<PAGE>
As filed with the Securities and Exchange Commission on September 13, 2000
Registration No. 333-42380
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Pilot Network Services, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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<TABLE>
<S> <C> <C>
Delaware 7380 94-3305774
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</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)
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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)
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Copies to:
Timothy G. Hoxie, Esq.
Heller Ehrman White & McAuliffe LLP
333 Bush Street
San Francisco, California 94104
Telephone: (415) 772-6000
Facsimile: (415) 772-6268
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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. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its Effective Date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Subject to Completion, dated September 13, 2000
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, Marshall Capital
Management, Inc., Primus Telecommunications Group, Incorporated and Greyrock
Capital. 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. This amount is equal to approximately 14.1% of our
currently outstanding common stock and represents the maximum number of shares
being registered for resale under this prospectus. Based on the $18.266
conversion price of the Series A convertible preferred stock in effect as of
September 8, 2000, the total number of shares the selling stockholders may sell
under this prospectus as of that date is 2,318,571.
Our address is 1080 Marina Village Parkway Alameda, CA 94501 and our
telephone number is (510) 433-7800.
Our common stock trades on the Nasdaq National Market under the symbol
"PILT". On September 8, 2000, the closing price for our common stock, as
reported on the Nasdaq National Market, was $13.50 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. We
provide these secure services by connecting customer networks or servers to the
Internet through one of our customer centers. We call these centers Network
Security Centers.
The foundation of our all of our services 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. Through automated tools and around-the-clock
personnel staffing, we monitor and assess customer network traffic against
customer-specific security profiles. We look for and react to detected
anomalies in this network traffic. Our services aggregate the experience gained
from protecting each customer against attacks and leverage 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.
Our Internet security services allow our customers to avoid the risks
associated with traditional approaches to Internet security. Customers can also
avoid extensive costs associated with implementing their own security programs.
These costs include 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.
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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.
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:
. 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. Additional equity
is primarily used to fund the sale and implementation of services to new
customers. Therefore, the amount of new equity that we are able to raise is a
factor in how fast we are able to grow our customer and revenue base. To
maintain our current growth rates, we plan to raise $15 million to $20 million
of new financing over the next twelve months. However, we may not be successful
in obtaining required 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 June
30, 2000, we had an accumulated deficit of approximately $58.8 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 is volatile, which may impair our ability to raise money and
cause our investors to lose money.
Our stock price is very volatile. For example, our stock price has
fluctuated from a low of $8.44 to a high of $50.38 in the past 12 months. In
addition, our revenues or operating results may not meet the expectations of
investors or securities analysts, contributing to the volatility of our stock
price. The volatility of our stock price may impair our ability to raise money
and may cause our stockholders to lose all or part of their investment.
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
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convertible preferred stock is based on the price of the common stock at the
time of the conversion with respect to conversions which occur after September
26, 2000. The conversion price of the Series A convertible preferred stock is
fixed at $18.266 per share through September 26, 2000. After September 26,
2000, the conversion price of the Series A convertible preferred stock is equal
to the lower of $18.266 and 101% of the average of the three lowest closing bid
prices of the common stock for the 10 trading days immediately preceding the
day of conversion. If this conversion formula were in effect on September 8,
2000, the conversion price would be $13.28. 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 based on the $18.266
conversion price in effect on September 8, 2000. This represents about 5.5% of
our outstanding common stock based on the number of shares outstanding as of
September 8, 2000.
The following table illustrates how the number of shares of common stock
issuable upon conversion, after September 26, 2000, of the Series A convertible
preferred stock would increase if the market price of our common stock were to
fall, causing the conversion price of the Series A convertible preferred stock
to decline as well:
<TABLE>
<S> <C> <C> <C> <C>
Conversion Price.................. $15.00 $12.00 $8.00 $5.00
Number of Shares of Common Stock
Issuable upon Conversion......... 1,000,000 1,250,000 1,875,000 3,000,000
Percentage of Shares of Common
Stock Outstanding as of September
8, 2000.......................... 6.6% 8.3% 12.4% 19.9%
</TABLE>
The issuance of shares of common stock upon conversion of the Series A
convertible preferred stock could cause the price of our common stock to
decline.
As described above, the number of shares of common stock issuable upon
conversion of the Series A convertible preferred stock would increase if the
market price of our common stock were to fall. Those shares of common stock may
be sold into the public market, increasing the number of shares of our common
stock which are freely tradable. Accordingly, 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.
The interests of the holders of Series A convertible preferred stock may
conflict with the interests of holders of common stock.
The holders of Series A convertible preferred stock may benefit from a
reduction in the market price of our common stock, particularly in the short
term, because a reduction in the market price of our common stock reduces the
conversion price of the Series A convertible preferred stock. As a result, the
interests of the holders of Series A convertible preferred stock may, in some
instances, conflict with the interests of the holders of common stock.
Some of our future revenue growth plans depend upon 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. The success of these relationships and similar relationships we
intend to establish with other telecommunications carriers will impact our
ability to successfully grow our business in a more profitable and less capital
intensive manner than with Pilot-owned Network Security Centers. While the
telecommunications carriers have committed capital and operational resources to
these projects, as of September 8, 2000, none of these third-party centers are
operational or generating any revenue to Pilot. 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
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<PAGE>
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 our customers, our network infrastructure or our reputation in
the marketplace and therefore our ability to attract and retain customers.
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 may have a
material adverse effect upon our business. Our current plans are to expand
domestically and internationally by adding, or developing relationships 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 third party relationships 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. In order to integrate the
components needed to deliver the services requires that we use highly skilled
security and operations personnel who are in short supply in today's
marketplace. Our ability to execute on our growth plans may be adversely
impacted if we are unable to hire and train additional security and operations
personnel.
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 believe our greatest competition is not from direct competitors, but
rather from a broad range of companies that provide individual components of
bundled services. Competition may include major telecommunications carriers,
Internet service providers, hosting service companies and Internet security
software companies, many of which 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, some of these competitors may be able to
develop and expand their
5
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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, such as
telecommunications carriers and Internet service providers, are likely to
consolidate 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. If our services are interrupted, then our
customers may temporarily lose access to the Internet. This means our customers
may lose business, suffer inefficiencies in their operations and may lose their
customers, which could cause our customers to elect not to use our services.
The expansion of our international operations exposes us to risks.
A key component of our long-term strategy is to expand into international
markets. We are currently expanding in Europe and Australia through our
relationships with telecommunications carriers. If that strategy is not
successful, then we would have to consider building our own Network Security
Centers in these regions, which would require more capital and increase our
expenses. Operations in Europe and Australia could expose us to a number of
risks, including:
. staffing and managing foreign operations;
. increased financial accounting and reporting complexities;
. potentially adverse tax consequences;
. the loss of revenues resulting from currency fluctuations;
. compliance with a wide variety of complex foreign laws and treaties; and
. licenses, tariffs and other trade barriers.
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 and
adversely affected.
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.
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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, such as routers, servers and operating system software, 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.
If we are not able to enhance our services to adapt to rapid technological
change, our services may not achieve market acceptance.
We focus on delivering secure Internet services to companies engaged in
electronic commerce. This is an emerging and rapidly evolving market.
Consequently, 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. 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 respond to technological advances and
emerging industry standards and practices on a timely and cost-effective basis.
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 some service 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 our
proprietary rights in the technology underlying our services. Most
significantly, we currently have three patent applications related to our
Heuristic Defense Infrastructure pending with the U.S. Patent and Trademark
Office. If we fail to obtain patents or trademarks from currently
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pending or any future applications, or if any patents or trademarks that are
issued or granted are not sufficient in scope or strength to provide meaningful
protection or any commercial advantage to us, then our business may be harmed.
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 services 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 services. Any such claim, whether meritorious or not, is
likely to be 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.
We do not intend to pay dividends.
We do not intend to pay 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. 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.
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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 information
regarding issuers (including Pilot).
This prospectus is part of a registration statement that we filed with the
SEC (Registration No. 333-42308). 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 SEC File No. 000-24507 for the fiscal
year ended March 31, 2000 as filed with the SEC on June 30, 2000;
. our Current Report on Form 8-K SEC File No. 000-24507 filed with the SEC
on June 30, 2000;
. our Quarterly Report on Form 10-Q SEC File No. 000-24507 for the
quarter, ended June 30, 2000 filed with the SEC on August 14, 2000; and
. the description of our common stock contained in the registration
statement on Form 8-A SEC File No. 000-24507 filed with the SEC on June
23, 1998 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 directed to: Chief
Financial Officer, Pilot Network Services, Inc., 1080 Marina Village Parkway
Alameda, CA 94501 (510) 433-7800.
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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 Capital in November 1999 in connection with a credit facility we
established with Greyrock Capital at that time. Primus Telecommunications
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.
10
<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. Marshall Capital acquired the Pilot
securities it holds in June 2000, Primus Telecommunications acquired the Pilot
securities it holds in December 1999 and Greyrock Capital acquired the Pilot
securities it holds in November 1999. 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
Owned Prior to Outstanding Number of
Name of Selling Stockholder the Offering Common Stock(1) Shares Offered
--------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Marshall Capital Management,
Inc.......................... 1,077,819(2) 6.7(3) 3,270,820(4)
PrimusTelecommunications
Group, Incorporated.......... 1,119,540(5) 7.3 1,119,540
Greyrock Capital.............. 121,212(6) * 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 September 8,
2000.
(2) Includes 256,621 shares subject to currently outstanding warrants. The
number of shares beneficially owned by Marshall Capital is based upon a
conversion price of $18.266, the conversion price of the Series A
convertible preferred stock in effect on September 8, 2000.
(3) Except under limited circumstances, no holder of Series A convertible
preferred stock is entitled to convert such securities to the extent that
the shares of common stock to be received by such holder upon such
conversion would cause such holder to hold more than 4.99% of the
outstanding shares of common stock. Accordingly, Marshall Capital disclaims
beneficial ownership of more than 4.99% of the outstanding shares of common
stock.
(4) 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. A
conversion price of approximately $4.976 would result in the issuance of
3,014,199 shares of common stock upon conversion of all of the outstanding
shares of Series A convertible preferred stock.
(5) Includes 200,000 shares subject to currently outstanding warrants.
(6) 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.
11
<PAGE>
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
The shares offered hereby by the selling stockholders may be sold in a
variety of ways. These include on the over-the-counter market, on the Nasdaq
National Market, in negotiated transactions, or any other legal method of
disposition. Sales may be 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
stockholders. Any broker-dealer that participates in the distribution may 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.
Such sales may be at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales the broker-dealers 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, both the
selling stockholders and any person engaged in the distribution of shares
offered hereby may not simultaneously engage in market making activities with
respect to our common stock. The duration of this restriction is determined of
Regulation M and commences one or fewer days prior to a person becoming a
distribution participant, and ends upon completion of such participation.
12
<PAGE>
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.
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, 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").
13
<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 $18.266, and
. if on any day, the average closing price of the common stock for the
preceding five days is greater than $36.532, and the registration
statement is effective on that day and the five days immediately
preceding that date, thereafter the conversion may only be effected at
$18.266.
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
and all 15,000 of the shares of Series A convertible preferred
stock would convert into 1,485,000 shares of 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 and
all 15,000 of the shares of Series A convertible preferred
stock would convert into 990,000 shares of 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
and all 15,000 of the shares of Series A convertible preferred
stock would convert into 825,000 shares of common stock. In
this example the conversion price is equal to $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 of $18.266 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. In general, the conversion price will be
adjusted in connection with stock splits, distributions and 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.
The Series A convertible preferred stock may be redeemed or converted into
common stock at our election on June 28, 2002. On June 28, 2002, we will have
the option of redeeming the outstanding Series A convertible
14
<PAGE>
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 June 28, 2002.
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 June 28, 2002;
. 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 June 28, 2002; 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:
. 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
15
<PAGE>
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.
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.
16
<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.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................. $17,866
Accounting Fees..................................................... $10,000
Legal Fees and Disbursements........................................ $25,000
Miscellaneous....................................................... $ 150
-------
Total............................................................. $53,016
=======
</TABLE>
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
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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
23.1 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
</TABLE>
--------
+ Previously filed.
* 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.
II-2
<PAGE>
(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.
(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
13th day of September 2000.
PILOT NETWORK SERVICES INC.
/s/ M. Marketta Silvera
By: _________________________________
M. Marketta Silvera
President and Chief Executive
Officer
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 Chairman of the Board of September 13, 2000
____________________________________ Directors, President, and
M. Marketta Silvera Chief Executive Officer
(Principal Executive
Officer)
/s/ William C. Leetham Senior Vice President, September 13, 2000
____________________________________ Finance and Administration,
William C. Leetham Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Shanda Bahles* Director September 13, 2000
____________________________________
Shanda Bahles
/s/ Thomas Kelly* Director September 13, 2000
____________________________________
Thomas Kelly
/s/ K. Paul Singh* Director September 13, 2000
____________________________________
K. Paul Singh
/s/ Thomas O'Rourke* Director September 13, 2000
____________________________________
Thomas O'Rourke
/s/ William C. Leetham September 13, 2000
____________________________________
William C. Leetham
*(Attorney-in-Fact)
</TABLE>
II-4
<PAGE>
PILOT NETWORK SERVICES INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
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
23.1 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
</TABLE>
--------
+Previously filed.
* 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.
