<PAGE>
As filed with the Securities and Exchange Commission on July 27, 2000
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pilot Network Services, Inc.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 7380 94-3305774
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1080 Marina Village Parkway Alameda, CA 94501 (510) 433-7800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
M. Marketta Silvera
1080 Marina Village Parkway Alameda, CA 94501 (510) 433-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_______________________
Copies to:
Timothy J. Hoxie, Esq.
Heller Ehrman White & McAuliffe LLP
333 Bush Street
San Francisco, California 94104
Telephone: (415) 772-6000
Facsimile: (415) 772-6268
Approximate date of commencement of proposed sale to the public:
From time to time as soon as practicable following the effectiveness of this
Registration Statement.
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, 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 of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering:[_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:[_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:[_]
_______________________
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.
================================================================================
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Amount to be Offering Price per Aggregate Offering Registration Fee
Title of Securities to be Registered Registered(1) Share(2) Price(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value 4,511,572 $15.00 $67,673,580 $17,866
------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
___________________________________
(1) In accordance with Rule 416 under the Securities Act of 1933, common stock
offered hereby shall also be deemed to cover additional securities to be
offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions. Amount being registered includes the
maximum number of shares of common stock currently issuable upon conversion
of 15,000 shares of Series A convertible preferred stock.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices of the common stock on the
Nasdaq National Market on July 25, as reported in The Wall Street Journal.
-----------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we are+
+permitted by US federal securities law to offer these securities using this +
+prospectus, we may not sell them or accept your offer to buy them until the +
+documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated July 27, 2000
Prospectus
PILOT NETWORK SERVICES, INC.
4,511,572
Shares
Common Stock
This prospectus may be used only in connection with the resale, from time
to time, of up to 4,511,572 shares of common stock, $0.001 par value, of Pilot
Network Services, Inc. by the selling stockholders. This amount includes
3,014,199 shares of common stock which may be issuable upon conversion of
outstanding shares of Series A convertible preferred stock, 577,833 shares of
common stock issuable upon exercise of currently outstanding warrants to
purchase common stock held by the selling stockholders and 919,540 shares of
common stock currently owned by one of the selling stockholders.
Our address is 1080 Marina Village Parkway Alameda, CA 94501, telephone
number (510) 433-7800.
Our common stock trades on the Nasdaq National Market under the symbol
"PILT". On July 25, 2000, the closing price for our common stock, as reported
on the Nasdaq National Market, was $15.375 per share.
Beginning on page 2, we have listed a number of "RISK FACTORS" which you
should consider. You should read the entire prospectus carefully before you
make your investment decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell,
and seeking offers to buy, shares of Pilot's common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the shares.
In this prospectus, "Pilot", "we", "us" and "our" refer to Pilot Network
Services, Inc.
This prospectus is dated [______]
<PAGE>
SUMMARY INFORMATION
We provide a wide range of secure Internet services that incorporate high-
bandwidth connectivity and enable secure electronic business over the Internet.
Our services are offered for a fixed monthly fee on an annual subscription basis
and include secure hosting and Internet connectivity services that enable secure
connectivity between a corporate network and the Internet and secure virtual
private networking services that enable remote users and wide-area networks to
securely communicate enterprise-wide and over the Internet.
Our Internet services allow our customers to avoid the risks associated
with traditional approaches to Internet security. Customers can also avoid
extensive costs associated with implementing an in-house solution, including
set-up costs for security and systems design, hardware, software, Internet
access services provided by Internet Service Providers, as well as labor and
ongoing costs for telecommunications, staffing, maintenance and upgrades.
The foundation of our solution is our Heuristic Defense Infrastructure, an
Internet security approach we developed to continuously manage and monitor
Internet traffic to and from customer networks in order to respond in real-time
to security threats. The Heuristic Defense Infrastructure consists of a multi-
layered defensive architecture and around-the-clock security operations
delivered through geographically dispersed customer centers called Network
Security Centers that are connected to customer networks via dedicated, high-
speed data lines. Our solution aggregates the experience gained from protecting
each customer against attacks and leverages such experience for the collective
benefit of all customers. The Heuristic Defense Infrastructure offers benefits
over other security approaches by eliminating single points of failure,
enhancing attack detection, delivering real-time defenses, and adapting
continuously to external conditions. Customers can concentrate on their core
business because the secure infrastructure for electronic commerce is provided
by Pilot.
RISK FACTORS
You should carefully consider the following and other information contained
in this prospectus before making an investment decision. If any of the events or
circumstances described in the following risks actually occurs, our business,
financial condition, or results of operations could be materially harmed. In
that case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
You should consider carefully whether an investment in Pilot is an
appropriate investment for you. We do not intend to issue any dividends in the
foreseeable future, so the only purpose of investment in Pilot's shares is in
expectation of a potential increase in the shares' value. Because of the risks
mentioned here, and other risks not mentioned specifically here, it is possible
that Pilot's shares will decline in value in the future. If you cannot afford
to lose the full value of your investment, in either the short or long term,
purchasing Pilot shares is not appropriate for you.
If our existing financing sources and other sources are not available, we may
not have sufficient cash to satisfy our working capital requirements.
If we are unable to generate sufficient cash flow from operations, or are
unable to obtain additional equity or equipment lease financing, we may be
required to sell assets, scale down our operations and expansion plans,
refinance all or a portion of our existing indebtedness or obtain other sources
of financing earlier than planned, any of which could have a material adverse
impact on our financial condition and ability to continue operations. Our
working capital requirements depend upon several factors, including:
2
<PAGE>
. plans to incur substantial additional capital expenditures primarily
for additions to and expansions of our Network Security Centers;
. developing, acquiring or licensing new applications and technologies;
and
. the level of resources that we devote to our sales and marketing
activities.
In addition to the $30.0 million in aggregate equity investment in June
2000 and December 1999 and $8.0 million credit facility completed in November
1999, we believe that we will require additional equity financing. However, we
may not be successful in generating sufficient levels of cash from operations or
in obtaining financing on commercially reasonable terms, or at all.
We are experiencing operating losses and may not achieve profitability.
We have experienced operating losses and negative cash flows from
operations in each quarterly and annual period since we began operations in 1993
and expect to continue to experience losses for the foreseeable future. As of
March 31, 2000, we had an accumulated deficit of approximately $53.0 million.
We experienced an increase in net loss in fiscal 1998, 1999 and 2000. The
revenue and income potential of our business and market is unproven, and our
limited operating history makes an evaluation of our prospects difficult.
Failure of our services to achieve market acceptance would have a material
adverse effect on our revenues and results of operations. We cannot assure you
that we will ever achieve profitability.
Our stock price and our quarterly operating results are highly volatile, which
may impair our ability to raise money and cause our investors to lose money.
Our results of operations may not meet the expectations of securities
analysts or investors, which could cause the market price of our common stock to
decline. For example, a relatively large portion of our expenditures are fixed
in the short-term, and our success is substantially dependent on the continued
growth in our customer base and the retention of our customers for sufficient
periods to provide returns on our investment. We derive revenue from our
customers primarily through initial setup fees and ongoing monthly service
charges. For each new customer, we incur costs in anticipation of the
customer's decision to use our services and in advance of the receipt of
sufficient revenues to repay these costs and provide a return on our investment.
Our customers may decide not to maintain or renew their commitments to use our
services.
In addition, we typically experience a lengthy sales cycle for our
services, particularly given the importance to customers of adequately securing
Internet connectivity for electronic commerce and the need to educate them
regarding the requirements for effective network security. Changes in the rate
of growth in our customer base, customer renewal rates and the sales cycle for
our services, have caused, and we expect will continue to cause for the
foreseeable future, significant fluctuations in our results of operations on a
quarterly and an annual basis.
The conversion of our Series A convertible preferred stock may have a dilutive
impact on our security holders.
The number of shares of common stock that may ultimately be issued upon
conversion of shares of our Series A convertible preferred stock is presently
undeterminable because the conversion price of the Series A convertible
preferred stock is based in part on the price of the common stock at the time of
the conversion. The conversion price of the Series A convertible preferred
stock is initially fixed at
3
<PAGE>
$18.266 per share. The conversion of all of the 15,000 shares of Series A
convertible preferred stock outstanding would result in the issuance of
approximately 821,198 shares of common stock. This represents about 5.5% of our
outstanding common stock based on the number of shares outstanding as of June
28, 2000.
The terms of the Series A convertible preferred stock provide that the
number of shares issuable upon conversion of the Series A convertible preferred
stock will increase as the price of our common stock drops. For example, if the
price of our common stock declines and the conversion price falls to $10.00 per
share, assuming all 15,000 shares of Series E preferred stock were converted, we
would issue approximately 1,500,000 shares of common stock. This would
represent approximately 9.9% of our outstanding common stock based on the number
of shares outstanding as of June 28, 2000. Any increased issuance of our common
stock resulting from a lowered conversion price could place additional downward
pressure on the price of our common stock generally. A downward movement in the
price of our common stock could result in the loss of substantially all your
investment.
We rely on third parties to deliver our Heuristic Defense Infrastructure and
generate revenues.
In fiscal 2000, we sold technology and consulting services to enable two
telecommunications carriers to embed our Heuristic Defense Infrastructure in
several of their security centers. As part of the relationship with these
carriers, we will receive a recurring fee based on the total revenue generated
through the Heuristic Defense Infrastructure. In exchange, we will provide
security monitoring for network traffic using the Heuristic Defense
Infrastructure. While the telecommunications carriers have committed capital
and operational resources to these projects, as of July 24, 2000, none of these
third-party centers are operational. There are no guarantees that these centers
will ever be operational or that they will generate material revenues or
earnings for us. To the extent one or both of the carriers elect not to proceed
with using the Heuristic Defense Infrastructure or if the implementation is
materially delayed, there could be a material adverse effect on our ability to
expand operations and improve our operating results and financial condition.
We may not be able to prevent unauthorized access to our customers' networks.
Despite our focus on Internet security, we may not be able to stop
unauthorized attempts, whether made unintentionally or by computer "attackers,"
to gain access to or disrupt the network operations of our customers.
Accordingly, our success is substantially dependent on the continued confidence
of our current and potential customers that we provide superior network security
protection. Any failure by us to stop unauthorized access from the Internet or
disruptions to related Internet operations of our customers could materially
harm such customers and us.
Although we generally limit warranties and liabilities relating to security
in our customer contracts, our customers may seek to hold us responsible for any
losses suffered as a result of unauthorized access to customers' network systems
from the Internet. This could result in liability to us, which could have a
material adverse effect upon our business. Moreover, computer attackers from
the Internet could infiltrate our network and sabotage our network or services
by creating bugs or viruses. Any adverse publicity resulting from unauthorized
access could deter future customers from using our services and could cause
current customers to cease using our services, which could have a material
adverse effect upon our business.
We may not be able to effectively manage our growth.
Any inability on our part to manage effectively our expansion, including
any disruption of service to current customers, may have a material adverse
effect upon our business. Our current plans are to
4
<PAGE>
expand domestically and internationally by adding, or partnering with third
parties that add, Network Security Centers in new locations and expanding
Network Security Centers in existing locations. This expansion will require us
or our partners to expend substantial resources for leases and improvements of
facilities, purchases of equipment, implementation of multiple
telecommunications connections and hiring of network, administrative, customer
support, and sales and marketing personnel. Furthermore, it may cause the
interruption of service to current customers.
In addition, we have recently hired large numbers of new employees. This
growth has placed, and may continue to place, a significant strain on our
financial, management, operational and other resources.
The market we serve is highly competitive and we may lose market share to
current or future competitors.
We may not have the resources or expertise to compete successfully in the
market we serve. The market we serve is new, rapidly evolving, highly
competitive and largely undefined. There are few barriers to entry, and we
expect that we will face increasing competition from existing competitors and
new market entrants in the future.
We compete with a broad range of products and services. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. As a
result, certain of these competitors may be able to develop and expand their
network infrastructures and service offerings more quickly, adapt to new or
emerging technologies and changes in customer requirements more quickly, take
advantage of acquisition and other opportunities more readily, devote greater
resources to the marketing and sale of their products and adopt more aggressive
pricing policies than us.
In addition, we believe that the businesses with which we compete are
likely to encounter consolidation in the near future, which could result in
increased price and other competition that could have a material adverse effect
on our ability to compete in our market.
If our systems fail, our business will suffer.
Despite existing and planned precautions by us, the occurrence of a natural
disaster or other unanticipated problems at one or more of our Network Security
Centers could result in interruptions in the services we provide. Our success
depends on the excellence of security protection and uninterrupted operation of
our network infrastructure. Any damage to or failure of our systems or those of
our service providers could result in reductions in, or terminations of,
services supplied to our customers. These reductions or terminations in service
could materially and adversely impact our customers, which could cause our
customers to elect not to use our services.
5
<PAGE>
The expansion of our international operations exposes us to risks.
A key component of our long-term strategy is to expand into international
markets. If the revenue we generate from any international Network Security
Center is not adequate to offset the expense of establishing and maintaining any
such international operation, our financial condition could be materially
adversely affected.
If our growth exceeds our capacity to transmit data, our business will suffer.
If we fail to achieve or maintain high capacity data transmission, customer
demand for our services could decline significantly. We must continue to expand
and adapt our network infrastructure as the number of customers and the amount
of information they wish to transmit increases, and as customer requirements
change. The expansion and adaptation of our telecommunications infrastructure
will require substantial financial, operational and management resources.
Because the deployment of our services to date has been limited, the ability of
our network to connect and manage a substantially larger number of customers at
high transmission speeds is as yet unknown and our network's ability to operate
with higher customer levels while maintaining superior performance is unproven,
we may not be able to expand or adapt our telecommunications infrastructure to
meet additional demand or our customers' changing requirements.
We depend on third party network infrastructure providers to deliver our
services.
Our business relies on Internet exchange points, or IXPs, to transmit our
customers' traffic to and from the Internet. If the carriers that operate these
IXPs discontinue their support of the peering points or refuse to offer services
to us and no alternative providers emerge, or such alternative providers
increase the cost of utilizing the IXPs, our ability to transmit network traffic
will be significantly constrained. Our success depends upon these Internet
infrastructure providers.
In addition, we rely on a number of private peering interconnections (i.e.,
arrangements among access providers to carry traffic of each other) to deliver
our services. If we are unable to access alternative networks on a cost-
effective basis to distribute our customers' content or pass through any
additional costs of utilizing these networks to our customers, our business will
be materially harmed.
Our ability to deliver our services will suffer if we are unable to obtain
components available in limited quantities or from single source.
If we fail to obtain hardware or software components that we require on a
timely basis and at an acceptable cost, our ability to provide our services will
suffer. We are dependent on other companies to supply certain key components of
our telecommunications infrastructure and system and network management
solutions that, in the quantities and quality demanded by us, are available only
from sole or limited sources.
We also intend to develop alternative distribution and lead generation
channel partners for our services, such as systems integration firms and
bandwidth providers. If we fail to develop these channel partners, our ability
to generate increased revenues will be materially and adversely affected.
If we are not able to enhance our products to adapt to rapid technological
change, our services may not achieve market acceptance.
Our success depends, in part, on our ability to offer services that
incorporate leading technology, address the increasingly sophisticated and
varied needs of our current and prospective customers and
6
<PAGE>
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. The market for our services is
characterized by rapidly changing and unproven technology, evolving industry
standards, changes in customer needs, emerging competition and frequent new
service introductions. Future advances in technology may not be beneficial to,
or compatible with, our business or we may not be able to incorporate such
advances on a cost-effective and timely basis into our business. We believe that
our ability to compete successfully is also dependent upon the continued
compatibility and interoperability of our services with products, services and
architectures offered by various vendors as part of our services. These products
may not be compatible with our infrastructure or these products may not
adequately address changing customer needs. In addition, products, services or
technologies developed by others may render our services uncompetitive or
obsolete, which would materially harm our business.
If we are not able to attract and retain qualified personnel, our business will
not be able to grow.
Our success depends in significant part upon the continued services of our
key technical, sales and senior management personnel, including our President
and Chief Executive Officer, Marketta Silvera, and our Chief Technology Officer,
Thomas Wadlow. Any officer or employee of ours can terminate his or her
relationship with us at any time. The loss of the services of one or more of
our key employees or our failure to attract additional qualified personnel could
have a material adverse effect on our business.
The law governing the liability of on-line service providers is unsettled and
exposes us to risks.
The law relating to the liability of on-line service companies such as
Pilot and Internet access providers for information carried on or disseminated
through their networks is currently unsettled. It is possible that claims could
be made against us under both United States and foreign law for defamation,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through our networks. The
imposition of liability upon us for information carried on or disseminated
through our systems could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources, or to discontinue certain service or product offerings.
Our proprietary rights may be inadequately protected and infringement claims
could harm our competitive position.
We rely on a combination of copyright, trademark, patent, service mark and
trade secret laws and contractual restrictions to establish and protect and
proprietary rights in technology underlying our services. We may fail to obtain
patents or trademarks from currently pending or any future applications, and any
patents or trademarks that may be issued or granted may not be sufficient in
scope or strength to provide meaningful protection or any commercial advantage
to us. In addition, the laws of certain foreign countries may not protect our
products, services or intellectual property rights to the same extent as do the
laws of the United States.
The contractual arrangements and other steps we take to protect our
intellectual property may not prove sufficient to prevent infringement of or
misappropriation of our technology or may not deter independent third-party
development of similar technologies. Any such infringement or misappropriation,
should it occur, could have a material adverse effect on our ability to deliver
our services.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but we cannot assure you that third parties
will not claim infringement or indemnification by us with respect to current or
future products. Any such claim, whether meritorious or not, is likely to be
7
<PAGE>
time-consuming, result in costly litigation, cause product installation delays,
prevent us from using important technologies or methods, subject us to
substantial damages, or require us to enter into royalty or licensing
agreements. As a result, any such claim could have a material adverse effect
upon our business.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Forward-looking statements made in this prospectus or in the documents
incorporated by reference herein that are not statements of historical fact are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). A number of
risks and uncertainties, including those discussed above under the caption "Risk
Factors" above and the documents incorporated by reference herein could affect
such forward-looking statements and could cause actual results to differ
materially from the statements made.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the SEC. You may read and copy any document we file at the SEC's
public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, 7 World Trade Center, Suite 1300, New York, New
York, 10048 and 500 West Madison, Chicago, Illinois, 60661. You should call 1-
800-SEC-0330 for more information on the public reference room. The SEC
maintains an Internet site at http://www.sec.gov where you can find certain
information regarding issuers (including Pilot).
This prospectus is part of a registration statement that we filed with the
SEC (Registration No. [_____]). The registration statement contains more
information than this prospectus regarding Pilot Network Services Inc. and its
common stock, including certain exhibits and schedules. You can get a copy of
the registration statement from the SEC at the address listed above or from the
SEC's Internet site.
The following documents filed pursuant to the Exchange Act are incorporated
into this prospectus by reference:
. our Annual Report on Form 10-K for the fiscal year ended March 31,
2000 as filed with the SEC on June 30, 2000;
. our Current Report on Form 8-K filed with the SEC on June 30, 2000;
and
. the description of our common stock contained in the registration
statement on Form 8-A filed under the Exchange Act registering our
common stock under Section 12 of the Exchange Act.
All documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and prior to the termination of
the offering of the securities offered in this prospectus shall be deemed to be
incorporated by reference in this prospectus.
We will undertake to provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus has been delivered, upon the
written or oral request of such person, a copy of any or all of the documents
referred to above which have been or may be incorporated in this prospectus by
reference, other than exhibits to such documents which are not specifically
incorporated by reference into the information that this prospectus
incorporates. Requests for such copies should be
8
<PAGE>
directed to: Chief Financial Officer, Pilot Network Services, Inc., 1080 Marina
Village Parkway Alameda, CA 94501 (510) 433-7800.
SELLING STOCKHOLDERS
On June 28, 2000, we entered into a securities purchase agreement with one
of the selling stockholders, Marshall Capital Management, Inc., pursuant to
which we sold 15,000 shares of our Series A convertible preferred stock to
Marshall Capital for $15,000,000. Marshall Capital also acquired a warrant to
purchase 256,621 shares of common stock with an exercise price of $17.536 per
share in connection with the transaction. This prospectus covers the common
stock issuable upon conversion of the 15,000 shares of Series A convertible
preferred stock, potential dividends paid in common stock, and common stock
issuable upon exercise of the warrant issued to Marshall Capital. The terms of
the securities purchase agreement and the Series A convertible preferred stock
are summarized below under "Description of Capital Stock - Preferred Stock."
We are registering the shares being offered by the other two selling
stockholders, Greyrock Capital and Primus Telecommunications Group,
Incorporated, pursuant to our obligations under an investors' rights agreement
to which they are parties. Greyrock Capital may acquire the shares it is
offering upon exercise of a warrant to purchase common stock we issued to
Greyrock in November 1999 in connection with a credit facility we established
with Greyrock at that time. Primus acquired the shares it is offering in a
December 1999 private placement.
Other than ownership of our securities, none of the selling stockholders
has had a material relationship with us within the past three years.
Registration Rights Agreement.
On June 28, 2000, we also entered into a registration rights agreement with
Marshall Capital. This agreement requires that we register shares of common
stock sufficient to effect the conversion of 15,000 shares of Series A
convertible preferred stock, any dividends paid in common stock to the holders
of the Series A convertible preferred stock, and the exercise of the warrant
issued to Marshall Capital. We will also prepare and file any amendments and
supplements to the registration statement as may be necessary in accordance with
the Securities Act, and the rules and regulations promulgated thereunder.
We are subject to penalties if we do not fulfill our obligations under the
registration rights agreement. For example, the registration statement must be
filed 30 days from the issue date of the Series A convertible preferred stock.
Furthermore, the registration statement covering the resale of the common stock
must be effective within 90 days after the date of the registration rights
agreement or, if earlier, 60 after the filing date of the registration statement
of which this prospectus forms a part. Finally, our stock must be listed on the
American Stock Exchange, the New York Stock Exchange, or the Nasdaq Stock
Market. Potential penalties for failing to meet our obligations under the
registration rights agreement include payments equal to approximately 1.5% of
the purchase price of the Series A convertible preferred stock per month until
the registration statement is either filed or effective and reductions in the
conversion price applicable to the Series A convertible preferred stock.
9
<PAGE>
Holdings of Selling Stockholders.
The following table sets forth the aggregate number of shares of common
stock beneficially owned by each of the selling stockholders and offered by
selling stockholders under this prospectus. After giving effect to the offering,
each of the selling stockholders beneficially owns no shares of our common
stock.
<TABLE>
<CAPTION>
Number
of Shares
Beneficially Percent of
Name of Selling Owned Prior Outstanding Number of
Stockholder to the Offering Common Stock(1) Shares Offered
------------------------------------------ ---------------- --------------- --------------
<S> <C> <C> <C>
Marshall Capital Management, Inc.............. 1,077,819(2) 6.7 3,270,820(3)
PrimusTelecommunications Group,
Incorporated............................... 1,119,540(4) 7.3 1,119,540
Greyrock Capital.............................. 121,212(5) * 121,212
--------- ---------
Totals........................................ 2,318,571 14.1 4,511,572
========= ==== =========
</TABLE>
------------------
* Less than one percent.
1 Based on 15,080,927 shares of common stock outstanding as of July 1,
2000.
2 Includes 256,621 shares subject to currently outstanding warrants. The
number of shares beneficially owned by Marshall Capital is based upon
the conversion price of the Series A convertible preferred stock in
effect on July 25, 2000.
3 Includes the maximum number of shares of common stock issuable upon
conversion of the Series A convertible preferred stock prior to
maturity, specifically 3,014,199 shares, plus 256,621 shares subject
to warrants.
4 Includes 200,000 shares subject to currently outstanding warrants.
5 Subject to currently outstanding warrants.
We have agreed to indemnify the selling stockholders against liabilities
arising under the Securities Act. Our agreements with the selling stockholders
provide that we will reimburse them for expenses they incur in connection with
investigating or defending against claims based upon untrue statements (or
alleged untrue statements) or omissions (or alleged omissions) of material facts
in our filings with the SEC. In addition, we will indemnify the selling
stockholders against claims based on any violation (or alleged violation) by us
of the Securities Act or other federal or state securities regulations.
As explained below under "Plan of Distribution," we have agreed to bear
certain expenses (other than broker discounts and commissions, if any) in
connection with the registration statement.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares offered
by this prospectus. The selling stockholders will receive all such proceeds.
PLAN OF DISTRIBUTION
All or a portion of the shares offered hereby by the selling stockholders
may be delivered and/or sold in transactions from time to time on the over-the-
counter market, on the Nasdaq National Market, in negotiated transactions, sales
on any market where our stock is traded, any other legal method of disposition,
delivery of shares in settlement of option/short sales transactions or other
derivative transactions, block trades, or a combination of such methods of sale,
at market prices prevailing at the time, at prices related to such prevailing
prices or at negotiated prices. The selling stockholders may effect such
transactions by selling to or through one or more broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the selling
10
<PAGE>
stockholders. Any broker-dealer that participates in the distribution may under
certain circumstances be deemed to be an "underwriter" within the meaning of the
Securities Act, and any commissions such broker-dealer receives and any profits
it realizes on the resale of shares may be deemed to be underwriting discounts
and commissions under the Securities Act. We have agreed to indemnify the
selling stockholders with respect to the shares offered hereby against certain
liabilities, including, without limitation, certain liabilities under the
Securities Act, or, if such indemnity is unavailable, to contribute toward
amounts required to be paid in respect of such liabilities.
Any broker-dealer participating in such transactions as agent may receive
commissions from the selling stockholders (and, if the selling stockholders act
as agent for the purchaser of such shares, from such purchaser). Broker-dealers
may agree with the selling stockholders to sell a specified number of shares at
a stipulated price per share, and, to the extent such a broker-dealer is unable
to do so acting as agent for the selling stockholders, to purchase as principal
any unsold shares at the price required to fulfill the broker-dealer commitment
to the selling stockholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
shares commissions computed as described above. To the extent required under
the Securities Act, a supplemental prospectus will be filed, disclosing:
. the name of any such broker-dealers;
. the number of shares involved;
. the price at which such shares are to be sold;
. the commissions paid or discounts or concessions allowed to such broker-
dealers, where applicable;
. that such broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
. other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale of shares may not simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of such distribution. In
addition, the selling stockholders will be subject to applicable provisions of
the Exchange Act, and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of shares of Pilot's common stock by the selling stockholders.
The selling stockholders will pay all commissions, transfer taxes, and
certain other expenses associated with the sale of securities by them. The
shares offered hereby are being registered pursuant to our contractual
obligations, and we paid the expenses of the preparation of this prospectus; we
will also have to bear the expense of maintaining the effectiveness of the
registration statement of which this prospectus forms a part.
11
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, the authorized capital stock of Pilot
consists of 40,000,000 shares of common stock, $0.001 par value, and 2,000,000
shares of preferred stock, $0.001 par value.
Common Stock
As of July 1, 2000, there were 15,080,927 shares of common stock
outstanding held of record by approximately 99 registered stockholders.
However, we believe, that many beneficial holders of our common stock have
registered their shares in nominee or street name. The holders of common stock
are entitled to one vote per share on all matters to be voted on by
stockholders, except that holders may cumulate their votes in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, common stockholders are entitled to receive ratably such
dividends as may be declared by the Board of Directors in its discretion from
funds legally available therefor. In the event of a liquidation, dissolution,
or winding up of Pilot, common stockholders are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any outstanding preferred stock. Common stockholders have no preemptive rights
and have no rights to convert their common stock into any other securities. The
outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
The Board of Directors has the authority to issue up to 2,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without any further vote or action by the stockholders. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of Pilot or making removal of management more difficult
without further action by the shareholders and could adversely affect the rights
and powers, including voting rights, of the holders of common stock. These
provision could also affect the market price of our common stock.
15,000 shares of Preferred Stock have been designated as Series A
convertible preferred stock. All of the shares of Series A convertible
preferred stock have been issued and sold to Marshall Capital pursuant to the
securities purchase agreement.
The terms of the Series A convertible preferred stock are summarized below.
Conversion: Each share of Series A convertible preferred stock has a stated
value of $1,000 and is convertible, at the election of the holder, into that
number of shares of our common stock as is equal to $1,000 plus the amount of
any unpaid dividends that have accrued on such preferred shares, plus any unpaid
premium, divided by the conversion price. The conversion price is equal to the
lower of:
. $18.266, which is equal to 25% above the average closing bid of our
common stock for the five day trading period immediately preceding
June 28, 2000, the issue date of the Series A convertible preferred
stock to Marshall Capital (the "fixed conversion price"), and
. an amount equal to 101% of the average of the three lowest closing bid
prices for the 10 trading days immediately preceding the day of
conversion (the "market conversion price").
12
<PAGE>
The following limitations apply to this conversion price:
. during the 90 day period beginning on June 28, 2000, the conversion
may only be effected at the fixed conversion price, and
. if on any day, the average closing price of the common stock for the
preceding five days is greater than 200% of the fixed conversion
price, and the registration statement is effective on this day and the
five days immediately preceding that date, thereafter the conversion
may only be effected at the fixed conversion price.
In addition, the aggregate number of shares of common stock issuable upon
conversion of the Series A convertible preferred stock and any other shares of
common stock aggregated with such shares under the Nasdaq Marketplace Rules
generally may not exceed 3,014,199, which is equal to 19.99% of the number of
shares of our common stock outstanding on June 28, 2000. However, we may issue
more than 3,014,199 shares in connection with the conversion of the Series A
convertible preferred stock at its maturity in June 2002 provided that our
stockholders have approved the issuance prior to that date.
The following are examples of how the conversion price works, assuming that
neither of the two limitations on the conversion price apply, and that there are
no premiums or dividends:
Example 1: If the average of the three lowest closing bid prices for
the 10 day trading period immediately prior to the
conversion date is $10 then each share of Series A
convertible preferred stock would convert into
approximately 99 shares of our common stock.
Example 2: If the average of the three lowest closing bid prices for
the 10 day trading period immediately prior to conversion
is $15, then each share of Series A convertible preferred
stock would convert into approximately 66 shares of our
common stock.
Example 3: If the average of the three lowest closing bid prices for
the 10 day trading period immediately prior to the
conversion date is $30, then each share of Series A
convertible preferred stock would convert into
approximately 55 shares of our common stock. In this
example the conversion price is equal to the fixed
conversion price, or $18.266, since that amount is lower
than the $30 average market price.
The above averages will be adjusted and recalculated based on each separate
conversion date.
The significance of having conversion factors based upon the average
closing bid price of our common stock is that it allows the holder to receive a
greater number of shares of common stock if our common stock price declines.
The significance of having the fixed conversion price set at 25% above the
average closing bid price as of June 28, 2000 is that the holder will receive at
least a minimum number of shares upon conversion if our stock price rises above
that price.
The conversion price of the Series A convertible preferred stock is subject
to modification and adjustment. For example, the conversion price will be
adjusted in connection with stock splits, distributions and certain issuances of
securities below the then existing conversion price.
The Series A convertible preferred stock has a liquidation preference equal
to the stated value, plus all unpaid dividends and premiums accrued.
13
<PAGE>
The Series A convertible preferred stock may be redeemed or converted into
common stock at our election on June 28, 2002 (the "maturity date"). On the
maturity date, we will have the option of redeeming the outstanding Series A
convertible preferred shares at the stated value, provided that the conditions
below are satisfied, the outstanding Series A convertible preferred shares may
be converted into a number of shares of common stock equal to the stated value
of the shares divided by the average closing bid price of the common stock for
the five-day trading period immediately preceding the maturity date.
We do not have the power to convert the Series A convertible preferred
stock into common stock unless all of the following conditions are satisfied:
. we must provide written notice of our intention to redeem the shares
at least 10 business days prior to the maturity date;
. our common stock must be actively traded on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq National Market;
. a redemption event (as described below) shall not have occurred and be
continuing;
. the conversion to common stock must not result in Marshall Capital and
its affiliates beneficially owning more than 3,014,199 shares of our
common stock unless our stockholders have approved the issuance of a
greater amount prior to the maturity date; and
. the registration statement of which this prospectus forms a part is
effective and available for the resale of the number of securities
required by the registration rights agreement (as explained in the
Selling Stockholder section above).
Redemption: Under certain circumstances, the Series A convertible
preferred stock is subject to redemption at a premium three days following a
written request by the holders of the Series A convertible preferred stock, who
can request redemption upon the occurrence of events described in the
Certificate of Designations, Rights and Preferences of the Series A convertible
preferred stock, including the following:
. if we do not timely issue common stock following conversion by a
holder of Series A convertible preferred stock;
. if we materially breach, and fail to timely cure, any covenant,
material term or condition of the securities purchase agreement or
other transaction document;
. if any covenant, material term, or condition of the securities
purchase agreement or other transaction document is materially
misleading as of the date of such representation;
. if we undergo a change in control;
. if we fail to maintain the listing of our common stock on the American
Stock Exchange, the New York Stock Exchange, or the Nasdaq National
Market; or
. the registration statement of which this prospectus forms a part is
not declared effective within 180 days of the issue date of the
shares.
The dollar amount of the redemption is equal to the greater of:
14
<PAGE>
. the value of the shares of Series A convertible preferred stock
requested to be redeemed; or
. the value of the Series A convertible preferred stock requested to be
redeemed divided by the market conversion price as described above in
effect on the date of redemption and multiplying the resulting
quotient by the average closing bid price for the common stock for the
5 days immediately preceding the redemption date.
Dividend Rights: Holders of Series A convertible preferred stock are
entitled to cumulative dividends at an annual rate of 3% of the purchase price
of the Series A convertible preferred stock. The dividends cumulate and are
payable quarterly. The amount of each dividend is payable in cash, or, at our
election, in shares of our common stock. In the event the dividends are paid in
common stock, the number of shares to be delivered will be determined by
dividing the dollar amount of the dividends that have accrued by the market
conversion price as defined above in effect on the date the dividend is due. In
order for us to pay dividends in common stock, the following conditions must be
met:
. a redemption event as described above cannot have occurred and be
continuing;
. the registration statement must be declared effective and must cover
the number of shares required by the registration rights agreement;
and
. the common stock must be listed on the American Stock Exchange, the
New York Stock Exchange, or the Nasdaq National Market.
Voting Rights: In general, the Series A convertible preferred stock is
non-voting, except as may be required under Delaware law. In addition, the vote
of the holders of two-thirds of the outstanding shares of Series A convertible
preferred stock is required to:
. alter, change, modify, or amend any terms of the Series A convertible
preferred stock in any way;
. alter the terms of any of our other capital stock which would
adversely effect the Series A convertible preferred stock;
. create any new class of capital stock having a preference over or
ranking pari passu with the Series A convertible preferred stock as to
redemption or distribution of assets upon liquidation, dissolution, or
winding up of Pilot;
. increase the authorized number of shares of Series A convertible
preferred stock;
. re-issue any shares of Series A preferred stock which have been
converted or redeemed;
. issue any securities senior or equal to the Series A convertible
preferred stock in terms of dividends, liquidations, or other
preferences and privileges;
. redeem or pay any dividend or distribution to any of our other capital
stock; and
. issue any Series A convertible preferred stock except pursuant to the
terms of the securities purchase agreement.
15
<PAGE>
Warrants
There are currently outstanding warrants to purchase 675,453 shares of our
common stock, with exercise prices ranging between $0.37 per share and $25.00
per share. The weighted average exercise price of the warrants is $16.81.
LEGAL MATTERS
The legality of the issuance of the securities being offered hereby is
being passed upon us by Heller Ehrman White & McAuliffe LLP, San Francisco,
California.
EXPERTS
The consolidated financial statements and schedule of Pilot Network
Services, Inc. as of March 31, 2000 and 1999, and for each of the years in the
three-year period ended March 31, 2000 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants and upon the authority of said
firm as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered. All of the amounts shown
are estimates except for the Securities and Exchange Commission Registration
Fee.
Securities and Exchange Commission Registration Fee...... $17,866
Accounting Fees.......................................... $10,000
Legal Fees and Disbursements............................. $ 5,000
Miscellaneous............................................ $ 150
---------
Total:................................................ $33,016
=========
Item 15. Indemnification of Officers and Directors.
Our Certificate of Incorporation limits, to the maximum extent permitted by
Delaware law, the personal liability of directors for monetary damages for
breach of their fiduciary duties as a director. Our Bylaws provide that we will
indemnify our officers and directors and may indemnify our employees and other
agents to the fullest extent permitted by Delaware law. We have entered into
indemnification agreements with our officers and directors containing provisions
which are in some respects broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements require us, among other things to indemnify such officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' and officers' insurance, if available on reasonable terms. We
believe that these agreements are necessary to attract and retain qualified
persons as directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable cause
to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE>
Item 16. Exhibits.
A. Exhibits
Exhibit
No. Description
-------- -----------------------------------------------------------------
3.1* Certificate of Designations, Rights and Privileges of the
Series A Convertible Preferred Stock of Pilot Network
Services, Inc., as filed with the Secretary of State of the
State of Delaware on June 28, 2000
4.1* Registration Rights Agreement, dated as of June 28, 2000
between Pilot Network Services, Inc. and Marshall Capital
Management, Inc.
4.2* Warrant, dated as of June 28, 2000, to purchase common stock
of Pilot Network Services, Inc. issued to Marshall Capital
Management, Inc.
4.3** Warrant to Purchase Stock dated December 28, 1999, between
Pilot Network Services, Inc. and Primus Telecommunications
Group, Inc.
4.4** Warrant to Purchase Stock dated November 9, 1999, between
Pilot Network Services, Inc. and Greyrock Capital, a division
of Banc of America Commercial Finance Corporation.
5.1 Opinion of Heller Ehrman White and McAuliffe LLP
10.1* Securities Purchase Agreement, dated as of June 28, 2000
between Pilot Network Services, Inc. and Marshall Capital
Management, Inc.
10.2** Common Stock Purchase Agreement dated December 28, 1999,
between Pilot Network Services, Inc. and Primus
Telecommunications Group, Inc.
23.1 Consent of KPMG LLP
23.2 Consent of Heller Ehrman White & McAuliffe LLP (contained in
opinion filed as Exhibit 5.1)
24.1 Power of Attorney (See Page II-4)
_________________________
* Incorporated by reference to the Current Report on Form 8-K filed by the
Registrant on June 30, 2000.
** Incorporated by reference to the Quarterly Report on Form 10-Q filed by
the Registrant on February 14, 2000.
Item 17. Undertakings.
A. The undersigned Pilot Network Services Inc. hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) 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 in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
Provided, however, that paragraphs (i) and (ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by Pilot Network Services,
Inc. pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be 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.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of Pilot Network Services Inc.'s annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Pilot Network Services Inc. pursuant to the provisions described
under Item 14 above, or otherwise, Pilot Network Services Inc. 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 Pilot Network Services Inc. of
expenses incurred or paid by a director, officer or controlling person of Pilot
Network Services Inc. in the successful defense of any action, suit or
proceeding) is asserted against Pilot Network Services Inc. by such director,
officer or controlling person in connection with the securities being
registered, Pilot Network Services Inc. 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.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pilot Network Services Inc. 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 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in Alameda, State of California, on the 27th day of
July 2000.
PILOT NETWORK SERVICES INC.
By: /s/ M. Marketta Silvera
-----------------------------------
M. Marketta Silvera
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints M.
Marketta Silvera and William C. Leetham his true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to the Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and all post-effective amendments thereto, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ M. Marketta Silvera President, Chief Executive Officer and Director July 27, 2000
-------------------------------
M. Marketta Silvera (Principal Executive Officer)
/s/ William C. Leetham Senior Vice President, Finance and July 27, 2000
-------------------------------
William C. Leetham Administration, Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
/s/ Shanda Bahles Director July 27, 2000
-------------------------------
Shanda Bahles
/s/ Thomas Kelly Director July 27, 2000
-------------------------------
Thomas Kelly
/s/ K. Paul Singh Director July 27, 2000
-------------------------------
K. Paul Singh
/s/ Thomas O'Rourke Director July 27, 2000
-------------------------------
Thomas O'Rourke
</TABLE>
II-4
<PAGE>
PILOT NETWORK SERVICES INC.
EXHIBIT INDEX
A. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
-------------- ---------------------------------------------------------------------------------------------
<S> <C>
3.1* Certificate of Designations, Rights and Privileges of the Series A Convertible
Preferred Stock of Pilot Network Services, Inc., as filed with the Secretary of State
of the State of Delaware on June 28, 2000
4.1* Registration Rights Agreement, dated as of June 28, 2000 between Pilot Network
Services, Inc. and Marshall Capital Management, Inc.
4.2* Warrant, dated as of June 28, 2000, to purchase common stock of Pilot Network
Services, Inc. issued to Marshall Capital Management, Inc.
4.3** Warrant to Purchase Stock dated December 28, 1999, between Pilot Network Services, Inc. and Primus
Telecommunications Group, Inc.
4.4** Warrant to Purchase Stock dated November 9, 1999, between Pilot Network Services, Inc. and Greyrock Capital,
a division of Banc of America Commercial Finance Corporation.
5.1 Opinion of Heller Ehrman White and McAuliffe LLP
10.1* Securities Purchase Agreement, dated as of June 28, 2000 between Pilot Network
Services, Inc. and Marshall Capital Management, Inc.
10.2** Common Stock Purchase Agreement dated December 28, 1999,
between Pilot Network Services, Inc. and Primus
23.1 Consent of KPMG LLP
23.2 Consent of Heller Ehrman White & McAuliffe LLP (contained in opinion filed as Exhibit
5.1)
24.1 Power of Attorney (See Page II-4)
</TABLE>
--------------------------------------------------------------------
* Incorporated by reference to the Current Report on Form 8-K filed by the
Registrant on June 30, 2000.
** Incorporated by reference to the Quarterly Report on Form 10-Q filed by
the Registrant on February 14, 2000.
