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As filed with the Securities & Exchange Commission on February 15, 2000
Registration No. 333-87887
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 5
TO
FORM S-3/A
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------
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
-------------------------
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. [_]
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value 836,519 (2) $11.625 $9,724,533 $3,650.48*
</TABLE>
_______________________________
* Amount previously paid based on 1,129,568 shares, the number of shares to be
registered at time of initial filing.
(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 warrant
(136,519 shares); (ii) upon conversion of an outstanding promissory note
(the "Note") in the principal amount of $5,000,000 (625,000 shares); 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 (75,000
shares). The 625,000 shares included for the conversion of the Note assumes
a conversion price of $8.00, which will be the minimum conversion price for
the Note if the registrant completes a financing of at least $10 million by
March 22, 2000. The current conversion price for the Note is $10.07. The
shares include any additional shares issued to prevent dilution resulting
from stock splits, stock dividends or similar transactions.
_______________________________
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 FEBRUARY 15, 2000 PROSPECTUS
WEBB INTERACTIVE SERVICES, INC.
This is a public offering of a maximum of 836,519 shares of common stock of
Webb Interactive Services, Inc. The shares include up to (i) 700,000 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)
136,519 shares issuable upon exercise of a transferable stock purchase
warrant.
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,
136,519 of the shares offered by the selling shareholder are issuable upon the
exercise of an outstanding stock purchase warrant at an exercise price of $11.44
per share. If this warrant was exercised in full, we would receive gross
proceeds of up to $1,561,777.
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
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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 June 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.
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.
Our strategy is to grow our local commerce and e-banking businesses
by:
. 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.
On December 31, 1999, we obtained a commitment from investors,
including the selling shareholder, for the purchase of at least 10,000 shares of
our series B convertible preferred stock for $1,000 per share or $10 million in
the aggregate. The commitment is subject to the registration statement of which
this prospectus is a part being
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made effective by the SEC, and there being no material adverse changes in our
business prior to the completion of the financing.
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.
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 three acquisitions which will be amortized over their estimated
useful lives of approximately three years. We have allocated
approximately $24 million to goodwill and other intangible assets in
connection with these acquisitions.
The accumulated deficit at September 30, 1999, included 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. 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 are expected to equal 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 June
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 conditions
and there is no assurance that we will be able to 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.
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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 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 affected. 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:
. 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,
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. 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 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
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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 affected 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 affect 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.
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
affected by the application or interpretation of these existing laws to the
Internet.
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Our articles of incorporation and bylaws may discourage lawsuits and other
claims against our directors. Our articles of incorporation provide, to the
fullest extent permitted by Colorado law, that our directors shall have no
personal liability for 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 affect the price of our stock. Our common stock traded as high
as $37.50 per share and as low as $7.50 per share between January 1, 1999 and
January 21, 2000. 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 January 21, 2000, we had issued warrants and options to acquire
approximately 3,183,000 shares of our common stock, exercisable at prices
ranging from $1.63 to $34.94 per share, with a weighted average exercise price
of approximately $10.53 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 our 10% convertible note. During
the terms of the note, the holders will have the opportunity to profit from
either an increase or, in the case of the 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 the note, 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% 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% convertible note, new investors may either
decline to make an investment in Webb due to the potential negative 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% convertible
note. If we are required to provide similar terms to obtain required financing
in the future, the potential adverse effect of this financing 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 January 21,
2000, these shares consist of:
. Approximately 770,000 shares owned by our officers and directors of
our outstanding common stock ("Affiliate Shares");
. An indeterminate and potentially unlimited number of shares issuable
upon conversion of the 10% convertible note; and
. Approximately 3,183,000 shares issued and issuable to warrant and
option holders.
In addition, we have obtained a commitment for the purchase of at least
10,000 shares of our series B convertible preferred stock with warrants
attached. If we sell 10,000 shares of the series B convertible preferred stock,
we estimate, based on the terms of the commitment and the market price for our
common stock, that the
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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 addition
we estimate that the warrants would entitle the holders to purchase at least
approximately 275,000 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 10% convertible note may
increase as the price of our common stock decreases, which may adversely affect
the price of our common stock. On January 21, 2000, we had issued and
outstanding $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 the note
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
convertible note, the following table sets forth the number of shares of common
stock that would be issued upon conversion of the convertible note if the market
price for our common stock is $34.69, the closing sale price for our common
stock on January 21, 2000, and at assumed market prices of 75%, 50% and 25% of
the market price on January 21, 2000. The table assumes that we have not
completed a $10 million financing by March 22, 2000 and that the conversion
price for the note 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.
<TABLE>
<CAPTION>
Shares Issued Upon Conversion Percentage of
Market Price (Conversion Price) Outstanding
- ---------------------------------- ----------------------------- ----------------
<S> <C> <C>
$34.69 (actual at 1/21/00) 496,524 ($10.07) 6%
$26.02 (75% of 1/21/00 price) 496,524 ($10.07) 6%
$17.34 (50% of 1/21/00 price) 496,524 ($10.07) 6%
$8.67 (25% of 1/21/00 price) 576,702 ($8.67) 7%
- ---------------
</TABLE>
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 and the
proposed issuance of preferred stock could require us to record non-cash
expenses 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 and
will be required to record additional non-cash interest expenses of $1,498,558
in the fourth quarter of 1999 and $485,170 in 2000 and 2001 and $315,638 in
2002. In addition, if we sell shares of our series B convertible
8
<PAGE>
preferred stock during the first quarter of 2000 as currently contemplated, we
will be required to record a non-operating/non-cash expense in the first quarter
of 2000, which we estimate will be equal to the purchase price for the preferred
stock.
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 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
us 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, 136,519 of the shares offered by the selling shareholder are
issuable upon the exercise of an outstanding warrant of Webb at an exercise
price of $11.44 per share. If this warrant was exercised in full, we would
receive up to $1,561,777 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 a warrant to purchase 136,519 shares of
our common stock. The selling shareholder acquired all of its convertible note
and the warrant in exchange for a cash investment given to us on August 25,
1999.
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 information as of January 18, 2000,
regarding the selling shareholder, including:
9
<PAGE>
. 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 us 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.
Purusant to our agreement with the selling shareholder, we are required to
register for resale by the selling shareholder 836,519 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
. The potential increase in the number of shares issuable with respect
to the convertible note if the conversion price declines to $8.00 due
to a decline in the market price for our common stock.
If the warrant was exercised in full and all of the convertible note was
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 warrant and conversion of the
convertible note if anti-dilution adjustments occur with respect to the warrant
or the conversion price for the convertible note changes from the initial
conversion price.
Pursuant to their terms, the convertible note and warrant 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 the
convertible note or warrant, 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
January 18, 2000. 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.
<TABLE>
<CAPTION>
Shares of Common Stock
Shares Of Common Owned Before Offering Plus Maximum Number of Shares of Common
Stock Owned All Shares Which Can Be Shares Offered Under Stock Owned
Selling Beneficially Before Acquired Over the Life of This Registration Beneficially After
Shareholder Offering (%) (1) Convertible Securities (%) Statement (%) Offering (%) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Castle Creek 433,255 (4.99%) 769,562 (8.5%) 836,519 (12.5%) 136,519 (1.5%)
Technology
Partners LLC (1)
</TABLE>
(1) c/o Castle Creek Technology Partners LLC, 77 West Wacker Drive, Suite 4040,
Chicago, Illinois 60601 Castle Creek Technology Partners LLC beneficially owns
433,255 shares, determined in accordance with Rule 13d-3, and disclaims
beneficial ownership of any shares other than these shares. Castle Creek
Technology Partners LLC acquired its securities in the ordinary course of its
business and at the time of its purchase of the securities it had no
understandings, directly or indirectly with any person to distribute the
securities. 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
10
<PAGE>
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) In connection with an amendment to the terms of the 10% convertible note on
December 18, 1999, the selling shareholder was granted a warrant to purchase
136,519 shares of our common stock. The shares issuable upon exercise of this
warrant are not included in the shares covered by this prospectus. The selling
shareholder has also agreed to purchase at least $5 million stated amount of our
series B preferred stock with warrants attached. If we sell 10,000 shares of
this preferred stock, the selling shareholder would purchase at least 5,000
shares of the preferred stock and at the conclusion of the offering own
preferred stock and warrants representing the right, based on the terms of the
offering and the current market price for our common stock and without giving
effect to any contractual limitations, to acquire an additional approximately
390,000 shares of our common stock which would represent approximately 4.5% of
the then outstanding shares.
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. We 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 warrant is exercised in full, we will
receive up to $1,561,777.
In connection with distributions of the shares or otherwise, the selling
shareholder 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 shareholder. After the effective date of the registration
statement of which this prospectus is a part, the selling shareholder may also
sell shares short and deliver the shares registered hereunder 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 covered by this prospectus, which the broker-
dealer may resell pursuant to this prospectus. The selling shareholder 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 shareholder 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 covered by this prospectus
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, the selling shareholder 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 the selling
shareholder, the broker-dealer or financial institution may offer and sell the
pledged shares from time to time.
11
<PAGE>
An affiliate of the selling shareholder has a short position in shares of common
stock. The selling shareholder has confirmed to us that none of the shares
covered by this registration statement will be used to cover any portion of this
short position. The selling shareholder has also confirmed to us that neither
the selling shareholder nor its affiliate will take any action to cover any
portion of this short position prior to completion of the distribution of shares
pursuant to this registration statement.
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 shareholder, 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 note and the warrant which required us to register
the underlying shares of our common stock under applicable federal and state
securities laws. 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 liability 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 make in respect thereof. We have agreed to indemnify and hold harmless the
selling shareholder from liability 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 generally may not simultaneously engage in market making
activities. 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 shareholder 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 shareholder.
RECENT EVENTS
On August 25, 1999, we borrowed $5,000,000 pursuant to a three-year
convertible promissory note bearing interest at the rate of 10% per annum to
fund operations pending completion of more permanent funding from one or more
strategic investors. During November, when it became apparent that it would be
difficult to complete a transaction with strategic investors in time to satisfy
all of our objectives, we elected to pursue financing which would be
adequate to fund operations throughout 2000 from financial investors. In this
connection, we have obtained a commitment for an investment of at least $10
million which we expect to complete during February 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. PaineWebber Incorporated assisted Webb in the
placement of the note and received a fee of $300,000 for its services. Our
agreement with the selling shareholder contained no provision for the
renegotiation of the terms of the note, nor did we anticipate doing so at that
time. However, on December 18, 1999, the terms of the promissory note were
amended at our request as we believed this would facilitate our ability to
obtain long-term financing. In consideration for the selling shareholder's
agreement to exchange the note for an amended note with terms we believed to be
more favorable for Webb, we issued to the selling shareholder a 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 issuance of the amended note and the
additional warrant were not registered pursuant to the registration requirements
of the Securities Act of 1933 in reliance upon the exemption contained in
Section 3(a)(9) of the Act.
12
<PAGE>
At the time of the amendment, we had begun discussions for the sale of our
preferred stock but did not have an understanding or arrangement for the sale of
the preferred stock if the amendment was completed. The material amendments to
the 10% convertible note and the warrant are as follows:
. The conversion price for the note was set at $10.07 per share until at
least March 22, 2000.
. The variable conversion price feature of the note will be eliminated in
the event that we are able to complete a financing by March 22, 2000 of
$10 million or more.
. If the average closing price of our common stock is greater than or
equal to $12.50 for the 15 trading days after this prospectus is
declared effective, we can require the conversion of one-half of the
principal amount of the note.
Additional amendments included:
. Except for our ability to require conversion of one-half of the
principal amount of the note, our rights to pre-pay the note before
August 25, 2000 were eliminated.
. After August 25, 2000, we can pre-pay any or all of the principal amount
of the note if the price of our common stock is 200% or greater of the
conversion price then in effect.
. In the event that we force the conversion of one-half of the principal
amount of the note, the selling shareholder can elect to have the
interest thereafter due and payable on the note paid in shares of our
common stock or additonal convertible notes similar to the 10%
convertible note.
. The exercise price of the warrant can be amended on September 30, 2000,
if the market price for our common stock is then less than $11.44.
The terms of the 10% convertible note and the warrant, as amended, are
described below under "Description of Securities -- Convertible Note" and
"-- Warrants."
Series B Convertible Preferred Stock.
- -------------------------------------
On December 31, 1999, we obtained a commitment from investors, including
the selling shareholder, for a purchase of at least 10,000 shares of our series
B convertible preferred stock. The commitment is subject to the registration
statement of which this prospectus is a part being made effective by the SEC,
and there being no material adverse changes in our business prior to the
completion of the financing. The purchase price for the preferred stock is
$1,000 per share, or $10,000,000 in the aggregate for 10,000 shares.
The preferred stock will be convertible into shares of our common stock,
initially at a conversion price equal to the lower of:
. 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
. $20.00.
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 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 proposed terms for the sale of the preferred stock and the
current market price for our common stock, we estimate that the preferred stock
will, assuming we sell 10,000 shares of the preferred stock, 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 $20.20, equal to 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 at least approximately 275,000 shares of our
common stock.
Staff Accounting Bulletin 101 - Revenue Recognition.
- ----------------------------------------------------
In December 1999, the SEC issued Staff Accounting Bulletin 101 regarding
revenue recognition. We are currently reviewing the impact, if any, this
bulletin will have on its financial reporting.
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 January 18, 2000, we had 8,249,208 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
13
<PAGE>
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.
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 our 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 note, 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.
14
<PAGE>
<TABLE>
<CAPTION>
Conversion Shares Issued Upon Percentage of
Market Price Price Conversion Outstanding Shares
- --------------------------------- -------------- ----------------------- -----------------------
<S> <C> <C> <C>
$34.69 (actual price at 1/21/00) $10.07 496,524 6%
$26.02 (75% of 1/21/00 price) $10.07 496,524 6%
$17.34 (50% of 1/21/00 price) $10.07 496,524 6%
$8.67 (25% of 1/21/00 price) $ 8.67 576,702 7%
</TABLE>
________________
The variable conversion price formula of the convertible note 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 note 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
holder 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
the 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 note 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
15
<PAGE>
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 thereafter 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 the current conversion price, this
would result in approximately 75,000 shares of our common stock being issued to
pay interest on the note.
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 $34.69, the closing
price on January 18, 2000, 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 245% more than if the interest had
been paid in cash. This would be an effective interest rate of 34.4%.
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 was 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. Each of the warrants is 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 warrant or the then current price
for our common stock and for stock splits, stock dividends and other similar
transactions.
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
16
<PAGE>
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.
. Our quarterly report on Form 10-QSB for the quarter ended September
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 current report on Form 8-K filed January 5, 2000.
. Our current report on Form 8-K filed January 14, 2000.
. Our current report on Form 8-K filed January 18, 2000.
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 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 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.
17
<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:
. Any breach of the duty of loyalty to us or our 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.
18
<PAGE>
========================================== ==================================
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 WEBB INTERACTIVE
unlawful to make an offer or SERVICES, INC.
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
Risk Factors.............................3
Special Note Regarding Forward-Looking
Statements............................9 _______________
Use of Proceeds..........................9
Selling Shareholder......................9 PROSPECTUS
Plan of Distribution....................11 _______________
Recent Events...........................12
Description of Securities...............13
Where You Can Find More Information.....16
Legal Matters...........................17
Experts.................................17
Indemnification.........................18
_________ __, 2000
========================================== ==================================
<PAGE>
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth our various expenses 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 us.
Securities and Exchange Commission fee $3,650.48
Accounting fees and expenses 4,000.00
Legal fees and expenses 11,000.00
Printing, Mailing 1,000.00
Transfer Agent fees 200.00
Miscellaneous 149.52
-----------------
TOTAL $20,000.00
Item 15. Indemnification of Officers and Directors
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 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 the person conducted
himself or herself in good faith and in a manner he or she reasonably believed
to be in or not opposed to our best interests, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to our directors, officers
and controlling persons pursuant to the foregoing provisions, or otherwise, we
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.
Our articles of incorporation limit the liability of our directors to
the fullest extent permitted by Colorado law. Specifically, the 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 us or our 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 statutory or contractual restrictions, or
. 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 (5)
10.3 Amendment dated December 18, 1999 to Securities Purchase
Agreement dated August 25, 1999 between Webb and the Selling
Shareholder (4)
10.4 First Amendment dated December 18, 1999 to Promissory Note dated
August 25, 1999 issued by Webb to Selling Shareholder (4)
<PAGE>
10.5 Stock Purchase Warrant dated August 25, 1999, as amended,
December 18, 1999, issued by Webb to Selling Shareholder (4)
10.6 Stock Purchase Warrant dated December 18, 1999, issued by Webb
to Selling Shareholder (4)
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 or amendment 2 thereto filed on
January 3, 2000.
(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.
<PAGE>
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 February
15, 2000.
WEBB INTERACTIVE SERVICES, INC.
By /s/ R. Steven Adams
--------------------------------------
R. Steven Adams, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below on February 15,
2000, by the following persons in the capacities indicated:
/s/ R. Steven Adams
- -----------------------------------------------------
R. Steven Adams,
(Chairman 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, Chief Executive Officer and a Director)
/s/ Robert J. Lewis *
- -----------------------------------------------------
Robert J. Lewis
(Director)
- -----------------------------------------------------
Richard C. Jennewine
(Director)
*By /s/ R. Steven Adams
--------------------------------------------------
Attorney-in-fact
<PAGE>
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 (4)
10.3 Amendment dated December 18, 1999 to Securities Purchase
Agreement dated August 25, 1999 between Webb and the Selling
Shareholder (4)
10.4 First Amendment dated December 18, 1999 to Promissory Note
dated August 25, 1999 issued by Webb to Selling Shareholder
(4)
10.5 Stock Purchase Warrant dated August 25, 1999, as amended
December 18, 1999, issued by Webb to Selling Shareholder (4)
10.6 Stock Purchase Warrant dated December 18, 1999, issued by Webb
to Selling Shareholder (4)
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 or amendment 2 thereto filed on
January 3, 2000.
(5) Filed with the current report on Form 8-K, filed September 2, 1999,
Commission File No. 000-28462.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
incorporated by reference in this registration statement of our report dated
March 10, 1999, included in Webb Interactive Services, Inc.'s 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
February 15, 2000
