-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VhT/eER/3r/znuTeB7GGSjcePGzhgOFLDQciOWM3ZTKoSTHHG32TIzXZVtJrNJkx AmYWRBGCxCfX5LlZXJ4zgg== 0001045969-00-000093.txt : 20000214 0001045969-00-000093.hdr.sgml : 20000214 ACCESSION NUMBER: 0001045969-00-000093 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBB INTERACTIVE SERVICES INC CENTRAL INDEX KEY: 0001011901 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 841293864 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-87887 FILM NUMBER: 532530 BUSINESS ADDRESS: STREET 1: 1800 GLENARM PLACE STREET 2: STE 800 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032969200 MAIL ADDRESS: STREET 1: 1800 GLENARM PL STREET 2: SUITE 800 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ONLINE SYSTEM SERVICES INC DATE OF NAME CHANGE: 19960410 S-3/A 1 AMENDMENT NO. 4 TO FORM S-3 As filed with the Securities & Exchange Commission on February 11, 2000 Registration No. 333-87887 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- AMENDMENT NO. 4 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] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for same offering. [_] ____________________________________________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for same offering. [_] _________________________________________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE Title of securities to Amount to be Proposed maximum Proposed maximum aggregate Amount of be registered registered offering price (1) offering price (1) registration fee - -------------------------------------------------------------------------------------------------------------------------- Common Stock, no par value 836,519 (2) $11.625 $9,724,533 $3,650.48*
_______________________________ * 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. ii 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 10, 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 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 2 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. 3 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, 4 . 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 5 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. 6 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 7 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.
Shares Issued Upon Conversion Percentage of Market Price (Conversion Price) Outstanding - ---------------------------------- ----------------------------- ---------------- $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% - ---------------
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 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 . 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.
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) - ------------------------------------------------------------------------------------------------------------------------------------ Castle Creek 433,255 (4.99%) 769,562 (8.5%) 836,519 (12.5%) 136,519 (1.5%) Technology Partners LLC (1)
(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 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 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 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 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
Conversion Shares Issued Upon Percentage of Market Price Price Conversion Outstanding Shares - --------------------------------- -------------- ----------------------- ----------------------- $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%
________________ 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 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 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 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 ========================================== ================================== 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 ========================================== ================================== 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) 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. 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 10, 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 10, 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 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. EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS 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 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----