As filed with the Securities & Exchange Commission on January 3, 2000
Registration No. 333-87887
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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WEBB INTERACTIVE SERVICES, INC.
(Exact name of issuer as specified in its charter)
Colorado 84-1293864
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1800 Glenarm Place, Suite 700
Denver, Colorado 80202
(303) 296-9200
(Address and telephone number of principal executive offices)
-------------------------
R. Steven Adams
Webb Interactive Services, Inc.
1800 Glenarm Place, Suite 700
Denver, Colorado 80202
(303) 296-9200
(Name, address and telephone number of agent for service)
Copy to:
Lindley S. Branson
Steven J. Price
Gray, Plant, Mooty, Mooty & Bennett, P.A.
33 South Sixth Street
3400 City Center
Minneapolis, Minnesota 55402
(612) 343-2800
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Title of securities to Amount to be Proposed maximum Proposed maximum aggregate Amount of
be registered registered offering price (1) offering price (1) registration fee
- ------------------------ --------------------- ---------------------- ---------------------------- --- -------------------
Common Stock, no par
value (1) 1,129,568 (2) $11.625 $13,131,228 $3,650.48*
- -------------------------------
* Previously paid.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of Regulation C as of the close of the market on
September 21, 1999.
(2) Common stock issuable by Webb (i) upon exercise of stock purchase warrants
(273,038 shares); (ii) upon conversion of an outstanding promissory note
in the principal amount of $5,000,000 (the "Note"); and (iii) which may be
issued in payment of interest on the Note or upon the conversion of
similar notes issued to pay the interest on the Note. The shares include
any additional shares issued to prevent dilution resulting from stock
splits, stock dividends or similar transactions. The number of shares
included in this registration is sufficient to cover potential conversions
of the Note so long as the conversion price is approximately $6.00 or
more. The current conversion price is $10.07.
-------------------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION, DATED JANUARY 3, 2000 PROSPECTUS
WEBB INTERACTIVE SERVICES, INC.
This is a public offering of a maximum of 1,129,568 shares of common
stock of Webb Interactive Services, Inc. The shares include up to (i) 856,530
shares which are reserved for issuance upon conversion of a 10% promissory note
in the principal amount of $5,000,000 and the payment of interest on the note
and (ii) 273,038 shares issuable upon exercise of transferable stock purchase
warrants.
The selling shareholder is offering all of the shares to be sold. We
will not receive any of the proceeds from the offer and sale of the shares,
however, 273,038 of the shares offered by the selling shareholder are issuable
upon the exercise of outstanding stock purchase warrants of Webb at exercise
prices of $11.44 and $18.51 per share. If these warrants were exercised in full,
we would receive gross proceeds of $4,088,198.
The Nasdaq SmallCap Market lists our common stock under the symbol
WEBB.
Investing in our common stock involves risks. You should not purchase
our common stock unless you can afford to lose your entire investment. See "Risk
Factors" beginning on page 3 of this prospectus.
Because the selling shareholder will offer and sell the shares at
various times, we have not included in this prospectus information about the
price to the public of the shares or the proceeds to the selling shareholder.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed on the
adequacy of the disclosures in this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is ________ __, 2000
WEBB INTERACTIVE SERVICES, INC.
Webb Interactive Services, Inc. (Nasdaq: WEBB) ("Webb") develops next
generation Internet applications for unlocking the potential of local market
e-commerce. We believe that two of the biggest opportunities in the local online
marketplace are simplifying the ability to drive customers to local businesses'
web sites and enabling customers to quickly find what they want. We are
developing XML-based technologies that facilitate buyer-seller interaction and
enable individuals and local businesses to easily manage their web-based
communications.
To date, we have generated revenues through the sale of design and
consulting services for Web site development and network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and Web sites, license fees based on a percentage of revenues from our products
and services, training course fees, and monthly fees paid by customers for
Internet access which we have provided. We commenced sales in February 1995 and
have incurred losses from operations since inception. At September 30, 1999, we
had an accumulated deficit of $35,816,498. The reports of our independent public
accountants for the years ended December 31, 1998 and 1997 contained a paragraph
noting substantial doubt regarding our ability to continue as a going concern.
Based on our current projections, we have cash on hand which will allow
us to operate through February 2000. Accordingly, we will need to raise
additional capital, which could involve the issuance of dilutive equity
securities and/or reduce our operating activity to conserve cash.
Prior to the third quarter of 1997, our focus generally was on three
markets: general Web site development, maintenance and hosting; rural or small
market Internet service providers ("ISPs"); and healthcare information services
and continuing medical education. Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized Web sites. As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities and more recently, the development of Internet
applications that simplify and support e-commerce transactions in local markets.
We are organized into two business units. First, in the local commerce
segment, we target small and medium sized enterprises with our AccelX(TM)
product line supporting XML-based publishing and buyer-seller interaction. This
business unit offers its services on a private-labeled, application services
basis through high volume distribution partners. On June 30, 1999, we entered
into our first such agreement for the local commerce market with CBS
Switchboard, a leading online directory service. This agreement provides for
monthly revenues from each local business web site created by Switchboard
utilizing our technology.
The Kelsey Group estimates that the number of U.S. based local
businesses that are active advertisers and have a web presence will increase to
5.2 million in 2004. According to Forrester Research, local online sales are
projected to grow from $680 million in 1998 to $6.1 billion in 2003 and
local-only advertising dollars spent in support of these web site activities are
projected to balloon from $135 million in 1998 to $1.7 billion in 2003.
Our second business unit, electronic banking applications, targets
credit unions, community banks, and savings and loan institutions with a full
line of e-banking transaction processing and account management services. We are
developing a tailored version of our merchant-based interaction services to
provide financial institutions with services that will allow them to market
their products and services as enhancements to other e-banking services. In
addition to monthly recurring revenues from service and transaction fees, we
receive a one-time set-up fee from each financial institution. We distribute our
e-banking services on a private label basis through distribution partners, the
most significant of which is the CU Cooperative Systems, Inc., a credit union
cooperative made up of more than 650 credit unions with over 8 million members.
International Data Corporation estimates that there were approximately
3.4 million users banking over the Internet in the United States at the end of
1998 and projects that that number will increase to over 37 million by 2003. Our
primary market is financial institutions having less than $500 million in
assets. It is estimated that in excess of 90% of the over 10,000 FDIC-insured
financial institutions and all but a few of the over 11,000 credit unions,
including both federally and state chartered credit unions, have less than $500
million in assets.
Our strategy is to grow our local commerce and e-banking businesses by:
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* Delivering first mover, expert technical solutions capitalizing on our
expertise in online communities and communication;
* Securing additional distribution partnerships to rapidly expand the
deployment of our technologies;
* Creating and innovating, value-added services to enhance buyer-seller
interaction; and
* Developing strategic alliances in order to more rapidly gain market share.
During the first nine months of 1999, we acquired privately held Durand
Communications, Inc. and NetIgnite, Inc.
We were incorporated under the laws of the State of Colorado on
March 22, 1994. Our executive offices are located at 1800 Glenarm Place, Suite
700, Denver, Colorado 80202, telephone number (303) 296-9200.
RECENT EVENTS
In order to fund operations throughout fiscal 2000, we have borrowed
$5,000,000 pursuant to a three-year convertible promissory note bearing interest
at the rate of 10% per annum and obtained a commitment for an additional $10
million investment which we expect to complete early in the first quarter of
2000. The new investment is to be in the form of the purchase of shares of our
Series B Convertible Preferred Stock and stock purchase warrants.
Promissory Note
On August 25, 1999, we issued to the selling shareholder a three-year
convertible promissory note in the amount of $5 million and a five-year warrant
representing the right to acquire 136,519 shares of our common stock at an
exercise price of $11.44 per share in consideration for which the selling
shareholder loaned us $5 million. On December 18, 1999, we amended the terms of
the promissory note and issued to the selling shareholder a second five-year
warrant representing the right to acquire 136,519 shares of our common stock at
an exercise price of $18.51 per share. The note is convertible at a conversion
price of $10.07 per share. This would result in the issuance of 496,524 shares
of our common stock if the note were fully converted today. If we complete a
financing by March 22, 2000, of $10 million or more in which the selling
shareholder has a right to invest $5 million, the conversion price will remain
at $10.07 per share until at least September 30, 2000, at which time the
conversion price will be adjusted if the average of the closing bid prices for
our common stock during the period from September 1, 2000 to September 29, 2000,
is less than $10.07. In this event the conversion price would be fixed at the
greater of the average of the closing bid prices during this period or $8.00.
If the additional $10 million financing is not completed by March 22,
2000, the conversion price after March 22, 2000, will be the lower of $10.07 per
share or the variable conversion price. The variable conversion price is the
average of the five lowest closing bid prices for our common stock during the 15
trading days prior to conversion. We have the right to force the conversion of
$2,500,000 principal amount of the note if the average closing bid price for our
common stock during the 15-day period following the date of this prospectus is
at least $12.50.
Series B Convertible Preferred Stock.
On December 31, 1999, we obtained a commitment from investors,
including the selling shareholder, for a proposed purchase of 10,000 shares of
our Series B Convertible Preferred Stock. The commitment is subject to the
registration stastement of which this prospectus is a part being made effective
by the SEC by February 1, 2000, and there being no material adverse changes in
Webb's business prior to the completion of the financing. The purchase price for
the preferred stock is $1,000 per share for an aggregate purchase price of $10
million.
The preferred stock will be convertible into shares of our common
stock, initially at a conversion price equal to the lower of (i) the average of
the 10-day closing bid prices for our common stock immediately prior to the date
we sell the preferred stock to the investors or (ii) $20.0. The conversion rate
for the preferred stock will be subject to potential resets. The first will be
on the date that a registration statement relating to the common stock issuable
upon conversion of the preferred stock is declared effective by the SEC and the
second will be on the later of nine months after the sale of the preferred stock
or three months after the effective date of the registration statement. The
adjustment price on
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each such date shall be the then market price for our common stock if lower than
the then effective conversion price but will not be less than $8.00 per share.
Based on the current market price for our common stock, we estimate
that the preferred stock will be convertible into from a minimum of
approximately 500,000 to a maximum of approximately 1,250,000 shares of our
common stock. For every share of common stock initially issuable upon conversion
of the preferred stock, the investors will also receive a warrant representing
the right to acquire .55 shares of our common stock at an exercise price
initially set at 101% of the initial conversion price of the preferred stock.
The exercise price for the warrants will be subject to being reset based upon
future market prices for our common stock. The warrants are to be for a term of
five years. We estimate that the warrants will represent the right to acquire up
to approximately 300,000 shares of our common stock.
RISK FACTORS
Our limited operating history could affect our business. We were
founded in March 1994 and commenced sales in February 1995. Accordingly, we have
a limited operating history upon which you may evaluate us. Our business is
subject to the risks, expenses and difficulties frequently encountered by
companies with a limited operating history including:
* Limited ability to respond to competitive developments,
* Exaggerated effect of unfavorable changes in general economic and
market conditions,
* Ability to attract qualified personnel, and
* Ability to develop and introduce new product and service offerings.
There is no assurance we will be successful in addressing these risks. If we are
unable to successfully address these risks our business could be significantly
affected.
We have accumulated losses since inception and we anticipate that we
will continue to accumulate losses for the foreseeable future. We have incurred
net losses since inception totaling $35,816,498 through September 30, 1999. In
addition, we expect to incur additional substantial operating and net losses in
1999 and for one or more years thereafter. We expect to incur these additional
losses because:
* We currently intend to increase our capital expenditures and
operating expenses to expand the functionality and performance of
our products and services,
* We recorded goodwill and other intangible assets in connection with
the DCI and NetIgnite acquisitions which will be amortized over
their estimated useful lives of approximately three years. We have
allocated approximately $15 million to goodwill and other intangible
assets in connection with these acquisitions.
Net losses since inception include approximately $14.6 million of
non-cash expenses related to the issuance of preferred stock and warrants in
financing transactions, stock and stock options issued for services, warrants
issued to four customers and interest expense on the 10% convertible note
payable. We will be required to record significant additional non-cash charges
in connection with the recent amendment to the terms of the note which could
exceed $12 million. The current competitive business environment is expected to
result in our issuance of similar securities in future financing transactions or
to other companies as an inducement for them to enter into a business
relationship with us. The proposed issuance of $10 million of our preferred
stock with warrants described under "Recent Events - Series B Convertible
Preferred Stock," will, if completed in accordance with the terms of the
commitment, result in significant non-cash charges which could be as much as or
more than the purchase price for the preferred stock. While these transactions
represent non-cash charges, they will increase our expenses and net loss and our
net loss available to common shareholders..
If we are unable to raise additional working capital funds, we may not
be able to sustain our operations. We believe that our present cash and cash
equivalents, working capital and commitments for additional equity investments
will be adequate to sustain our current level of operations only through
February 2000. We estimate that we will need to raise through equity, debt or
other external financing at least $8 million to sustain operations for the next
12 months. While we have obtained a commitment for the purchase of $10 million
stated amount of our preferred stock, the commitment is subject to certain
conditions and there is no assurance that we will be able to
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raise additional funds in amounts required or upon acceptable terms. In
addition, we may discover that we have underestimated our working capital needs,
and we may need to obtain additional funds to sustain our operations. If we
cannot raise additional funds when needed, we may be required to curtail or
scale back our operations. These actions could have a material adverse effect on
our business, financial condition, or results of operations. In its report
accompanying the audited financial statements for the years ended December 31,
1998 and 1997, our auditor, Arthur Andersen LLP, expressed substantial doubt
about our ability to continue as a going concern.
We may never become or remain profitable. Our ability to become
profitable depends on the ability of our products and services to generate
revenues. The success of our revenue model will depend upon many factors
including:
* The success of our distribution partners in marketing their
products and services, and
* The extent to which consumers and businesses use our products and
conduct e-commerce transactions and advertising utilizing our
products.
Because of the new and evolving nature of the Internet, we cannot
predict whether our revenue model will prove to be viable, whether demand for
our products and services will materialize at the prices we expect to be
charged, or whether current or future pricing levels will be sustainable.
Additionally, our customer contracts may result in significant development
revenue in one quarter, which will not recur in the next quarter for that
customer. As a result, it is likely that certain components of our revenue will
be volatile, which may cause our stock price to be volatile as well.
Our business depends on the growth of the Internet. Our business plan
assumes that the Internet will develop into a significant source of
communication and communication interactivity. However, the Internet market is
new and rapidly evolving and there is no assurance that the Internet will
develop in this manner. If the Internet does not develop in this manner, our
business, operating results and financial condition would be materially
adversely effected. Numerous factors could prevent or inhibit the development of
the Internet in this manner, including:
* The failure of the Internet's infrastructure to support Internet
usage or electronic commerce,
* The failure of businesses developing and promoting Internet
commerce to adequately secure the confidential information, such as
credit card numbers, needed to carry out Internet commerce, and
* Regulation of Internet activity
Use of many of our products and services will be dependent on
distribution partners. Because we have elected to partner with other companies
for the distribution of many of our products and services, many users of our
products and services are expected to utilize our products through our
distribution partners. As a result, our distribution partners, and not us, will
substantially control the customer relationship with these users. If the
business of the companies with whom we partner is adversely affected in any
manner our business, operating results and financial condition could be
materially adversely affected.
We may be unable to develop desirable products. Our products are
subject to rapid obsolescence and our future success will depend upon our
ability to develop new products and services that meet changing customer and
marketplace requirements. There is no assurance that we will be able to
successfully:
* Identify new product and service opportunities, or
* Develop and introduce new products and services to market in a
timely manner.
If we are unable to accomplish these items, our business, operating
results and financial condition could be materially adversely affected.
Our products and services may not be successful. Even if we are able to
successfully identify, develop, and introduce new products and services there is
no assurance that a market for these products and services will materialize to
the size and extent that we anticipate. If a market does not materialize as we
anticipate, our business, operating results, and financial condition could be
materially adversely affected. The following factors could affect the success of
our products and services:
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* The failure of our business plan to accurately predict the rate at
which the market for Internet products and services will grow,
* The failure of our business plan to accurately predict the types
of products and services the future Internet marketplace will
demand,
* Our limited experience in marketing our products and services,
* The failure of our business plan to accurately predict our future
participation in the Internet marketplace,
* The failure of our business plan to accurately predict the
estimated sales cycle, price, and acceptance of our products and
services,
* The development by others of products and services that renders our
products and services noncompetitive or obsolete, or
* Our failure to keep pace with the rapidly changing technology,
evolving industry standards, and frequent new product and service
introductions that characterize the Internet marketplace.
The intense competition that is prevalent in the Internet market could
have a material adverse effect on our business. Our current and prospective
competitors include many companies whose financial, technical, marketing and
other resources are substantially greater than ours. There is no assurance that
we will have the financial resources, technical expertise, or marketing, sales
and support capabilities to compete successfully. The presence of these
competitors in the Internet marketplace could have a material adverse effect on
our business, operating results, or financial condition by causing us to:
* Reduce the average selling price of our products and services, or
* Increase our spending on marketing, sales and product development.
There is no assurance that we would be able to offset the effects of
any such price reductions or increases in spending through an increase in the
number of our customers, higher sales from premium services, cost reductions or
otherwise. Further, our financial condition may put us at a competitive
disadvantage relative to our competitors. If we fail to, or cannot, meet
competitive challenges, our business, operating results and financial condition
could be materially adversely affected.
A limited number of our customers generate a significant portion of our
revenues. We had four customers representing 79% of revenues for the September
30, 1999 three-month period and three customers representing 71% of net revenues
for the similar 1998 period. We had five customers representing 76% of revenues
for the September 30, 1999 nine-month period and four customers representing 76%
of revenues for the similar 1998 period. There is no assurance that we will be
able to attract or retain major customers. The loss of, or reduction in demand
for products or related services from major customers could have a material
adverse effect on our business, operating results, cashflow, and financial
condition.
The sales cycle for our products and services is lengthy and
unpredictable. While our sales cycle varies from customer to customer, it
typically has ranged from one to six months. Our pursuit of sales leads
typically involves an analysis of our prospective customer's needs, preparation
of a written proposal, one or more presentations and contract negotiations. We
often provide significant education to prospective customers regarding the use
and benefits of our Internet technologies and products. Our sales cycle may also
be affected by a prospective customer's budgetary constraints and internal
acceptance reviews, over which we have little or no control. In order to quickly
respond to, or anticipate, customer requirements, we may begin development work
prior to having a signed contract, which exposes us to the risk that the
development work will not be recovered from revenue from that customer.
We may be unable to adjust our spending to account for potential
fluctuations in our quarterly results. As a result of our limited operating
history, we do not have historical financial data for a sufficient number of
periods on which to base planned operating expenses. Therefore, our expense
levels are based in part on our expectations as to future sales and to a large
extent are fixed. We typically operate with little backlog and the sales cycles
for our products and services may vary significantly. As a result, our quarterly
sales and operating results generally depend on the volume and timing of and the
ability to close customer contracts within the quarter, which are difficult to
forecast. We may be unable to adjust spending in a timely manner to compensate
for any unexpected sales shortfalls. If we were unable to so adjust, any
significant shortfall of demand for our products and services in relation to our
expectations would have an immediate adverse effect on our business, operating
results and financial
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condition. Further, we currently intend to increase our
capital expenditures and operating expenses to fund product development and
increase sales and marketing efforts. To the extent that such expenses precede
or are not subsequently followed by increased sales, our business, operating
results and financial condition will be materially adversely affected.
We may be unable to retain our key executives and research and
development personnel. Our future success also depends in part on our ability to
identify, hire and retain additional personnel, including key product
development, sales, marketing, financial and executive personnel. Competition
for such personnel is intense and there is no assurance that we can identify or
hire additional qualified personnel.
Executives and research and development personnel who leave us may
compete against us in the future. We generally enter into written nondisclosure
and nonsolicitation agreements with our officers and employees which restrict
the use and disclosure of proprietary information and the solicitation of
customers for the purpose of selling competing products or services. However, we
generally do not require our employees to enter into non-competition agreements.
Thus, if any of these officers or key employees left, they could compete with
us, so long as they did not solicit our customers. Any such competition could
have a material adverse effect on our business.
We may be unable to manage our expected growth. If we are able to
implement our growth strategy, we will experience significant growth in the
number of our employees, the scope of our operating and financial systems, and
the geographic area of our operations. There is no assurance that we will be
able to implement in whole or in part our growth strategy or that our management
or other resources will be able to successfully manage any future growth in our
business. Any failure to do so could have a material adverse effect on our
operating results and financial condition.
We may be unable to protect our intellectual property rights.
Intellectual property rights are important to our success and our competitive
position. There is no assurance that the steps we take to protect our
intellectual property rights will be adequate to prevent the imitation or
unauthorized use of our intellectual property rights. Policing unauthorized use
of proprietary systems and products is difficult and, while we are unable to
determine the extent to which piracy of our software exists, we expect software
piracy to be a persistent problem. In addition, the laws of some foreign
countries do not protect software to the same extent as do the laws of the
United States. Even if the steps we take to protect our proprietary rights prove
to be adequate, our competitors may develop products or technologies that are
both non-infringing and substantially equivalent or superior to our products or
technologies.
Computer viruses and similar disruptive problems could have a material
adverse effect on our business. Our software and equipment may be vulnerable to
computer viruses or similar disruptive problems caused by our customers or other
Internet users. Our business, financial condition or operating results could be
materially adversely effected by:
* Losses caused by the presence of a computer virus that causes us
or third parties with whom we do business to interrupt, delay or
cease service to our customers,
* Losses caused by the misappropriation of secured or confidential
information by a third party who, in spite of our security
measures, obtains illegal access to this information,
* Costs associated with efforts to protect against and remedy
security breaches, or
* Lost potential revenue caused by the refusal of consumers to use
our products and services due to concerns about the security of
transactions and commerce that they conduct on the Internet.
Future government regulation could materially adversely effect our
business. There are currently few laws or regulations directly applicable to
access to, communications on, or commerce on the Internet. Therefore, we are not
currently subject to direct regulation of our business operations by any
government agency, other than regulations applicable to businesses generally.
Due to the increasing popularity and use of the Internet, however, federal,
state, local, and foreign governmental organizations are currently considering a
number of legislative and regulatory proposals related to the Internet. The
adoption of any of these laws or regulations may decrease the growth in the use
of the Internet, which could, in turn:
* Decrease the demand for our products and services,
* Increase our cost of doing business, or
* Otherwise have a material adverse effect on our business, results
of operations and financial condition.
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Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Our business,
results of operations and financial condition could be materially adversely
effected by the application or interpretation of these existing laws to the
Internet.
Our systems may not be year 2000 compliant. We have reviewed our
internal software and hardware systems. Based on this review, we believe that
our internal software and hardware systems will function properly with respect
to dates in the year 2000 and thereafter. We expect to incur no significant
costs in the future for Year 2000 problems. Nonetheless, there is no assurance
in this regard until our internal software and hardware systems are operational
in the year 2000.
Our articles of incorporation and bylaws may discourage lawsuits and
other claims against our directors. Our articles of incorporation provide, as
permitted by Colorado law, that our directors shall have no personal liability
for certain breaches of their fiduciary duties to us. In addition, our bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Colorado law. These provisions may reduce the likelihood of
derivative litigation against directors and may discourage shareholders from
bringing a lawsuit against directors for a breach of their duty.
The price of our common stock has been highly volatile due to factors
that will continue to effect the price of our stock. Our common stock traded as
high as $23.25 per share and as low as $8.00 per share between January 1, 1999
and December 23, 1999. Historically, the over-the-counter markets for securities
such as our common stock have experienced extreme price and volume fluctuations.
Some of the factors leading to this volatility include:
* Price and volume fluctuations in the stock market at large that do
not relate to our operating performance,
* Fluctuations in our quarterly revenue and operating results,
* Announcements of product releases by us or our competitors,
* Announcements of acquisitions and/or partnerships by us or our
competitors, and
* Increases in outstanding shares of common stock upon exercise or
conversion of derivative securities.
These factors may continue to affect the price of our common stock in
the future.
We have issued numerous options, warrants, and convertible securities
to acquire our common stock that could have a dilutive effect on our
shareholders. As of December 23, 1999, we had issued warrants and options to
acquire 3,491,062 shares of our common stock, exercisable at prices ranging from
$1.63 to $18.51 per share, with a weighted average exercise price of
approximately $10.36 per share. In addition to these warrants and options, we
have reserved an indeterminate and potentially unlimited number of shares of
common stock for issuance upon conversion of outstanding shares of our 10%
preferred stock and 10% convertible note. During the terms of these derivative
securities, the holders will have the opportunity to profit from either an
increase or, in the case of the preferred stock and note, decrease in the market
price of our common stock with resulting dilution to the holders of shares who
purchased shares for a price higher than the respective exercise or conversion
price. In addition, the increase in the outstanding shares of our common stock
as a result of the exercise or conversion of these derivative securities, which
could be unlimited, could result in a significant decrease in the percentage
ownership of our common stock by the purchasers of our common stock.
The potentially unlimited number of shares issuable upon conversion of
our 10% preferred stock and 10% convertible note could make it difficult to
obtain additional financing. Due to the potentially unlimited number of shares
of our common stock which could result from a conversion of our 10% preferred
stock or 10% convertible note, new investors may either decline to make an
investment in Webb due to the potential negative
8
effect this additional dilution could have on their investment or require that
their investment be on terms at least as favorable as the terms of the 10%
preferred stock or 10% convertible note. If we are required to provide similar
terms to obtain required financing in the future, the potential adverse effect
of these existing financings could be perpetuated and significantly increased.
Future sales of our common stock in the public market could adversely
affect the price of our common stock. Sales of substantial amounts of common
stock in the public market that is not currently freely tradable, or even the
potential for such sales, could have an adverse affect on the market price for
shares of our common stock and could impair the ability of purchasers of our
common stock to recoup their investment or make a profit. As of December 23,
1999, these shares consist of:
* Approximately 770,000 shares owned by our officers and directors
of our outstanding common stock ("Affiliate Shares");
* Approximately 1,582,000 shares issued and issuable to former
shareholders and warrant and option holders of Durand
Communications, Inc. and for services rendered offered pursuant to
a registration statement declared effective by the SEC on
September 27, 1999;
* An indeterminate and potentially unlimited number of shares
issuable upon conversion of the 10% preferred stock and 10%
convertible note; and
* Approximately 3,372,000 shares issued and issuable to warrant and
option holders (other than those owned by the former shareholders
and warrant and option holders of Durand Communications, Inc.)
In addition, we have obtained a commitment for the purchase of 10,000
shares of our Series B Convertible Preferred Stock with warrants attached. If
the transaction is completed as contemplated, we estimate, based on the current
market price for our common stock, that the preferred stock will be convertible
into from a minimum of approximately 500,000 to a maximum of approximately
1,250,000 shares of our common stock. In adidtion we estimate that the warrants
would entitle the holders to purchase up to approximately 300,000 shares of our
common stock.
Unless the Affiliate Shares are further registered under the
securities laws, they may not be resold except in compliance with Rule 144
promulgated by the SEC, or some other exemption from registration. Rule 144 does
not prohibit the sale of these shares but does place conditions on their resale
which must be complied with before they can be resold.
The common stock issuable upon conversion of our preferred stock and
convertible notes may increase as the price of our common stock decreases, which
may adversely affect the price of our common stock. On December 23, 1999, we had
issued and outstanding 85,000 shares of 10% preferred stock and $5,000,000
principal amount of a 10% convertible note. The number of shares of common stock
that may ultimately be issued upon conversion of these securities is presently
indeterminable and potentially unlimited and could fluctuate significantly.
Purchasers of common stock could therefore experience substantial dilution upon
conversion of the preferred stock and convertible note. In addition, the
significant downward pressure on the market price of our common stock could
develop as the holders convert and sell material amounts of common stock which
could encourage short sales by the holders or others, placing further downward
pressure on the market price of our common stock.
To illustrate the potential dilution that may occur upon conversion of
the preferred stock and convertible notes, the following table sets forth the
number of shares of common stock that would be issued upon conversion of the
preferred stock, including accrued dividends, and the principal of the
convertible note if the market price for our common stock is $19.69, the closing
sale price for our common stock on December 23, 1999, and at assumed market
prices of 75%, 50% and 25% of the market price on December 23, 1999. The table
assumes that we have not completed a $10 million financing by March 22, 2000 and
that the conversion price for the notes is therefore the lower of $10.07 per
share or the variable conversion price and shows the aggregate number of shares
which can be issued over the life of the convertible securities at that price.
9
Shares Issued Upon Conversion
-----------------------------------------------------------
Market Price 10% Preferred Stock 10% Notes (Conversion Total (Percentage of
(Conversion Price) Price) Outstanding)
- ---------------------------------- ---------------------------- --------------------------- ----------------------
$19.69 (actual at 12/23/99) 101,936 ($10.00) 496,524 ($10.07) 598,460 (7.1%)
$14.77 (75% of 12/23/99 price) 101,936 ($10.00) 496,524 ($10.07) 598,460 (7.1%)
$9.84 (50% of 12/23/99 price) 129,361 ($7.88) 507,924 ($9.84) 637,285 (7.5%)
$4.92 (25% of 12/23/99 price) 258,722 ($3.94) 1,015,847 ($4.92) 1,274,569 (13.9%)
- ---------------
Pursuant to their terms, the convertible notes and warrants are
convertible or exercisable by any holder only to the extent that the number of
shares thereby issuable, together with the number of shares of common stock
owned by such holder, but not including unconverted or unexercisable shares of
convertible notes or warrants, would not exceed 4.99% of the then outstanding
shares of our common stock as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, unless such conversion is approved by the
majority of the holders of our common stock. While this limits the number of
shares which may be issued upon conversion at any one time, this 4.99% limit
will not prevent any holder from converting all of its convertible notes or
exercising its warrants, because the holder can convert or exercise convertible
notes and warrants into 4.99% of our outstanding common stock, then sell all of
that stock to permit it to engage in further conversions or exercises. As a
result, the 4.99% limit does not prevent the selling shareholder from selling
more than 4.99% of our common stock.
Future sales of our common stock in the public market could limit our
ability to raise capital. Sales of substantial amounts of common stock in the
public market pursuant to Rule 144, upon exercise or conversion of derivative
securities or otherwise, or even the potential for such sales, could affect our
ability to raise capital through the sale of equity securities.
Provisions in our articles of incorporation allow us to issue shares of
stock that could make a third party acquisition of us difficult. Our Articles of
Incorporation authorize our Board of Directors to issue up to 20,000,000 shares
of common stock and 5,000,000 shares of preferred stock in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by our shareholders. Preferred stock
authorized by the Board of Directors may include voting rights, preferences as
to dividends and liquidation, conversion and redemptive rights and sinking fund
provisions. If the Board of Directors authorizes the issuance of preferred stock
in the future, this authorization could affect the rights of the holders of
common stock, thereby reducing the value of the common stock, and could make it
more difficult for a third party to acquire us, even if a majority of the
holders of our common stock approved of an acquisition.
The issuance of our 10% convertible note payable will require us to
record a non-cash expense which will, in turn, increase our net loss available
to common shareholders. Based on current accounting standards, we recorded a
non-cash expense of $638,495 as additional interest expense for the quarter
ended September 30, 1999 as a result of the issuance of our 10% convertible
note. We will record additional non-cash expenses of possibly $12 million or
more during the fourth quarter of 1999 and the the three years ending December
31, 2002 related to this transaction.
We do not anticipate paying dividends on our common stock for the
foreseeable future. We have never paid dividends on our common stock and do not
intend to pay any dividends on our common stock in the foreseeable future. Any
decision by us to pay dividends on our common stock will depend upon our
profitability at the time, cash available therefor, and other factors. We
anticipate that we will devote profits, if any, to our future operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus and the documents
incorporated by reference in this prospectus under the captions "Webb
Interactive Services, Inc." and "Risk Factors" and elsewhere in this prospectus
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to the
safe harbor provisions of the reform act. Forward-looking statements may be
identified by the use of the terminology such as may, will, expect, anticipate,
intend, believe, estimate, should, or
10
continue or the negatives of these terms or other variations on these words or
comparable terminology. To the extent that this prospectus contains
forward-looking statements regarding the financial condition, operating results,
business prospects or any other aspect of Webb, you should be aware that our
actual financial condition, operating results and business performance may
differ materially from that projected or estimated by Webb in the
forward-looking statements. We have attempted to identify, in context, some of
the factors that we currently believe may cause actual future experience and
results to differ from their current expectations. These differences may be
caused by a variety of factors, including but not limited to adverse economic
conditions, intense competition, including entry of new competitors, ability to
obtain sufficient financing to support our operations, progress in research and
development activities, variations in costs that are beyond our control, changes
in capital expenditure budgets for cable companies, adverse federal, state and
local government regulation, inadequate capital, unexpected costs, lower sales
and net income, or higher net losses than forecasted, price increases for
equipment, inability to raise prices, failure to obtain new customers, the
possible fluctuation and volatility of our operating results and financial
condition, inability to carry out marketing and sales plans, loss of key
executives, and other specific risks that may be alluded to in this prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the offer and sale of the
shares, however, 273,038 of the shares offered by the selling shareholder are
issuable upon the exercise of outstanding warrants of Webb at exercise prices of
$11.44 and $18.51 per share. If these warrants were exercised in full, we would
receive $4,088,197 in the aggregate.
SELLING SHAREHOLDER
The common stock covered by this prospectus consists of shares issued
or issuable upon conversion of our $5,000,000 aggregate principal amount of 10%
convertible note due August 25, 2002 and warrants to purchase 273,038 shares of
our common stock. The selling shareholder acquired all of its convertible note
and one-half of the warrants in exchange for a cash investment given to Webb on
August 25, 1999. The remaining warrants were issued to the selling shareholder
on December 18, 1999, in connection with an amendment to the terms of the note.
The number of shares that may be actually sold by the selling
shareholder will be determined by such selling shareholder. Because the selling
shareholder may sell all, some or none of the shares of common stock which it
holds, and because the offering contemplated by this prospectus is not currently
being underwritten, no estimate can be given as to the number of shares of
common stock that will be held by the selling shareholder upon termination of
the offering.
The following table sets forth certain information as of December 23,
1999, regarding the selling shareholder, including:
* The name of the selling shareholder,
* The beneficial ownership of common stock of the selling
shareholder, and
* The maximum number of shares of common stock offered by the selling
shareholder.
The information presented is based on data furnished to Webb by the
selling shareholder and assumes a conversion price for the notes of $10.07 per
share. The actual number of shares of common stock issuable upon conversion of
the convertible note is subject to adjustment and could be materially less or
more than the amounts set forth in the table below, depending on factors which
we cannot predict at this time, including, among other factors, the future
market price of the common stock.
Under the registration rights agreement, we are required to register
for resale by the selling shareholder 1,129,568 shares of our common stock. This
amount is based upon:
* The number of shares issuable upon conversion of the convertible
note and exercise of the warrants, and
11
* The potential increase in the number of shares issuable with
respect to the convertible note if the conversion price declines
due to a decline in the market price for our common stock.
If the warrants were exercised in full and all of the convertible note
were converted at the conversion price of $10.07 per share, only 769,562 shares
of common stock would be issued and available for resale under this prospectus.
However, we cannot determine the exact number of shares of common stock that we
will ultimately issue upon exercise of the warrants and conversion of the
convertible note if anti-dilution adjustments occur with respect to the warrants
or the conversion price for the convertible note changes from the initial
conversion price.
Pursuant to their terms, the convertible note and warrants are
convertible or exercisable by any holder only to the extent that the number of
shares thereby issuable, together with the number of shares of common stock
owned by such holder, but not including unconverted or unexercisable shares of
convertible note or warrants, would not exceed 4.99% of the then outstanding
shares of our common stock as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, unless such conversion is approved by the
majority of the holders of our common stock. Accordingly, the number of shares
of common stock set forth in the third and fourth columns in the table below for
the selling shareholder exceeds the number of shares of common stock that the
selling shareholder beneficially owns in accordance with Section 13(d) as of
December 23, 1999. This 4.99% limit may not prevent any holder from converting
all of its convertible note or exercising its warrants, because the holder can
convert or exercise convertible note and warrants into 4.99% of our outstanding
common stock, then sell all of that stock to permit it to engage in further
conversions or exercises. As a result, the 4.99% limit does not prevent the
selling shareholder from selling more than 4.99% of our common stock.
Shares of Common Stock Owned
Shares Of Common Stock Before Offering Plus All Maximum Number of
Shares of Common Stock Shares Which Can Be Acquired Shares Offered Under Shares of Common Stock
Selling Owned Beneficially Before Over the Life of Convertible This Registration Owned Beneficially After
Shareholder Offering (%) Securities (%) Statement (%) Offering (%) (2)
- --------------------- --------------------------- ------------------------------- ------------------------- ------------------------
Castle Creek 414,079 (4.99%) 769,562 (8.9%) 1,129,568 (12.5%) None (0%)
Technology Partners
LLC (1)
c/o Castle Creek
Technology Partners
LLC, 77 West Wacker
Drive, Suite 4040,
Chicago, Illinois
60601
(1) Castle Creek Technology Partners LLC beneficially owns 414,079 shares,
determined in accordance with Rule 13d-3, and disclaims beneficial ownership of
any shares other than these shares. As investment manager, pursuant to a
management agreement with Castle Creek Technology Partners LLC, Castle Creek
Partners, LLC may be deemed to beneficially own the securities held by Castle
Creek Technology Partners LLC. Castle Creek Partners, LLC disclaims such
beneficial ownership. John Ziegelman and Daniel Asher, as managing members of
Castle Creek Partners, LLC, hold the voting and dispositive powers over the
shares owned by Castle Creek Technology Partners LLC and may be deemed to be
beneficial owners of the securities. Messrs. Ziegelman and Asher disclaim such
beneficial ownership.
(2) The selling shareholder has agreed, subject to certain conditions, to
purchase $5 million stated amount of our Series B. Preferred Stock with warrants
attached. If the transaction is completed as contemplated, the selling
shareholder would at the conclusion of this offering own preferred stock and
warrants representing the right, based on current market prices for our common
stock and without giving effect to any contractual limitations, to acquire
approximately 390,000 shares of our common stock which would represent
approximately 4.7% of the then outstanding shares.
12
PLAN OF DISTRIBUTION
The sale of the shares offered by this prospectus may be made in the
Nasdaq SmallCap Market or other over-the-counter markets at prices and at terms
then prevailing or at prices related to the then current market price or in
negotiated transactions. These shares may be sold by one or more of the
following:
* A block trade in which the broker or dealer will attempt to sell
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction.
* Purchases by a broker or dealer as principal and resale by a
broker or dealer for its account using this prospectus.
* Ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
* In privately negotiated transactions not involving a broker or
dealer.
Each sale may be made either at market prices prevailing at the time of
such sale, at negotiated prices, at fixed prices which may be changed, or at
prices related to prevailing market prices.
In effecting sales, brokers or dealers engaged to sell the shares may
arrange for other brokers or dealers to participate. Brokers or dealers engaged
to sell the shares will receive compensation in the form of commissions or
discounts in amounts to be negotiated immediately prior to each sale. These
brokers or dealers and any other participating brokers or dealers may be deemed
to be underwriters within the meaning of the Securities Act of 1933 in
connection with these sales. Webb will receive no proceeds from any resales of
the shares offered by this prospectus, and we anticipate that the brokers or
dealers, if any, participating in the sales of the shares will receive the usual
and customary selling commissions. If the warrants are exercised in full, Webb
will receive $4,088,197.
In connection with distributions of the shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with selling shareholders. The selling shareholder may also sell shares
short and deliver the shares to close out such short positions. The selling
shareholders may also enter into option, swaps, derivatives or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares registered hereunder, which the broker-dealer may resell pursuant
to this Prospectus. The selling shareholders may also pledge the shares
registered hereunder to a broker or dealer and upon a default, the broker or
dealer may effect sales of the pledged shares pursuant to this prospectus.
From time to time the selling shareholders may be engaged in short
sales, short sales against the box, puts and calls and other hedging
transactions in our securities, and may sell and deliver the shares in
connection with such transactions or in settlement of securities loans. These
transactions may be entered into with broker-dealers or other financial
institutions. In addition, from time to time, a selling share holder may pledge
its shares pursuant to the margin provisions of its customer agreements with its
broker-dealer. Upon delivery of the shares or a default by a selling
shareholder, the broker-dealer or financial institution may offer and sell the
pledged shares from time to time.
To comply with the securities laws of some states, if applicable, the
shares will be sold in those states only through brokers or dealers. In
addition, in some states, the shares may not be sold in those states unless they
have been registered or qualified for sale in those states or an exemption from
registration or qualification is available and is complied with.
If necessary, the specific shares of our common stock to be sold, the
names of the selling shareholders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part. We entered into a registration rights agreement in connection with
the private placement of the convertible notes and the warrants which required
us to register the underlying shares of our common stock under applicable
federal and state securities laws under certain circumstances and at certain
times. The registration rights agreement provides for cross-indemnification of
the selling shareholder and us and each party's respective directors, officers
and controlling persons against certain liabilities in connection with the offer
and sale of the common stock, including liabilities under the Securities Act of
1933 and to contribute to payments the parties may be required to
13
make in respect thereof. We have agreed to indemnify and hold harmless the
selling shareholder from certain liabilities under the Securities Act of 1933.
Under applicable rules and regulations under Regulation M under the
Securities Exchange Act of 1934, any person engaged in the distribution of the
common stock may not simultaneously engage in market making activities, subject
to certain exceptions, with respect to the common stock for a specified period
set forth in Regulation M prior to the commencement of such distribution and
until its completion. In addition and without limiting the foregoing, the
selling shareholder will be subject to the applicable provisions of the
Securities Act of 1933 and Securities Exchange Act of 1934 and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of the common
stock by the selling shareholder. The foregoing may affect the marketability of
the common stock.
We will bear all expenses of the offering of the common stock, except
that the selling shareholders will pay any applicable underwriting commissions
and expenses, brokerage fees and transfer taxes, as well as the fees and
disbursements of counsel to and experts for the selling shareholders.
DESCRIPTION OF SECURITIES
General
Our articles of incorporation authorize our board of directors to issue
25,000,000 shares of capital stock, including 20,000,000 shares of common stock
and 5,000,000 shares of preferred stock, with rights, preferences and privileges
as are determined by our board of directors.
Common Stock
As of December 23, 1999, we had 7,884,089 shares of common stock
outstanding. All outstanding shares of our common stock are fully paid and
nonassessable and the shares of our common stock offered by this prospectus will
be, upon issuance, fully paid and nonassessable. The following is a summary of
the material rights and privileges of our common stock.
Voting. Holders of our common stock are entitled to cast one vote for
each share held at all shareholder meetings for all purposes, including the
election of directors. The holders of more than 50% of the voting power of our
common stock issued and outstanding and entitled to vote and present in person
or by proxy, together with any preferred stock issued and outstanding and
entitled to vote and present in person or by proxy, constitute a quorum at all
meetings of our shareholders. The vote of the holders of a majority of our
common stock present and entitled to vote at a meeting, together with any
preferred stock present and entitled to vote at a meeting, will decide any
question brought before the meeting, except when Colorado law, our articles of
incorporation, or our bylaws require a greater vote and except when Colorado law
requires a vote of any preferred stock issued and outstanding, voting as a
separate class, to approve a matter brought before the meeting. Holders of our
common stock do not have cumulative voting for the election of directors.
Dividends. Holders of our common stock are entitled to dividends when,
as and if declared by the board of directors out of funds available for
distribution. The payment of any dividends may be limited or prohibited by loan
agreement provisions or priority dividends for preferred stock that may be
outstanding.
Preemptive Rights. The holders of our common stock have no preemptive
rights to subscribe for any additional shares of any class of our capital stock
or for any issue of bonds, notes or other securities convertible into any class
of our capital stock.
Liquidation. If we liquidate or dissolve, the holders of each
outstanding share of our common stock will be entitled to share equally in our
assets legally available for distribution to our shareholders after payment of
all liabilities and after distributions to holders of preferred stock legally
entitled to be paid distributions prior to the payment of distributions to
holders of our common stock.
14
Convertible Note
On August 25, 1999, we issued $5,000,000 principal amount of a 10%
convertible note. The following is a summary of the material terms of the 10%
convertible note.
Conversion Price. The convertible note is convertible into shares of
common stock at a conversion price of $10.07 per share. If we complete a
financing prior to March 22, 2000, of $10 million or more in which the selling
shareholder has the right to invest $5 million, the conversion price between
March 22, 2000 and September 30, 2000 will continue to be $10.07. If the
financing is completed, the conversion price after September 29, 2000 will
continue to be $10.07 per share unless the market price for our common stock at
that time is less than $10.07. In this event, the conversion price will be
adjusted and will be the greater of (i) the average of the five lowest closing
bid prices during the period from September 1, 2000 through September 29, 2000
and (ii) $8.00.
If we do not complete a $10 million financing by March 22, 2000, the
convertible note will thereafter be convertible into a number of shares of
common stock determined by dividing the principal amount of the convertible note
by the lesser of (i) $10.07 and (ii) the average of the five lowest closing bid
prices for our common stock during the 15 trading days prior to conversion.
The number of shares of common stock that may ultimately be issued upon
conversion is presently undeterminable and potentially unlimited and could
fluctuate between a minimum of 496,524 shares if the market price of our common
stock remains higher than $10.07, the maximum conversion price, and a maximum of
1,382,351 shares, unless Webb's shareholders approve an increase in the maximum
number of shares issuable upon conversion of the note. Purchasers of common
stock could therefore experience substantial dilution upon conversion of the
convertible note. To illustrate the potential dilution that may occur upon
conversion of the convertible notes, the following table sets forth the number
of shares of common stock that would be issued upon conversion of the
convertible note at various conversion prices, assuming that we have not
completed a $10 million financing by March 22, 2000, and that the $8.00 minimum
for the conversion price is therefore not effective.
15
Conversion Shares Issued Upon Percentage of
Market Price Price Conversion Outstanding Shares
- -------------------------------------- ---------------- ---------------------------- --------------------------
$19.69 (actual price at 12/23/99) $10.070 496,524 5.7%
$14.77 (75% of 12/23/99 price) $10.070 496,524 5.7%
$9.84 (50% of 12/23/99 price) $ 9.84 507,939 5.9%
$4.92 (25% of 12/23/99 price) $ 4.92 1,015,868 11.1%
- ---------------
The variable conversion price formula of the convertible notes could affect
the common stock as follows:
* Reduction in Stock Price. If our common stock trades at a price less
than the maximum conversion price of $10.07 per share, then the
convertible note will be convertible into shares of our common stock at
a variable rates based on future trading prices of the common stock and
events that may occur in the future. The number of shares of common
stock issuable upon conversion of the convertible note will be
inversely proportional to the market price of the common stock at the
time of conversion.
* Effect of Additional Shares in Market. Even though the holder may not
convert its notes into more than 4.99% of the outstanding stock at any
one time, the holder may obtain and sell an aggregate of substantially
more than 4.99% of our outstanding stock by converting and selling up
to 4.99% of the outstanding shares in multiple transactions. To the
extent that the holder of the convertible note converts and then sells
its common stock, the common stock price may decrease due to the
additional shares in the market, allowing the holder to convert the
convertible note into greater amounts of common stock, further
depressing the stock price.
* Interest Payable in Common Stock. In the event that we force the
conversion of one-half of the convertible note, the interest payable on
the convertible note may be paid in additional convertible notes or
common stock at the selling shareholder's option. In this regard, the
lower the common stock price, the more shares of common stock the
holders of the convertible note will receive in payment of interest.
* Impact of Dilution. The additional shares issued upon conversion of the
convertible note would dilute the percentage interest of each of our
existing common shareholders, and this dilution would increase as more
shares of common stock are issued due to the impact of the variable
conversion price. Each additional issuance of shares upon conversion
would increase the supply of shares in the market and, as a result,
may cause the market price of our common stock to decline. The effect
of this increased supply of common stock leading to a lower market
price may be magnified if there are sequential conversions of
convertible note. Specifically, the selling shareholder could convert
a portion of its convertible note and then sell the common stock
issued upon conversion, which likely would result in a drop in our
stock price. Then the selling shareholder could convert another
portion of its convertible note at a lower conversion price because of
the decreased stock price, and be issued a greater number of shares of
common stock due to the lower conversion price. If it then sold shares
of common stock, our stock price would likely decrease again,
permitting the selling shareholder to do more conversions at a
conversion price even more favorable to it. A pattern of such partial
conversions and sales could increase the aggregate number of shares of
common stock issued upon conversion of the convertible notes above
what it would otherwise be, and could place significant downward
pressure on our stock price. This downward pressure on our stock price
might encourage market participants to sell our stock short, which
would put further downward pressure on our stock price, and further
decrease the conversion price and increase the dilution of our
existing common shareholders upon conversion of the convertible note.
Forced Conversion; Redemption. We can force the selling shareholder to
convert up to $2,500,000 of the convertible note if the average of the closing
trade prices for the 15 consecutive trading days after the date of this
prospectus is at least $12.50. We can also prepay the promissory note at any
time after August 25, 2000, if the closing bid price for our common stock for 20
consecutive trading days is at least 200% of the conversion price then
16
in effect. The redemption price would equal 115% of the face amount of the
convertible note, plus accrued and unpaid interest.
Interest. The convertible note bears interest at the rate of 10% per
annum. If we force the conversion of one-half of the convertible note, the
selling shareholder may elect to have the interest on the convertible note paid
either in shares of our common stock or by the issuance of additional
convertible notes. In this event, we could be required to pay approximately
$660,000 in interest in additional shares of common stock or convertible notes.
If the selling shareholder elected to have the interest paid in convertible
notes, we could be required to pay interest of approximately $80,000 on the
additional notes issued in payment of interest on the convertible note. This
combination could result in approximately $740,000 of principal and interest in
addition to the original $5 million principal amount of the note that could be
converted into shares of our common stock. At a conversion price of $10.07, this
would result in an additional approximately 73,500 shares of our common stock.
If the market value of our common stock stays above $10.07, the
issuance of notes to pay interest would also result in an effective interest
rate of more than 10%. For example, if our market price was $19.69, the closing
price on December 23, 1999, the selling shareholder could exercise its right to
have interest paid in notes which would be immediately convertible into common
stock with an economic value approximately 96% more than if the interest had
been paid in cash. This would be an effective interest rate of 19.6%.
The terms of the convertible note limit the maximum number of shares
which can be issued pursuant to the conversion of the note and the exercise of
the warrants issued to the selling shareholder to $1,518,870 shares of common
stock prior to our obtaining shareholder approval of the transaction. In the
event that the maximum number of shares to be issued upon conversion of the
notes and exercise of the warrants was to exceed this maximum number of shares
and we could not obtain shareholder approval of the transaction, the interest
rate on the note would be increased to 14%.
Registration Rights. Pursuant to the securities purchase agreement
under which the convertible note were issued, we filed with the SEC a
Registration Statement on Form S-3, of which this prospectus forms a part, with
respect to the resale of the shares and agreed to use our best efforts to keep
such Registration Statement effective until such date as all of the shares have
been resold, or such time as all of the shares held by the selling shareholder
can be sold immediately without compliance with the registration requirement of
the Securities Act of 1933, pursuant to Rule 144 or otherwise.
Warrants
The selling shareholder also has been granted two five-year warrants
for 136,519 shares each, one exercisable at $11.44 per share and one exercisable
at $18.51 per share. If we complete a financing of at least $10 million by March
22, 2000, the exercise price for both warrants will be subject to adjustment on
September 29, 2000, if the market price for our common stock is then less than
the exercise price of the warrants. In this event, the exercise price will be
equal to the average closing bid prices for the period from September 1, 2000
through September 29, 2000. The warrants are also subject to anti-dilution
protection in the event of the issuance of our common stock at prices less than
the exercise prices for the warrants or the then current price for our common
stock and for stock splits, stock dividends and other similar transactions.
10% Preferred Stock
As of December 23, 1999, 85,000 shares of our 10% Preferred Stock were
outstanding. The following is a summary of the rights, privileges and
preferences of the 10% Preferred Stock.
Voting. Each share of 10% Preferred Stock entitles the holder to one
vote per share. The holders of the common stock and the 10% Preferred Stock vote
as a single class on all matters on which our shareholders vote, except where
otherwise required by law. The holders of the 10% Preferred Stock do not have
cumulative voting for the election of directors.
Dividends. The cumulative noncompounded dividend on the 10% Preferred
Stock is 10% per annum based on the stated value of $10.00 per share, payable
quarterly as permitted by law, or upon the redemption or
17
conversion of the 10% Preferred Stock into common stock. We may not declare or
pay any dividends on the common stock unless we first declare and pay all unpaid
dividends on the 10% Preferred Stock.
Redemption and Conversion. We may redeem the 10% Preferred Stock at any
time for $10.00 per share. Each share of the outstanding 10% Preferred Stock is
convertible, at the election of the holder thereof, into the number of shares of
our common stock equal to $10.00 divided by the lesser of (i) $10.00 or (ii) 80%
of the average per share closing bid price of the our common stock for the five
trading days immediately preceding the election by the holder to convert. At any
time while any shares of the 10% Preferred Stock are outstanding, we may not
incur any obligations (other than trade payables and other indebtedness) that
are senior to the 10% Preferred Stock in any respect, including liquidation.
Upon any redemption or conversion of the 10% Preferred Stock, we have the option
to pay the accrued but unpaid cumulative dividends on the 10% Preferred Stock
either (i) in cash, or (ii) by issuing additional shares of common stock.
Preemptive Rights. The holders of the 10% Preferred Stock do not have
preemptive rights to subscribe for any additional shares of any class of our
capital stock or for any issue of bonds, notes or other securities convertible
into any class of our capital stock.
Liquidation Preference. If we liquidate, dissolve or wind-up our
business, whether voluntary or otherwise, after we pay our debts and other
liabilities, the holders of the 10% Preferred Stock will be entitled to receive
from our remaining net assets, before any distribution to the holders of our
common stock, the amount of $10.00 per share of 10% Preferred Stock in cash plus
payment of all accrued but unpaid cumulative dividends. Holders of the 10%
Preferred Stock will not be entitled to receive any other payments if we
liquidate, dissolve or wind-up our business.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file with
the SEC at the SEC's public reference room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's public reference rooms located at it's
regional offices in New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0300 for further information on the operation of public
reference rooms. You can also obtain copies of this material from the SEC's
Internet web site located at http://www.sec.gov.
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, file no. 0-28462:
* Our annual report on Form 10-KSB for the year ended December 31,
1998.
* Our quarterly report on Form 10-QSB for the quarter ended March 31,
1999.
* Our quarterly report on Form 10-QSB for the quarter ended June 30,
1999.
* The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on May 22, 1996.
* Our current report on Form 8-K filed January 11, 1999.
* Our current report on Form 8-K filed July 14, 1999.
* Our current report on Form 8-K filed September 2, 1999.
* Our registration statement on Form S-3 filed September 27, 1999, as
amended on November 24, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and telephone number:
18
Shareholder Services
Attn: Kim Boswood
Webb Interactive Services, Inc.
1800 Glenarm Place
Suite 700
Denver, Colorado 80202
(303) 296-9200
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
The selling shareholder will not make an offer of these shares in any state
where the offer is not permitted. You should not assume that the information in
this prospectus is accurate as of any date other than the date on the front page
of this prospectus.
LEGAL MATTERS
Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, Minnesota, has
issued an opinion about the legality of the shares registered by this
prospectus.
EXPERTS
The financial statements of Webb incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference in reliance upon
the authority of said firm as experts in giving said reports. Reference is made
to said report, which includes an explanatory paragraph with respect to the
uncertainty regarding our ability to continue as a going concern as discussed in
Note 1 to the financial statements incorporated by reference.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101
regarding revenue recognition. Webb is currently reviewing the impact, if any,
this bulletin will have on its financial reporting.
INDEMNIFICATION
Our articles of incorporation provide that we shall indemnify, to the
full extent permitted by Colorado law, any of our directors, officers, employees
or agents who are made, or threatened to be made, a party to a proceeding by
reason of the fact that he or she is or was one of our directors, officers,
employees or agents against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding if
specified standards are met. Although indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to our directors, officers and
controlling persons under these provisions, we have been advised that, in the
opinion of the SEC, indemnification for liabilities arising under the Securities
Act of 1933 is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
Our articles of incorporation also limit the liability of our directors
to the fullest extent permitted by the Colorado law. Specifically, our articles
of incorporation provide that our directors will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for:
* Any breach of the duty of loyalty to Webb or its shareholders,
* Acts or omissions not in good faith or that involved intentional
misconduct or a knowing violation of law,
* Dividends or other distributions of corporate assets that are in
contravention of specified statutory or contractual restrictions,
* Violations of specified laws, or
* Any transaction from which the director derives an improper
personal benefit.
19
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with the offer made by this prospectus and, if given or
made, the information or representations must not be relied upon as having been
authorized by Webb. This prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any security other than the securities offered
by this prospectus, nor does it constitute an offer to sell or a solicitation of
any offer to buy the securities offered by this prospectus by anyone in any
jurisdiction in which the offer or solicitation is not authorized, or in which
the person making the offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make an offer or solicitation. Neither the
delivery of this prospectus nor any sale made under this prospectus shall, under
any circumstances, create any implication that information contained in this
prospectus is correct as of any time subsequent to the date of this prospectus.
---------------
TABLE OF CONTENTS
Page
----
Webb Interactive Services, Inc................................................2
Recent Events.................................................................3
Risk Factors..................................................................4
Special Note Regarding Forward-Looking
Statements................................................................10
Use of Proceeds..............................................................11
Selling Shareholder..........................................................11
Plan of Distribution.........................................................12
Description of Securities....................................................13
Where You Can Find More Information..........................................17
Legal Matters................................................................18
Experts......................................................................18
Indemnification..............................................................18
WEBB INTERACTIVE
SERVICES, INC.
----------
PROSPECTUS
----------
____________, __, 2000
================================================================================
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses of Webb in
connection with the sale and distribution of the Shares being registered
pursuant to this Form S-3 Registration Statement. All of the amounts shown are
estimates, except for the Securities and Exchange Commission registration fee
and the Nasdaq listing fee. All of such expenses will be paid by Webb.
Securities and Exchange Commission fee $ 3,650.48
Accounting fees and expenses 2,000.00
Legal fees and expenses 10,000.00
Printing, Mailing 1,000.00
Transfer Agent fees 200.00
Miscellaneous $ 3,149.52
-----------------
TOTAL $20,000.00
Item 15. Indemnification of Officers and Directors
Webb's articles of incorporation provide that Webb shall indemnify, to
the full extent permitted by Colorado law, any director, officer, employee or
agent of Webb made or threatened to be made a party to a proceeding, by reason
of the fact that such person is or was a director, officer, employee or agent of
Webb against judgments, penalties, fines, settlements and reasonable expenses
incurred by the person in connection with the proceeding if certain standards
are met. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Webb pursuant to the foregoing provisions, or otherwise, Webb has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Webb's articles of incorporation limit the liability of its directors
to the fullest extent permitted by Colorado law. Specifically, the articles of
incorporation provide that directors of Webb will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for (i) any
breach of the duty of loyalty to Webb or its shareholders, (ii) acts or
omissions not in good faith or that involved intentional misconduct or a knowing
violation of law, (iii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions, (iv)
violations of certain laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law is
not limited by the Articles.
Item 16. Exhibits
3.1 Articles of Incorporation, as amended, of Webb Interactive
Services, Inc. (1)
3.2 Bylaws of Webb Interactive Services, Inc. (2)
4.1 Specimen form of Webb Interactive Services, Inc. common stock
certificate (3)
5.1 Opinion of Counsel (4)
10.1 Securities Purchase Agreement dated August 25, 1999 between
Webb and the Selling Shareholder, including the Form of
Warrant and Registration Rights Agreement (5)
10.2 Promissory note dated August 25, 1999 issued by Webb to the
Selling Shareholder*
10.3 Amendment dated December 18, 1999 to Securities Purchase
Agreement dated August 25, 1999 between Webb and the Selling
Shareholder*
10.4 First Amendment dated December 18, 1999 to Promissory Note
dated August 25, 1999 issued by Webb to Selling Shareholder*
II-1
10.5 Stock Purchase Warrant dated August 25, 1999, as amended,
December 18, 1999, issued by Webb to Selling Shareholder*
10.6 Stock Purchase Warrant dated December 18, 1999, issued by Webb
to Selling Shareholder*
23.1 Consent of Arthur Andersen LLP*
- ------------
* Filed herewith
(1) Filed with the Registration Statement on Form S-3, filed January 29, 1999,
Commission File No. 333-71503.
(2) Filed with the initial Registration Statement on Form SB-2, filed April 5,
1996, Commission File No. 333-3282-D.
(3) Filed with the Registration Statement on Form S-3, filed September 24,
1999, Commission File No. 333-86465.
(4) Filed with the Registration Statement on Form S-3, filed September 27,
1999, Commission File No. 333-87887.
(5) Filed with the current report on Form 8-K, filed September 2, 1999,
Commission File No. 000-28462.
Item 17. Undertakings
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement
to:
(a) include any prospectus required by Section
10(a)(3) of the Securities Act of 1933,
(b) to reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or together, represent a fundamental
change in the information in the registration
statement, and
(c) to include any additional or changed material
information on the plan of distribution;
(2) to treat, for determining liability under the Securities
Act of 1933, each such post-effective amendment as a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at
the termination of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant as discussed above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, State of Colorado, on December
30, 1999.
WEBB INTERACTIVE SERVICES, INC.
By /s/ R. Steven Adams*
--------------------------------------
R. Steven Adams, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below on December 30,
1999, by the following persons in the capacities indicated:
/s/ R. Steven Adams *
- ------------------------------
R. Steven Adams,
(Chairman, Chief Executive Officer and a Director)
/s/ William R. Cullen
- ------------------------------
William R. Cullen
(Executive Vice President, Chief Financial Officer and a Director)
/s/ Stuart J. Lucko
- ------------------------------
Stuart J. Lucko
(Controller)
/s/ Perry Evans*
- ------------------------------
Perry Evans
(President and a Director)
/s/ Robert J. Lewis*
- ------------------------------
Robert J. Lewis
(Director)
- ------------------------------
Richard C. Jennewine
(Director)
*By /s/ Lindley S. Branson
--------------------------
Attorney-in-fact
II-3
Webb Interactive Services, Inc.
Form S-3
Index to Exhibits
3.1 Articles of Incorporation, as amended, of Webb Interactive
Services, Inc. (1)
3.2 Bylaws of Webb Interactive Services, Inc. (2)
4.1 Specimen form of Webb Interactive Services, Inc. common stock
certificate (3)
5.1 Opinion of Counsel (4)
10.1 Securities Purchase Agreement dated August 25, 1999 between
Webb and the Selling Shareholder, including the Form of
Warrant and Registration Rights Agreement (5)
10.2 Promissory note dated August 25, 1999 issued by Webb to the
Selling Shareholder*
10.3 Amendment dated December 18, 1999 to Securities Purchase
Agreement dated August 25, 1999 between Webb and the Selling
Shareholder*
10.4 First Amendment dated December 18, 1999 to Promissory Note
dated August 25, 1999 issued by Webb to Selling Shareholder*
10.5 Stock Purchase Warrant dated August 25, 1999, as amended
December 18, 1999, issued by Webb to Selling Shareholder*
10.6 Stock Purchase Warrant dated December 18, 1999, issued by Webb
to Selling Shareholder*
23.1 Consent of Arthur Andersen LLP*
- -----------
* Filed herewith
(1) Filed with the Registration Statement on Form S-3, filed January 29, 1999,
Commission File No. 333-71503.
(2) Filed with the initial Registration Statement on Form SB-2, filed April 5,
1996, Commission File No. 333-3282-D.
(3) Filed with the Registration Statement on Form S-3, filed September 24,
1999, Commission File No. 333-86465.
(4) Filed with the Registration Statement on Form S-3, filed September 27,
1999, Commission File No. 333-87887.
(5) Filed with the current report on Form 8-K, filed September 2, 1999,
Commission File No. 000-28462.