extent that the party claiming the
call(s) in question to be fraudulent is (or had been at the time
of the call) an End-User of the Service through Customer or an
End-User of the Service through Customer's distribution channels.
Customer shall not be excused from paying Supplier for Service
provided to Customer or any portion thereof on the basis that
fraudulent calls comprised a corresponding portion of the
Service. In the event Supplier discovers fraudulent calls being
made (or reasonably believes fraudulent calls are being made),
nothing contained herein shall prohibit Supplier from taking
immediate action that is reasonably necessary to prevent such
fraudulent calls from taking place, including without limitation,
denying Service to particular ANI's or terminating Service to or
from specific locations. Supplier shall use reasonable efforts to
notify Customer in the event Supplier takes action upon discovery
of fraudulent calls. In the event Customer discovers fraudulent
calls being made (or reasonably believes fraudulent calls are
being made), Customer shall notify Supplier as soon as possible
at 1-800-353-3678.
7. Rates Changes.
A. Supplier reserves the right to modify charges for
international service upon 7 days notice to the customer.
B. RBOC Termination/Origination. Following the Service
Commencement Date for Xclusive Origination Service (e.g. Switched
1+, Dedicated 8XX), Customer will maintain at least 80% of the
originating minutes of domestic United States traffic (during any
calendar month or pro-rata portion thereof) in a Regional Bell
Operating Company (RBOC). Supplier shall have the right to apply
a $0.05 per minute surcharge to the number of originating minutes
which Non-RBOC origination exceeds 20% of the total monthly
service and a $0.10 per minute surcharge to the number of
originating minutes which exceeds 50% of total monthly service.
Following the Service Commencement Date for Xclusive Termination
Service (e.g. Switched 800, XPIN, Dedicated 1+), Customer will
maintain at least 80% of the terminating minutes of domestic
United States traffic (during any calendar month or pro-rata
portion thereof) in a Regional Bell Operating Company (RBOC).
Supplier shall have the right to apply a $0.05 per minute
surcharge to the number of terminating minutes which Non-RBOC
termination exceeds 20% of the total monthly service and a $0.10
per minute surcharge to the number of terminating minutes which
exceeds 50% of total monthly service.
Non-RBOC Origination or Termination is defined as any
NPA.NXX.XXXX not owned by the following Operating Company
Numbers:
9102 NEW ENGLAND TEL&TEL
9104 NEW YORK TEL CO
9206 BELL ATLANTIC NJ
9208 BELL ATLANTIC PA
9211 BELL ATLANTIC DC
9212 BELL ATLANTIC MD
9213 BELL ATLANTIC VA
9214 BELL ATLANTIC WV
9321 OHIO BELL TEL CO
9323 MICHIGAN BELL TEL CO
9325 INDIANA BELL TEL CO
9327 WISCONSIN TEL CO
9329 ILLINOIS BELL TEL CO
9417 SOUTHERN BELL TEL CO
9419 SOUTH CENTRAL BELL
9533 SOUTHWESTERN BELL
9631 NORTHWESTERN BELL
9636 MOUNTAIN BELL TEL CO
9638 PACIFIC NORTHWEST BELL
9740 PACIFIC BELL
8. Invoice & Rates.
A. Due Date. Usage Charges are billed and payable following the
period in which actual usage has been incurred. All Usage Charges
contained in this Agreement are calculated according to the rates
set forth in Exhibit A, attached hereto.
B. Monthly Commitment: Customer shall have a twelve (12) month
period (the "Ram-up Period") beginning as of the Effective Date
to purchase Services hereunder of at least $1.5 Million per month
("the Monthly Commitment Level") During the Ramp-Up Period,
Customer shall have a "take or pay" commitment of' (I)
$300,000.00 leer month commencing on the first day of the month
following three (3) months from the Effective Date and continuing
until the end of the fifth complete calendar month after the
Effective Date, (ii) S750,000.00 per month, commencing on the
first day of the month following six (6) months from thc
Effective Date and continuing until the end of the eighth
complete calendar month after thc Effective Date; (Iii) $1
million leer month, commencing on the first day of the month
following nine (9) months from the Effective Date and continuing
until the end of the eleventh complete calendar month after the
Effective Date; and (v) $1.5 million per month, commencing on thc
first day of the month following twelve (12) months from the
Effective Date and continuing thereafter through the term of this
Agreement, Customer shall have a "take or pay" commitment in the
amount of the Monthly Commitment Level. As used herein, a 'take
or pay" commitment means that Customer has the obligation to pay
for Services hereunder; During the Ramp-Up period, however,
Customer shall only be invoiced for actual Usage Charges, based
upon the rates in Exhibit A. Commencing on the First day of the
twelfth month after the Effective Date, Customer shall have a
"take or pay" commitment in the amount of the Monthly Commitment
Level. As used herein, a "take or pay" commitment means that
Customer has obligation to pay for Services hereunder (at the
same time as payment is or would be due for Service for such
month) in such amount for each month during such periods, whether
or not such Service is actually used, excluding, without
limitation, service charges, interest, installation costs, local
loops and nonrecurring charges. Subject to the terms and
conditions herein, Customer shall pay for Services hereunder at
the rates reflected in Exhibit
9. Calculation of Call Duration. Supplier will calculate call
duration for Call Detail Records ("CDR's") which will be sent to
Customer by Supplier for Customer' to rebill Customer's End-
Users, based upon the then-current IXC On-line software
Specifications, Customer will be billed according to the rates in
the attached exhibits based on call duration of each CDR. Call
duration for termination services will he from answer Supervision
of the called party to disconnect. Call duration for 8XX'
origination service will be from trunk seizure of the Customer's
platform to disconnect. CDR's, upon request by Customer will be
sent by Supplier within live (5) business days from the end of
the month In which service is rendered. Customer shall choose to
have the CDR's delivered either by electronic transmission or by
CD ROM and shall pay for such delivery according to the Schedule
set forth in Exhibit A. CDR's shall be male available for up to
one (1) year from the date of service. The information format of
the CDR's is included in the User Guide and is subject an change
from time to time at Supplier's sole discretion.
10. Customer Default: In the even: of a "Customer Default", upon
notice to Customer, Supplier may (in addition to such other
rights or remedies as Supplier may have under this Agreement, at
law or in equity), at its sole option do any or all of the
following: (i) suspend Services to Customer until such time as
such circumstance is corrected (provided Supplier shall not be
prohibited from terminating this Agreement after suspending
Services); (ii) cease accepting or processing orders for
services; (iii) withhold delivery of CDR's; (iv) draw on any
security deposit or other assurance of payment submitted under
this Agreement; (v) terminate this Agreement without liability to
Supplier, which termination may include Immediate cancellation of
the Services; (vi) directly contact the End-Users to inform them
that their long distance service will no longer be provided
through Customer, but may he continued through Supplier directly;
(vii) bill and collect from such End-Users directly (or through
its billing agents) for services provided by Supplier an them;
(viii) treat such End-Users as Supplier customers for all
purposes; (ix) require Customer to use its reasonable efforts to
cause part or all of Customer's carrier identification codes and
End-Users to be re-directed to the Supplier network; or (x)
pursue such other remedy or relief as may be appropriate.
"Customer Default" shall mean Customer: (i) breaches any material
provision of this Agreement, including, but not limited to, the
provision regarding payment, and does not cure such breach within
thirty days (five days with respect to the first three payment
breaches and no notice period with respect to any three payment
breach) of notice thereof by Supplier; or (ii) files or initiates
proceedings or has proceedings filed or initiated against it,
relating to its liquidation, insolvency, reorganization or other
relief (such as the appointment of a trustee, receiver',
liquidator, custodian or other official) under any bankruptcy,
insolvency or other similar law or makes an assignment for the
benefit of its creditors or enters into an agreement for the
composition, extension or readjustment of its obligation in
connection with the foregoing. Supplier shall have the right to
review Customer's credit at any time during the Term of this
Agreement, and to require an additional cash deposit, or other
security satisfactory to Supplier. If Customer uses the Services
for any unlawful purpose or in any unlawful manner, Supplier
shall have the right to suspend any or all services hereunder to
Customer until the unlawful use ceases. Notwithstanding anything
herein to the contrary, no termination shall affect or reduce
Customer's obligation to make the "take or party commitment"
payments required herein.
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