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As filed with the Securities & Exchange Commission on May 21, 1999
Registration No. 333-71503
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ONLINE SYSTEM 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
Online System 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
Scott A. Hendrickson
Gray, Plant, Mooty, Mooty & Bennett, P.A.
33 South Sixth Street
3400 City Center
Minneapolis, Minnesota 55402
(612) 343-2800
-------------------------
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]
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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
<TABLE>
<CAPTION>
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*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value (2)(4) 820,000 $16.4375 $13,478,750 $3,976.23
Common Stock, no par
value (3)(4) 20,000 $16.4375 $328,750 $96.98
--------------- -----------------------------------------------
Total 840,000 $13,807,500 $4,073.21
</TABLE>
- ----------
* 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
January 27, 1999.
(2) Common stock issuable by OSS upon conversion of OSS' issued and outstanding
Series C preferred stock. The number of shares registered was selected by
mutual agreement between OSS and its investor and was based upon OSS'
commitment in the registration rights agreement to register up to two times
the number of shares of common stock into which 5,000 shares of Series C
preferred stock would have been convertible into on the date immediately
preceding the date of the initial filing of this Form S-3. This Form S-3
was initially filed with the SEC on January 29, 1999. The application of
this provision of the registration rights agreement results in an assumed
conversion price of $6.10 per share.
(3) Common stock issuable by OSS upon exercise of issued and outstanding
transferable warrants of OSS. (4) An indeterminate number of additional
shares of common stock are registered hereunder in accordance with Rule 416
under the Securities Act of 1933, as amended, that may be issued as
provided in such warrants in the event that the provisions against dilution
in such warrants become operative.
-------------------------------
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.
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer of sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 21, 1999
PROSPECTUS
ONLINE SYSTEM SERVICES, INC.
This is a public offering of a minimum of 252,564 and a maximum of
840,000 shares of common stock of Online System Services, Inc. The selling
shareholders, Arrow Investors II LLC and EBI Securities Corporation, are
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, the 20,000 shares offered by EBI
are issuable upon the exercise of issued and outstanding transferable warrants
of OSS at an exercise price of $5.71 per share of common stock. In addition, as
of May 15, 1999, 160,771 of the shares offered by Arrow are issuable only after
it converts shares of our Series C preferred stock that it may acquire upon the
exercise of an issued and outstanding transferable warrant of OSS at an exercise
price of $1,000 per share of Series C preferred stock. If all of these warrants
are exercised in full, we will receive proceeds of $2,114,200.
The Nasdaq SmallCap Market lists our common stock under the symbol
WEBB.
Investing 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 shareholders 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
shareholders.
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 _______________, 1999.
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ONLINE SYSTEM SERVICES, INC.
OSS develops, markets and supports products and services that enable
individuals and organizations to create and manage their own Internet Web
presence and online communities. We have developed a proprietary suite of Web
site development tools, known as WEBBbuilder and Portal Objects which enable
individuals and organizations to create their own personal/organizational
portals. These Web site development tools were formerly marketed under our i2u
brand name. We have targeted the following market opportunities:
o Community - Customized community and communication portals or start
pages for broadband and other operators who provide Internet access.
o Consumer - Personal portals for individual Internet users.
o Enterprise - Internet and extranet services for businesses,
associations and government institutions.
o Education - Classroom applications for elementary and secondary
schools, including parent/teacher communications, virtual campuses for
colleges and universities and online classrooms for corporate training.
o Financial Services - Online banking services for banks, credit unions
and other financial institutions.
Underpinning the evolution of our products and services is our belief
that the Internet is evolving from its origins as an information access and
delivery tool to one that supports communications and community interactivity.
The WEBBbuilder software includes sophisticated personal communications tools
which allow users to establish, maintain and enhance online communications with
others. These communications tools include:
o E-mail services o Virtual communities
o Chat o Calendars
o Instant messaging o Conferencing
o Newsletters o Friends online
As part of our product enhancement efforts, we have agreed to acquire
Durand Communications, Inc., a developer and marketer of Internet community
building tools and services which allow users to set up their own
password-protected virtual communities. DCI's CommunityWare product has been
integrated into our suite of products and services. In March 1999, we completed
the acquisition of a majority interest in NetIgnite 2, LLC. NetIgnite is
applying emerging technologies to develop private-label Web-based services that
allow directory publishers, search engines and Internet service providers to
enhance end-user and advertiser value by facilitating data-driven comparison
shopping and the development of business Web pages. We expect NetIgnite's first
products to be available around mid 1999.
OSS was 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.
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RISK FACTORS
We have sustained losses in the past and we expect to sustain further
losses in the future. We have incurred net losses since inception totaling
$20,774,129 through December 31, 1998. DCI has incurred net losses since its
formation totaling $8,397,347 through December 31, 1998. In addition, we expect
to incur additional substantial operating and net losses in 1999 and for one or
more years after 1999. We expect to incur these additional losses because:
o We currently intend to increase our capital expenditures and operating
expenses to expand the functionality and performance of our WEBBbuilder
products and services, support additional subscribers of our internet
service provider customers in future markets, and market and provide
our products and services.
o We will be required to recognize as a loss in the fiscal period in
which the DCI acquisition is consummated that portion of the purchase
price for DCI which we allocate to in-process research and development.
o We will be required to record goodwill and other intangible assets in
connection with the DCI acquisition which we will amortize over their
estimated useful lives of approximately three years. We currently
expect to allocate approximately $12.5 million to goodwill and other
intangible assets, however, this amount could change significantly once
the actual amount is determined after the consummation of the DCI
acquisition.
If we do not complete the DCI acquisition, it is likely that we would
have to record as a loss all or a portion of the note receivable from DCI of
approximately $996,141, including accrued interest, at March 31, 1999. DCI would
not have the ability to repay our advances without obtaining significant
additional working capital through the sale of its securities. There is no
assurance that DCI would be able to raise working capital in the amounts
required.
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 committed funds will be adequate to sustain
our current level of operations only through July 1999. If we cannot raise
additional funds in amounts required or on terms acceptable to us, we may be
required to curtail or scale back our operations. These actions could have a
material adverse effect on our business. We estimate that we will need to raise
through equity, debt or other external financing at least $11 million to sustain
operations for the next 12 months and $1 million to pay DCI indebtedness which
would be assumed as part of the DCI acquisition. 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 because our revenue model may
not be successful. The revenue model for our WEBBbuilder products and services
assumes that our distribution partners will share with us a percentage of their
revenues generated by advertising and e-commerce conducted through our
WEBBbuilder products. There is no assurance that this revenue model will prove
to be viable or that our distribution partners will share revenues at the
percentage levels that we anticipate. The success of our revenue model will also
depend upon many other factors including:
o The success of our distribution partners in marketing Internet services
to subscribers in their local areas, and
o The extent to which consumers and businesses use our WEBBbuilder
products and conduct e-commerce transactions and advertising utilizing
our products.
We do not expect to realize significant revenues in 1999 or for one or
more years after 1999. We do not expect to realize significant revenues from our
distribution arrangements, if at all, for six months or more after we have
licensed our WEBBbuilder products and services. This expectation is based on the
fact that we believe that it may take our distribution partners several months
or more to:
o Market and sell Internet access to their subscribers,
o Establish a significant enough user base to attract advertisers, and
o Encourage users to conduct significant e-commerce transactions.
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Growth of the Internet may not be favorable to the use of our products.
Our business plan assumes that the Internet will develop into a significant
source of communication and communication interactivity. If the Internet does
not develop in this manner, our business would be materially adversely affected.
Numerous factors could prevent or inhibit the development of the Internet in
this manner, including:
o The failure of the Internet's infrastructure to support significantly
greater Internet usage, interactivity among users, or electronic
commerce,
o The inability to secure confidential or personal information, such as
credit card numbers, distributed over the Internet,
o Regulation of Internet activity, and
o The proliferation of computer viruses and information piracy which
discourages our potential customers from using the Internet due to
concerns about the security of transactions and commerce they conduct
on the Internet.
Use of many of our products and services is dependent on companies we
do not control. We have elected to partner with broadband operators and others
for the distribution of many of our products and services. If the business of
our distribution partners is adversely affected, our business could be
materially adversely affected. As a result of this partnership, we expect that
many of the users of our WEBBbuilder products and services will gain their
Internet access only by subscribing for access through our distribution
partners. Therefore, our distribution partner, and not us, will substantially
control the customer relationship with these users.
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. If we are unable to identify new product and service
opportunities or develop and introduce new products and services to market in a
timely manner, our business 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 could be materially adversely affected. The following
factors could affect the success of our products and services:
o The failure of our business plan to accurately predict the rate at
which the market for Internet products and services will grow and the
types of products and services the future Internet marketplace will
demand,
o Our limited experience in marketing our products and services,
o The failure of our business plan to accurately predict the estimated
sales cycle, price, and acceptance of our products and services, or o
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. In addition, our limited and
uncertain financial condition may put us at a competitive disadvantage to our
competitors by discouraging our potential customers from doing business with us.
If we fail to, or cannot, meet these competitive challenges, our business could
be materially adversely affected.
A limited number of our customers generates a significant portion of
our revenues. For the year ended December 31, 1998, four of our customers
produced approximately 71% of our revenues, including one customer, Starstream,
Inc., who produced approximately 28% of our revenues. 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, any of these major customers
could have a material adverse effect on our business, operating results,
cashflow, and financial condition.
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We may be unable to adjust our spending to account for potential
fluctuations in the demand for our products and in our sales cycle. As a result
of our limited operating history and our recent increased focus on our
WEBBbuilder products and services, we do not have historical financial data for
a sufficient number of periods on which to base planned operating expenses. If
demand for our products is less than we anticipate or our sales cycles differ
from what we anticipate, and we are unable to adjust our spending accordingly in
a timely manner, our business, financial condition, and operating results could
be materially adversely affected.
We may be unable to retain our key executives and research and
development personnel. We are highly dependent on the technical and management
skills of our key employees, including in particular R. Steven Adams, our
founder and chief executive officer. The loss of Mr. Adams' services could have
a material adverse effect on our business and operating results. In addition,
the success of the DCI acquisition is highly dependent on the technical and
management skills of Andre Durand, the founder, president and chief executive
officer of DCI. The loss of Mr. Durand's services could have a material adverse
affect on the value of the DCI acquisition.
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 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 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. This 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. If we are unable to successfully manage
our future business growth, our operating results and financial condition could
be materially adversely effected.
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. 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.
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 after 2000. 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.
We are in the process of contacting all of our significant suppliers to
determine the extent to which our systems are vulnerable to those third parties'
failure to make their own systems Year 2000 compliant. The failure to correct
material Year 2000 problems by our suppliers and vendors could result in an
interruption in, or a failure of, some of our normal business activities or
operations. Due to the general uncertainty inherent in the Year 2000 problem,
resulting from the uncertainty of the Year 2000 readiness of third-party
suppliers and vendors and of our customers, we are unable to determine at this
time that the consequences of Year 2000 failures will not have a material impact
on our business.
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The price of our common stock has been, and in the future may be,
highly volatile. Our common stock traded as high as $15.25 per share and as low
as $3.75 per share during the year ended December 31, 1998. 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:
o Price and volume fluctuations in the stock market at large that do not
relate to our operating performance;
o Fluctuations in our quarterly operating results;
o Increases in outstanding shares of common stock upon exercise or
conversion of derivative securities and the subsequent sale of the
common stock issued in connection with these exercises and conversions;
and o Sales of our outstanding common stock issued in private
placements or held by our affiliates.
These factors may continue to affect the price of our common stock in
the future.
The trading volume of our common stock may diminish significantly if
our common stock is prohibited from being traded on the Nasdaq SmallCap Market.
Although our shares are currently traded on The Nasdaq SmallCap Market, there is
no assurance that we will remain eligible to be included on Nasdaq. If our
common stock was no longer eligible for quotation on Nasdaq, it could become
subject to rules adopted by the Securities and Exchange Commission regulating
broker-dealer practices involving transactions in stocks not listed on a
national exchange. If our common stock became subject to these rules, many
brokers may be unwilling to engage in transactions in our common stock because
of the added regulation. The unwillingness of brokers to engage in transactions
in our common stock may make it more difficult for purchasers of our common
stock to dispose of their shares.
We have issued numerous options, warrants, and convertible securities
to acquire our common stock that could have a dilutive effect on our
shareholders. We have issued numerous options, warrants, and convertible
securities to acquire our common stock. During the terms of these outstanding
options, warrants, and convertible securities, the holders of these securities
will have the opportunity to profit from an increase in the market price of our
common stock with resulting dilution to the holders of our common stock who
purchased their shares for a price higher than the exercise or conversion
price.
As of April 15, 1999, we have issued the following warrants and options
to acquire shares of our common stock:
o Options and warrants to purchase 1,751,648 shares of common stock upon
exercise of these options and warrants, exercisable at prices ranging
from $0.50 to $18.25 per share, with a weighted average exercise price
of approximately $7.42 per share.
o Warrants issued in connection with our initial public offering on May
23, 1996 to purchase 634,025 shares upon exercise of these warrants at
an exercise price of $9.00 per share.
o Options issued to EBI Securities Corporation, the representative of the
underwriters involved in our initial public offering, to purchase
106,700 shares upon exercise of this representative's option at a
purchase price of $8.10 per share.
o The representative's option to purchase 106,700 of our warrants
issuable upon exercise of the representative's option at a purchase
price of $.001 per warrant. These warrants entitle the holder to
purchase up to 53,350 shares upon exercise of these warrants at an
exercise price of $9.00 per share.
o Warrants issued in connection with the issuance of the 10% preferred
stock to purchase 53,500 shares of common stock upon exercise of these
warrants, exercisable at $15.00 per share.
o Warrants issued in connection with the issuance of the 5% preferred
stock to purchase 100,000 shares of common stock upon exercise of these
warrants, exercisable at $16.33 per share.
o Warrants issued in connection with the issuance of the Series A
preferred stock to purchase 20,000 shares of common stock upon exercise
of these warrants, exercisable at $5.71 per share.
o Warrants to purchase 2,000 shares of our Series C preferred stock. The
Series C preferred stock that may be acquired on the exercise of this
warrant may be converted into shares of our common stock.
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In addition to these warrants and options, in connection with the DCI
acquisition we will issue and reserve for issuance shares of our common stock
that, when issued may have a dilutive effect on our shareholders. As a result of
the DCI acquisition we:
o Will issue 955,649 shares of our common stock,
o Will reserve approximately 240,000 shares of common stock for issuance
upon exercise of options and warrants to be issued in connection with
the DCI acquisition, and
o Will reserve approximately 40,000 shares of our common stock for
issuance upon conversion of convertible securities of DCI that will be
assumed by OSS in connection with the DCI acquisition.
We have also reserved an indeterminate number of shares of common stock
for issuance upon conversion of outstanding shares of our 10% and Series C
preferred stock. Based on the market value for the common stock as of May 15,
1999, the then outstanding 10% preferred stock was convertible into 96,644
shares of our common stock and the then outstanding Series C preferred stock was
convertible into approximately 40,747 shares of our common stock. The number of
shares of common stock issuable upon conversion of the 10% preferred stock and
the Series C preferred stock could increase significantly if the market value
for our common stock decreases in the future. We may need to issue additional
similar securities in connection with our need to raise additional working
capital.
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 in compliance with Rule 144, upon exercise or conversion of
derivative securities, or even the potential for sales of our common stock,
could affect our ability to raise capital through the sale of equity
securities.
Our charter documents may inhibit a takeover of OSS. 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 rights, preferences and privileges of which may be determined at the time of
issuance by the board of directors, without further action by our shareholders.
Our board of directors could authorize the issuance of shares of common stock or
preferred stock that 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.
If the right to acquire or issue shares of our Series C preferred stock
is exercised, we may be required to record a non-operating expense which will
increase our net loss available to shareholders. If we exercise our right to
issue or the investor exercises its right to acquire up to $2,000,000 additional
principal amount of our Series C preferred stock, we may incur non-operating
expenses in excess of $2,000,000 at the time that these additional shares of
Series C preferred stock are issued.
We do not anticipate paying dividends on our common stock. We have
never paid dividends on our common stock and do not intend to pay any cash
dividends on our common stock. Any decision by us to pay dividends on our common
stock will depend on a number of factors, including our profitability at the
time and available cash. 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 "Online System
Services, Inc.", "Risk Factors," "Recent Developments" 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 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 OSS or DCI, you should be aware that OSS' and DCI's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by OSS or DCI 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
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economic conditions, intense competition, including entry of new competitors,
ability to obtain sufficient financing to support OSS' and DCI's operations,
progress in research and development activities, variations in costs that are
beyond OSS' and DCI's 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 OSS' and DCI's
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, the 20,000 shares offered by EBI Securities Corporation and, as
of May 15, 1999, 160,771 shares offered by Arrow Investors II LLC are issuable
upon the exercise of issued and outstanding transferable warrants of OSS. If
these warrants are exercised in full, we will receive proceeds of $2,114,200.
RECENT DEVELOPMENTS
Proposed Acquisition of DCI
On March 19, 1998 we executed an Agreement and Plan of Merger in which
we agreed to acquire Durand Communications, Inc., a California corporation, via
a merger of our wholly owned subsidiary, Durand Acquisition Corporation, with
DCI. We anticipate that the DCI merger will occur in the second quarter of
1999.
A significant element of our strategy to achieve our growth objective
is to seek acquisitions that add immediate revenue, provide product or
technology enhancements in one or more of our targeted markets or provide an
existing customer base to increase advertising or e-commerce opportunities. Our
acquisition of DCI will provide us with DCI's technology, including both
completed technology and technology in development, and product development
expertise.
Our product development strategy is based upon our belief that the Web
is evolving from an information access and delivery tool to a system that
supports communication and community interactivity. We believe that DCI's
CommunityWare technology, which enables users to organize themselves on the
Internet in a matter of minutes, and to then manage and expand their own public
and private online community to facilitate and promote communications,
information sharing and commerce among the users that comprise the various
constituent communities, is particularly well suited for providing the
communications component for our software. Since the execution of the DCI merger
agreement, representatives of DCI and OSS have worked together to incorporate
the CommunityWare technology into our software. Following the DCI merger, we
intend to fully integrate DCI's product development efforts with our own and to
fully integrate DCI's products with our products and to market them as part of
our product offerings and not on a stand-alone basis. In the event that the DCI
merger is not completed, DCI has agreed to grant us a license for CommunityWare
on as favorable terms as it licenses its technology to others.
We believe that the primary value of DCI to OSS is:
o DCI's proprietary technology, particularly DCI's CommunityWare
technology,
o DCI's software development capabilities which we believe are important
to our ability to continue to develop state-of-the-art proprietary
software products required to maintain long-term relationships with our
customers, and o The ability the DCI acquisition will give us to
greatly reduce the time it will take us to introduce new proprietary
software products.
Andre Durand, chief executive officer of DCI, has, subject to the completion of
the DCI merger been elected senior vice president-product development of OSS and
will be responsible for our product development efforts. A condition to the DCI
merger is that Mr. Durand enter into a three-year noncompete agreement with OSS.
We intend to continue to employ most of DCI's product development personnel
following the DCI merger.
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We also believe that DCI's electronic university network business,
which offers accredited online courses for colleges, universities and
corporations, represents a valuable business opportunity. We expect to continue
to develop this business both as a separate product offering and as an adjunct
to our product offerings.
The DCI merger agreement contemplates that we will acquire 100% of the
outstanding common stock of DCI. Based on the average closing price of our
common stock for the two days before and the two days after March 19, 1998, the
day that the transaction was announced, the total purchase price is estimated to
be approximately $13,100,000, consisting of:
o 955,649 shares of our common stock to be issued to the stockholders of
DCI;
o Approximately 240,000 shares of our common stock to be reserved for
issuance upon the exercise of options and warrants of DCI to be
exchanged for similar securities of OSS at exercise prices ranging from
$4.31 to $20.33 per share; and
o Approximately $400,000 of expenses to be incurred.
In addition, DCI will have approximately $1,200,000 of liabilities, including
approximately $381,000 of convertible securities which will be converted into
similar convertible securities of OSS, at the time of the DCI merger, which will
become the liabilities of the consolidated entities upon consummation of the DCI
merger. We will reserve approximately 40,000 shares of our common stock to be
issued upon the conversion of these convertible securities.
The DCI merger will be accounted for under the purchase method of
accounting, with the purchase price allocated to the fair value of assets
acquired. A portion of this amount and liabilities assumed on a consolidated
basis has been identified as intangible assets. The portion of the purchase
price and liabilities assumed on a consolidated basis which is allocated to
in-process research and development will be recognized as expense in the period
the DCI merger is consummated.
DCI acquired its electronic university network business from
CompuLearning Systems during January 1998. Based on preliminary financial
information provided by DCI and CompuLearning, the combined revenues for DCI and
CompuLearning for the year ended December 31, 1998 totaled $813,522, including
$540,372 of services provided to OSS and DCI's combined loss for the same period
equaled ($1,564,160). In addition, DCI's accumulated deficit at December 31,
1998 was ($8,397,347) and DCI's shareholders' deficit at December 31, 1998 was
($1,492,548). We estimate that, on a pro forma basis, the acquisition of DCI
would have resulted in an increase to the net book value of our shares of common
stock as of December 31, 1998 of $1.77. In addition, we estimate that, on a pro
forma basis adjusted to reflect the subsequent conversions of 10% preferred
stock and Series A preferred stock, the subsequent exercise of the warrants to
purchase 140,000 shares of common stock issued in connection with the issuance
of the Series A preferred stock, and the subsequent issuance and conversions of
Series C preferred stock, the acquisition of DCI would have resulted in an
increase to the net book value of our shares of common stock as of December 31,
1998 of $2.05.
The final determination of the value of consideration issued by OSS and
the liabilities assumed will be made at the effective time of the DCI merger.
Accordingly, the determination of the total purchase price, liabilities assumed
and the allocations may change significantly from the amounts stated in this
prospectus.
If, for some unanticipated reason, the DCI merger was not completed, we
would be required to license the CommunityWare technology from DCI for a license
fee which would need to be negotiated. In addition, we would need to hire
additional software development engineers to replace those that would have
joined us had the DCI merger been completed.
Acquisition of NetIgnite
On March 10, 1999, we acquired a majority interest in a newly formed
company, NetIgnite 2, LLC. NetIgnite is a development stage company which we
formed with a predecessor company by the name of NetIgnite, Inc., the sole
shareholder and founder of which was Perry Evans, the founder and past President
of MapQuest.com. In connection with the formation of NetIgnite, the predecessor
company contributed all of its rights to specified technology of NetIgnite and
we agreed to provide $1,500,000 of funding which we believe will be required to
implement NetIgnite's business plan during the next 12 to 18 months. We are
entitled to 99.5% of NetIgnite's operating income and approximately 60% of any
proceeds upon the sale of NetIgnite. The predecessor company is
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entitled to .5% of NetIgnite's operating income and approximately 40% of any
proceeds upon the sale of NetIgnite. We have entered into a buy-sell agreement
with the predecessor company under which either we or the predecessor company
could acquire all of the other's interest in NetIgnite. If we sell our interest
in NetIgnite under the buy-sell agreement, we will be entitled to retain a
limited non-exclusive license to utilize the technology developed by NetIgnite.
Mr. Evans has entered into an employment agreement with OSS and NetIgnite which
has an initial term of two years, provides for a minimum annual salary of
$190,000 and the granting of stock options to purchase 80,000 shares of our
common stock at an exercise price of $12.25. These options vest in one-third
increments annually during the next three years subject to Mr. Evans' continuous
employment by OSS.
NetIgnite is applying emerging technologies to develop private-label
Web-based services designed to allow directory publishers, online search engines
and Internet service providers to enhance end-user and advertiser value by
facilitating data-driven comparison shopping. NetIgnite plans to employ XML, a
next generation web language that makes it possible to add database capability
to information found on a web page, to solve the following problems:
o Make it far easier for potential customers to find local business web
sites by searching the information presented within the web site, not
just the domain name or limited description fields of today's
technology.
o Allow consumers to compare price, product offering, and other
information of their choosing among competing providers.
o Allow directory services, Internet service providers, and community
start page providers to generate advertising and e-commerce revenue
from local web site owners who previously have seen limited traffic
from internal site promotions or general advertising placements.
o Enhance the value of small and geographically-focused web sites by
making them easier to create and maintain, as well as by increasing
targeted page views.
NetIgnite intends to provide its services on a hosted, private label
basis, earning an annual fee from its customers for each business web site its
products and services enable. We believe that NetIgnite's products and services
may be marketed directly to online directory publishers, online search engines
and Internet service providers as well as part of our community product and
service offering for broadband operators and other Internet service providers.
We expect NetIgnite's first products to be available during the third quarter of
1999. However, there can be no assurance that NetIgnite will be successful in
developing its proposed products or that, if developed, that they can be
successfully introduced and marketed or that NetIgnite's business will be
profitable.
SELLING SHAREHOLDERS
The selling shareholders have indicated that the shares offered by this
prospectus may be sold from time to time by them or by their pledgees, donees,
transferees or other successors in interest. The following table shows as of
May 15, 1999:
o The name of each of the selling shareholders,
o The number of shares of our common stock beneficially owned by each of
the selling shareholders, and
o The number and percentage of securities offered by this prospectus that
may be sold from time to time by each of the selling shareholders.
As indicated in note (1) below, the number of shares of common stock
beneficially owned by and offered by Arrow Investors II LLC represents an
estimate of the number of shares of common stock beneficially owned by and
offered by Arrow Investors II based on the market price of our common stock as
of May 15, 1999. The actual number of shares of common stock beneficially owned
by and offered by Arrow Investors II is indeterminate and could be materially
less or more than this estimated number depending on factors that we cannot
predict, including the future market price of our common stock. Under the
registration statement of which this prospectus is a part we have registered an
aggregate total of 820,000 shares which may be issued to and offered by Arrow
Investors II.
In addition, under the registration statement of which this prospectus
is a part we have registered an additional number of shares of our common stock
that we may be required to issue to Arrow Investors II or EBI
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Securities Corporation as a result of any stock split, stock dividend or similar
transaction involving our common stock. In the following table, we have
calculated percentage ownership by assuming that all shares of common stock
which the selling shareholder has the right to acquire within 60 days from the
date of this prospectus upon the exercise of options, warrants, or convertible
securities are outstanding for the purpose of calculating the percentage of
common stock owned by the selling shareholder.
Arrow Investors II LLC is an investment fund managed by WEC Asset
Management LLC. Messrs. Daniel Saks, Ethan Benovitz, and Mark Nordlicht are the
managing partners and controlling persons of WEC Asset Management LLC. EBI
Securities Corporation is a wholly owned subsidiary of Eastbrokers International
Incorporated, a publicly held company.
There is no assurance that the selling shareholders will sell the
shares offered by this prospectus.
<TABLE>
<CAPTION>
- ---------------------------- -------------------- ------------------- --------------------- ------------------------
Shares of Common Percentage of
Stock Owned Shares of Common Shares of Common Common Stock
Beneficially Stock Offered By Stock Owned Owned Beneficially
Name of Selling Before Offering This Prospectus Beneficially After Before Offering/After
Shareholder Offering Offering
- ---------------------------- -------------------- ------------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Arrow Investors II LLC 534,082 (1) (2) 434,082 (1) 100,000 9.0%/1.7%
EBI Securities Corporation 120,650 (3) 20,000 100,650 (3) 2.1%/1.7%
</TABLE>
- ----------
* Less than 1% of shares outstanding.
(1) Includes:
o 40,747 shares issuable upon the conversion of the currently
outstanding Series C preferred stock, including accrued but
unpaid dividends, if this conversion occurred as of the close
of business on May 15, 1999 and
o 160,771 shares issuable upon the conversion of 2,000 shares of
Series C preferred stock issuable upon the exercise of a
warrant to purchase these shares of preferred stock at a per
share exercise price of $1,000 per share, assuming this
exercise and conversion occurred as of the close of business
on April 15, 1999.
When the currently issued and outstanding Series C preferred stock and
the Series C preferred stock that may be issued upon the exercise of
the warrant to purchase Series C preferred stock is converted, the
number of shares into which the Series C preferred stock will convert
may be more or less than 201,518 shares. Because the maximum conversion
price for the 2000 shares of Series C preferred stock has not yet been
determined, we cannot estimate the minimum number of shares of our
common stock into which this Series C preferred stock will convert.
Based on rules established by Nasdaq that limit the number of shares of
our common stock that we can issue without obtaining prior shareholder
approval, the maximum number of shares into which this Series C
preferred stock will convert is 697,436. For a discussion of the
conversion mechanism of our Series C preferred stock, see "Description
of Securities--Series C Preferred Stock--Redemption and
Conversion."
(2) Includes 100,000 shares issuable to affiliates of Arrow Investors II
LLC upon the exercise of warrants to purchase shares at a per share
exercise price of $16.33.
(3) Includes:
o 67,100 shares of common stock issuable upon the exercise of an
option to purchase shares at a per shares exercise price of
$8.10,
o 33,550 shares of common stock issuable upon the exercise of
warrants to purchase shares at a per share exercise price of
$9.00, and
o 20,000 shares issuable upon the exercise of a warrant to
purchase shares at a per share exercise price of $5.71 being
offered by this prospectus.
Does not include shares held by EBI Securities Corporation in its
capacity as a market maker in our securities.
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:
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o 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.
o Purchases by a broker or dealer as principal and resale by a
broker or dealer for its account using this prospectus.
o Ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
o In privately negotiated transactions not involving a broker or
dealer.
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. OSS 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.
To comply with the securities laws of some states, if applicable, the
shares will be sold in these 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 these states or an exemption from
registration or qualification is available and is complied with.
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 May 15, 1999, 5,660,473 shares of our common stock were
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.
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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.
Series C Preferred Stock
Our board of directors has authorized the issuance of up to 5,000
shares of our Series C preferred stock. As of May 15, 1999, 3,000 of these
shares had been issued, of which 2,500 shares had been converted into common
stock and 500 shares remained outstanding. In addition, we have issued a warrant
to purchase 2,000 shares of Series C preferred stock that is exercisable for
$1,000 per share. The following is a summary of the material rights, privileges
and preferences of the Series C preferred stock.
Voting. Each share of Series C preferred stock entitles the holder to
cast the number of votes equal to the number of whole shares of common stock
into which the Series C preferred stock held by the holder are convertible
immediately after the close of business on the record date fixed for the meeting
at which the vote is to be taken. The holders of the Series C preferred stock do
not have cumulative voting for the election of directors.
Dividends. The cumulative noncompounded dividend on the Series C
preferred stock is 4% per year based on the stated value of $1,000 per share,
payable as permitted by law, at our option, in cash or in common stock upon the
earlier of:
o The redemption or conversion of the Series C preferred stock or
o The liquidation of OSS.
We may not declare and pay any dividends on the common stock unless we first
declare and pay all unpaid dividends on the Series C preferred stock. Dividends
on the Series C preferred stock are equal in preference to any dividends
declared on our 10% preferred stock.
Redemption. We may redeem any shares of Series C preferred stock for
which we have not received a notice of conversion at any time by paying the
holders $1,200 per share plus accrued but unpaid dividends. In addition, if we
redeem our Series C preferred stock, we will be required to issue to the holders
of our Series C preferred stock warrants to purchase shares of our common stock.
The number of shares of common stock purchasable upon exercise of each of these
warrants will be equal to 100,000 multiplied by a fraction, the numerator of
which is the number of shares of Series C preferred stock held by each holder
and the denominator of which is 5,000. Each of these warrants will be
exercisable immediately upon issuance until the third anniversary of the date of
issuance and will have a per share exercise price equal to the lesser of:
o 140% of the of the closing bid price of our common stock on the date of
the issuance of the Series C preferred stock being redeemed, or
o If the redemption is occurring at least 120 days after the issuance of
the Series C preferred stock being redeemed, 100% of the closing bid
price of our common stock on the trading date that is closest to the
120th day.
For example, if we redeemed the 500 shares of Series C preferred stock
outstanding on the date of this prospectus, we would be required to issue a
warrant to purchase 10,000 shares of our common stock at a per share exercise
price of $13.57. We determined this warrant exercise price by comparing $20.65,
140% of the closing bid price of our common stock on the date of issuance of
this Series C preferred stock, with $13.57, 100% of the closing bid price of our
common stock on May 11, 1999, the 120th day after the issuance of this Series C
preferred stock, and choosing the lesser of the two prices.
In addition, if we receive a notice of conversion for shares of Series
C preferred stock for which the conversion price is less than $5.40 per share,
we may redeem this Series C preferred stock for a total price equal to the
product of:
o The number of shares of our common stock that would be issuable upon
conversion of the shares of Series C preferred stock being redeemed
and
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o The closing bid price of our common stock on the date of conversion.
We would also be required to pay accrued but unpaid dividends on the
shares of Series C preferred stock being redeemed. We would not be required to
issue a warrant to purchase shares of our common stock in this situation.
Conversion. The holders of our Series C preferred stock may convert
their Series C preferred stock at any time into shares of our common stock. If
the Series C preferred stock is converted, the conversion price for this
conversion will be the lesser of:
o 140% of the of the closing bid price of our common stock on the date of
the issuance of the Series C preferred stock being converted, or
o If the conversion is occurring at least 120 days after the issuance of
the Series C preferred stock being converted, 100% of the closing bid
price of our common stock on the trading date that is closest to the
120th day, or
o The average of the five lowest closing bid prices for our common stock
during the 44 consecutive trading days immediately preceding the
conversion of the Series C preferred stock.
The number of shares of common stock the holder will receive for each
share of Series C preferred stock converted is equal to $1,000 divided by the
conversion price. We would also be required to pay accrued but unpaid dividends
on the shares of Series C preferred stock being converted. We can pay these
accrued but unpaid dividend on the Series C preferred stock either:
o In cash or
o By issuing additional shares of common stock.
For example, if the holder had converted the 500 shares of Series C
preferred stock outstanding on May 15, 1999, the conversion price would have
been $12.44. We determined this conversion price by comparing 20.65, 140% of the
closing bid price of our common stock on the date of issuance of this Series C
preferred stock, with $13.57, 100% of the closing bid price of our common stock
on May 11, 1999, the 120th day after the issuance of this Series C preferred
stock, with $12.44, the average of the five lowest closing bid prices for our
common stock during the 44 consecutive trading days immediately preceding May
15, 1999, and choosing the lesser of the three prices. Therefore, if the 500
shares of Series C preferred stock had been converted on May 15, 1999, the
holders of those shares would have received ($1,000 / $12.44) x 500 = 40,192
shares of our common stock, plus accrued but unpaid dividends.
In addition, we may require the holders of our Series C preferred stock
to convert their Series C preferred stock at any time during the 20 day period
immediately following 20 consecutive trading days during which the closing bid
price of our common stock is equal to or greater than two times the maximum
conversion price for the Series C preferred stock being converted. The Series C
preferred stock must be converted five years after the date on which it was
issued.
Preemptive Rights. The holders of the Series C preferred 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 Preference. If we liquidate, dissolve or wind-up our
business, whether voluntary or involuntary, after we pay our debts and other
liabilities, the holders of the Series C 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 $1,000 per share of Series C preferred stock in
cash plus payment of all accrued but unpaid dividends. The liquidation
preference on the Series C preferred stock is equal in preference to the
liquidation preference on the 10% preferred stock. After this liquidation
preference is paid, holders of the Series C preferred stock shall be entitled to
share in any distributions made to the holders of our common stock as if each
share of Series C preferred stock was converted into the number of shares of
common stock into which it is convertible immediately prior to the close of
business on the business day fixed for the distribution.
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<PAGE>
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:
o Our annual report on Form 10-KSB for the year ended December 31, 1998.
o Our quarterly report on Form 10-QSB for the quarter ended March 31,
1999.
o The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on May 22, 1996.
o Our current report on Form 8-K dated January 11, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and telephone number:
Shareholder Services
Attn: Kim Castillo
Online System 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 shareholders 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
Our legal counsel, Gray, Plant, Mooty, Mooty & Bennett, P.A.,
Minneapolis, Minnesota, will issue an opinion about the legality of the shares
registered by this prospectus.
EXPERTS
The financial statements 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 reports regarding
these financial statements, and are included in this prospectus in reliance upon
the authority of Arthur Andersen LLP as experts in giving these reports. You
should refer to their report, which includes an explanatory paragraph that
discusses substantial doubt about our ability to continue as a going
concern.
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<PAGE>
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:
o Any breach of the duty of loyalty to OSS or its shareholders,
o Acts or omissions not in good faith or that involved intentional
misconduct or a knowing violation of law,
o Dividends or other distributions of corporate assets that are in
contravention of specified statutory or contractual restrictions,
o Violations of specified laws, or
o Any transaction from which the director derives an improper personal
benefit.
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================================================================================
No dealer, salesman 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 OSS. 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
----
Online System Services, Inc...........................................2
Risk Factors..........................................................3
Special Note Regarding Forward-Looking Statements.....................7
Use of Proceeds.......................................................8
Recent Developments...................................................8
Selling Shareholders.................................................10
Plan of Distribution.................................................11
Description of Securities............................................12
Where You Can Find More Information..................................14
Legal Matters........................................................15
Experts..............................................................15
Indemnification......................................................15
================================================================================
ONLINE SYSTEM
SERVICES, INC.
_______________
PROSPECTUS
_______________
____________, 1999
================================================================================
<PAGE>
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 OSS 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 OSS.
Securities and Exchange Commission fee $ 4,073.21
Accounting fees and expenses $ 3,000.00
Legal fees and expenses $ 7,000.00
Printing, Mailing $ 1,000.00
Transfer Agent fees $ 500.00
Miscellaneous $ 426.79
----------
TOTAL $16,000.00
Item 15. Indemnification of Officers and Directors
OSS' articles of incorporation provide that OSS shall indemnify, to the
full extent permitted by Colorado law, any director, officer, employee or agent
of OSS 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 OSS
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 OSS pursuant to the foregoing provisions, or otherwise, OSS 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.
OSS' 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 OSS 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 OSS 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 Online System
Services, Inc. (4)
3.2 Bylaws of Online System Services, Inc. (1)
4.1 Specimen form of Online System Services, Inc. Common Stock
certificate (2)
4.2 Form of Warrant issued to EBI Securities Corporation (3)
5.1 Opinion of Counsel (4)
23.1 Consent of Arthur Andersen LLP*
- ----------
* Filed herewith
(1) Filed with the initial Registration Statement on Form SB-2, filed April
5, 1996, Commission File No. 333-3282-D.
(2) Filed with Amendment No. 1 to the Registration Statement on Form SB-2,
filed May 3,1996, Commission File No. 333-3282-D.
II-1
<PAGE>
(3) Filed as Exhibit 4.6 to the Registration Statement on Form S-3, filed
December 22, 1998, Commission File No. 333-69477.
(4) Filed with the Registration Statement on Form S-3, filed January 29,
1999, Commission File No. 333-71503.
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.
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<PAGE>
SIGNATURES
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 May 18,
1999.
ONLINE SYSTEM SERVICES, INC.
By /s/ R. Steven Adams
--------------------------
R. Steven Adams, President 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 the 18th day of
May, 1999, by the following persons in the capacities indicated:
/s/ R. Steven Adams
- ---------------------------------
R. Steven Adams,
(President, Chief Executive Officer
and a Director)
/s/ William R. Cullen by R. Steven Adams attorney-in-fact
- ---------------------------------------------------------
William R. Cullen
(Chief Financial Officer and a Director)
/s/ Stuart J. Lucko
- ---------------------------------
Stuart J. Lucko
(Controller)
Robert J. Lewis
- ---------------------------------
(Director)
/s/ Richard C. Jennewine by R. Steven Adams attorney-in-fact
- ------------------------------------------------------------
Richard C. Jennewine
(Director)
II-3
<PAGE>
Online System Services, Inc.
Form S-3
Index to Exhibits
3.1 Articles of Incorporation, as amended, of Online System
Services, Inc. (4)
3.2 Bylaws of Online System Services, Inc. (1)
4.1 Specimen form of Online System Services, Inc. Common Stock
certificate (2)
4.2 Form of Warrant issued to EBI Securities Corporation (3)
5.1 Opinion of Counsel (4)
23.1 Consent of Arthur Andersen LLP*
- ----------
* Filed herewith
(1) Filed with the initial Registration Statement on Form SB-2, filed April
5, 1996, Commission File No. 333-3282-D.
(2) Filed with Amendment No. 1 to the Registration Statement on Form SB-2,
filed May 3,1996, Commission File No. 333-3282-D.
(3) Filed as Exhibit 4.6 to the Registration Statement on Form S-3, filed
December 22, 1998, Commission File No. 333-69477.
(4) Filed with the Registration Statement on Form S-3, filed January 29,
1999, Commission File No. 333-71503.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3, to be filed on May 19,
1999, of our report dated March 10, 1999, included in Online System Services,
Inc. Form 10-KSB for the year ended December 31, 1998 and to all references to
our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
- ------------------------------
Denver, Colorado
May 19, 1999
