<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Pilot Network Services, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PILOT NETWORK SERVICES, INC.
Notice of Annual Meeting of Stockholders
To Be Held [ ], 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of Pilot Network
Services, Inc., a Delaware corporation (the "Company"), will be held at the
Waterfront Plaza Hotel, Ten Washington Street, Oakland, California, 94607, on
[ ], [ ], 2000, at 10:00 a.m., local time, for the following purposes:
1. To elect two Class II Directors to serve until the 2002 Annual Meeting
of Stockholders or until their respective successors are elected and
qualified;
2. To authorize the Company to issue, if the Company chooses to redeem at
maturity its outstanding Series A Convertible Preferred Stock (the
"Series A Preferred") by means of the issuance of Common Stock rather
than by payment of cash, such number of common shares as would be
required to be issued under the terms of the Series A Preferred,
regardless of whether or not that number of shares exceeds 19.99% of the
number of shares of the Company's common stock outstanding on the date
that the Series A Preferred was issued, as more fully described in the
attached Proxy Statement;
3. To ratify the appointment of KPMG LLP as the independent auditors of the
Company for the fiscal year ending March 31, 2001; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
of this Notice.
The Board of Directors has fixed the close of business on [ ], 2000 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment(s) or postponement(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card as
promptly as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors
Thomas C. Chesterman
Secretary
Alameda, California
[ ] , 2000
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE
ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE
MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
PILOT NETWORK SERVICES, INC.
1080 Marina Village Parkway
Alameda, California 94501
PROXY STATEMENT
General
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Pilot Network Services, Inc., a Delaware
corporation (the "Company"), of proxies in the enclosed form for use in voting
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Waterfront Plaza Hotel, Ten Washington Street, Oakland, California, 94607, on
[ ], [ ], 2000, at 10:00 a.m., local time, and any adjournment(s) or
postponement(s) thereof. The Company's principal executive offices are located
at 1080 Marina Village Parkway, Alameda, California 94501. The Company's
telephone number at that address is (510) 433-7800.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the fiscal year ended March 31, 2000, including
financial statements, were first mailed to stockholders entitled to vote at the
meeting on or about [ ], 2000.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
William C. Leetham, Secretary) a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
Record Date; Voting Securities
The close of business on [ ], 2000 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of
the Company entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, the Company had approximately [ ]
shares of Common Stock outstanding and held of record by approximately [ ]
stockholders.
Voting and Solicitation
Each outstanding share of Common Stock on the Record Date is entitled to one
vote on all matters. Shares of Common Stock may not be voted cumulatively.
The nominees for election as directors at the Annual Meeting will be elected
by a plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. All other matters submitted to the stockholders will require the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on the matter at a duly held meeting at which a
quorum is present, as required under Delaware law for approval of proposals
presented to stockholders. In general, Delaware law also provides that a quorum
consists of a majority of the shares entitled to vote and present in person or
represented by proxy. Abstentions will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum and
as negative votes for purposes of determining the approval of any matter
submitted to the stockholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is
not marked as to a particular item will be voted FOR the election of directors,
FOR the authority to redeem the Series A Preferred for Common Stock as
described in Proposal No. 2 and FOR the ratification of the appointment of the
designated independent auditors, and as the proxy holders deem advisable on
other matters that may come before the meeting, as the case may be with respect
to the item not marked. If a broker indicates on the enclosed proxy or
1
<PAGE>
its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("broker non-votes"), those shares will
be treated as present or represented for purposes of determining the presence
of a quorum and will be excluded from the calculation of shares entitled to
vote with respect to that matter. Proxies voting against the authority to
redeem the Company's Series A Preferred Stock for Common Stock as described in
Proposal No. 2 may not to vote be used for an adjournment of the Annual
Meeting.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically or by facsimile through its officers, directors and
employees, none of whom will receive additional compensation for assisting with
the solicitation. The Company may hire a proxy solicitor and incur charges of
approximately $5,000.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
The Company's Certificate of Incorporation provides for a classified Board
of Directors. The Board of Directors is divided into two classes, designated
Class I and Class II, respectively. Each class of directors consists of three
directors, and each class of directors serves for a staggered two year term or
until a successor is elected and qualified. The Class I directors are M.
Marketta Silvera, Thomas B. Kelly and Shanda Bahles, whose current terms will
end at the Annual Meeting of Stockholders in 2001. The Class II directors are
Thomas O'Rourke and K. Paul Singh, with one Class II director vacancy, whose
current terms will end at this Annual Meeting.
At the Annual Meeting, both members of Class II are standing for re-election
to serve until the 2002 Annual Meeting of Stockholders or until their
respective successors are elected and qualified.
In the event any nominee is unable or unwilling to serve as a director at
the time of the Annual Meeting, the proxies may be voted for the balance of
those nominees named and for any substitute nominee designated by the present
Board or the proxy holders to fill such vacancy, or for the balance of the
nominees named without nomination of a substitute, or the size of the Board may
be reduced in accordance with the Bylaws of the Company. The Board has no
reason to believe that any of the persons named below will be unable or
unwilling to serve as a nominee or as a director if elected.
Assuming a quorum is present, the two nominees receiving the highest number
of affirmative votes of shares entitled to be voted for them will be elected as
Class II directors of the Company with a term expiring at the 2002 Annual
Meeting of Stockholders. There is currently one vacancy on the Board of
Directors for a Class II director. The Company does not intend to fill the
vacancy in the near term. Unless marked otherwise, proxies received will be
voted FOR the election of each of the two nominees named below. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner as will
ensure the election of as many of the nominees listed below as possible, and,
in such event, the specific nominees to be voted for will be determined by the
proxy holders.
The names of the directors, their ages as of July 1, 2000 and certain other
information about them are set forth below:
<TABLE>
<CAPTION>
Name Age Position with the Company Class
---- --- ------------------------- -----
<C> <C> <C> <S>
M. Marketta Silvera.... 57 Chairman of the Board of Directors,
President and Chief Executive Officer I
Shanda Bahles(1)(2).... 44 Director I
K. Paul Singh.......... 48 Director II
Thomas O'Rourke(1)(2).. 76 Director II
Thomas B. Kelly(1)..... 57 Director I
</TABLE>
--------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
There are no family relationships among any of the directors or executive
officers of the Company.
Class I Directors Whose Terms Expire in 2001
M. Marketta Silvera is the founder of the Company and has served as its
President and Chief Executive Officer since June 1993, and as a director of the
Company since July 1993. From June 1991 to January 1993, Ms. Silvera served as
President of VoiceCom Systems, Inc., a voice processing services company. From
May 1989 to June 1991, she served as President of Votan Corporation, a voice
recognition technology company.
3
<PAGE>
Ms. Silvera served as Vice President of Sales and Marketing at Granite Systems,
a voice technology systems developer, and Votan from 1986 to 1989. Ms. Silvera
is also a director of AVIOS, a voice and data technology organization, and has
previously served as its President.
Shanda Bahles has served as director of the Company since January 1994. Ms.
Bahles has served as a General Partner of El Dorado Ventures (El Dorado), a
venture capital firm focused on early stage investments in information
technology companies, since May 1991, and joined El Dorado as an associate in
July 1987. From 1979 to 1985 Ms. Bahles held various engineering, marketing and
management positions with Millennium Systems, a systems integration company,
and Fortune Systems Corporation, a workstation manufacturer. Ms. Bahles also
serves as a director of several privately held information technology
companies.
Thomas B. Kelly has served as a director of the Company since March 1999.
Mr. Kelly was a Managing Partner of Arthur Andersen, LLP, from 1984 to 1999.
From 1976 to 1984 Mr. Kelly was a Partner of Arthur Andersen, LLP, and has
worked in various other positions within Arthur Andersen since 1967.
Nominees for Election as Class II Directors through 2002
K. Paul Singh has served as a director of the Company since December 1999.
Mr. Singh is the Chairman of the Board, President and Chief Executive Officer
of Primus Telecommunications Group, Incorporated, a telecommunications company
he co-founded in 1994. From 1991 until he co-founded Primus, Mr. Singh served
as the Vice President of Global Product Marketing for MCI. Prior to joining
MCI, Mr. Singh was the Chairman and Chief Executive Officer of Overseas
Telecommunications, Inc., a private digital communications company which he
founded in 1984 and which was purchased by MCI in 1991.
Thomas O'Rourke has served as a director of the Company since November 1995.
Mr. O'Rourke has served as the President and Chairman of the Board of O'Rourke
Investment Corporation, an investment company, since 1989. From January 1985 to
April 1988, Mr. O'Rourke was a General Partner of Hambrecht and Quist Venture
Partners, a venture capital firm. From 1966 to 1985, he was the founder,
President and Chairman of the Board of Tymshare, Inc., a computer services
company.
Meetings and Committees of the Board of Directors
During the fiscal year ended March 31, 2000 (the "last fiscal year"), the
Board met four times and acted by unanimous written consent three times. No
director attended fewer than 75% of the aggregate number of meetings of the
Board and meetings of the committees of the Board on which he or she serves.
The Board has an Audit Committee and a Compensation Committee. The Board does
not have a nominating committee or a committee performing the functions of a
nominating committee. A nomination for a director made by a stockholder must be
submitted to Thomas C. Chesterman, Secretary, at the address of the Company's
executive offices set forth above on or before , 2000.
The Audit Committee consists of directors Shanda Bahles, Thomas O'Rourke,
and Thomas B. Kelly. The Audit Committee held five meetings during the last
fiscal year. The Audit Committee's functions are to recommend the engagement of
the firm of certified public accountants to audit the financial statements of
the Company and to monitor the effectiveness of the audit effort, the Company's
financial and accounting organization and its system of internal accounting
controls.
The Compensation Committee consists of directors Shanda Bahles and Thomas
O'Rourke and met one time and acted by unanimous written consent 25 times
during the last fiscal year. The Compensation Committee's functions are to
establish and administer the Company's policies regarding annual executive
salaries and cash incentives and long-term equity incentives. The Compensation
Committee administers the Company's 1998 Stock Option Plan, 1994 Stock Plan,
1998 Directors' Stock Option Plan and 1998 Employee Stock Purchase Plan.
4
<PAGE>
Compensation of Directors
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board. The Company's 1998 Directors' Stock
Option Plan (the "Directors' Plan") provided that each nonemployee director as
of the date of the Company's initial public offering received an option to
purchase 5,000 shares of Common Stock as of such date. In addition, the
Directors' Plan provides that each person who becomes a nonemployee director of
the Company following the date of the Company's initial public offering will be
granted a nonstatutory stock option to purchase 25,000 shares of Common Stock
on the date on which he or she is first appointed or elected to the Board.
Thereafter, on the date of each annual meeting of the Company's stockholders
immediately following which a nonemployee director is serving on the Board of
Directors, he or she shall be granted an additional option to purchase 5,000
shares of Common Stock if, on the meeting date, he or she has served on the
Company's Board of Directors for at least six months. Each of the nonemployee
directors, including the director nominees, will have served for more than six
months at the time of the Annual Meeting, and so will receive options to
purchase 5,000 shares of the Company's Common Stock under the Directors' Plan,
provided that all nominee directors are reelected to the Board at the Annual
Meeting. All options granted under the Directors' Plan have an exercise price
equal to the fair market value of the Company's Common Stock based upon the
closing price of the stock on the Nasdaq National Market as of the date of
grant, except that the options granted to nonemployee directors of the Company
as of the date of the Company's initial public offering had an exercise price
equal to the price at which the Company's stock was first sold to the public by
the underwriters of the offering. Options granted at the time a nonemployee
director is first appointed or elected to the Board vest as to 25% per year
over four years. Options granted on the date of an annual meeting of
stockholders vest in full on the first anniversary of the date of grant.
Recommendation of the Board:
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF ALL NOMINEES NAMED ABOVE.
5
<PAGE>
PROPOSAL NO. 2
APPROVAL OF THE ISSUANCE OF COMMON STOCK
UPON REDEMPTION AT MATURITY OF
THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK
Title and Amount of Securities to be Issued
On June 28, 2000, the Company completed a $15,000,000 private equity
financing in which it issued 15,000 shares of Series A Preferred to Marshall
Capital Management, Inc. In June 2002, the Company may redeem the Series A
Preferred at its stated value. The redemption price may be paid, at the
Company's election, in cash or in Common Stock with a market value equal to the
redemption value of the Series A Preferred.
Nasdaq Marketplace Rule 4460 requires that the Company obtain stockholder
approval in connection with a transaction other than a public offering for cash
which involves the issuance of Common Stock representing 20% or more of the
voting power of the Company's securities outstanding before the transaction at
a price per share less than the market value of the Common Stock on the date of
issuance. The terms of the Series A Preferred permit the redemption of the
Series A Preferred at maturity either (a) for cash or (b) by issuance of Common
Stock, at the Company's option. The Company cannot exercise this option to
redeem the shares by issuing Common Stock if it would require the Company to
issue (when aggregated with all other shares required to be aggregated under
Market Rule 4460) more than 3,014,199 shares (representing 19.99% of the
outstanding Common Stock on the date the Series A Preferred was issued) unless
the Company's stockholders approve Proposal 2. (The 3,014,199 share limit
described above is occasionally referred to in this proxy statement as the
"Nasdaq Threshold".) If the stockholders do not approve Proposal 2, the Company
may exercise its rights to redeem the Series A Preferred for Common Stock if
such issuance does not exceed the Nasdaq Threshold, but not otherwise.
The Company cannot determine the number of shares of Common Stock issuable
upon redemption at maturity of the Series A Preferred because such number
depends on the market price of the Common Stock in June 2002. As such, it is
impossible to foresee the impact on the Company if the issuance of common
shares on maturity of the Series A Preferred, since the number of shares that
might be issued cannot be determined.
The number of shares of Common Stock issuable upon redemption at maturity of
the Series A Preferred would increase if the market price of the Common Stock
were to decline. Because any shares of Common Stock so issued may be sold into
the public market, the number of shares of Common Stock which are freely
tradable following the redemption at maturity of the Series A Preferred may
increase considerably. This increase could place downward pressure on the price
of the Common Stock. In addition, the issuance of Common Stock upon redemption
at maturity of the Series A Preferred may cause substantial dilution to
existing stockholders. However, it may be exactly in such circumstances where
the Company may be unable to raise sufficient cash by other means, and, if that
is the case, could benefit from having the option to issue shares in excess of
the Nasdaq Threshold in order to redeem the Series A Preferred.
The Company believes that it is in the best interests of the Company and its
stockholders to have the ability to issue Common Stock in excess of the Nasdaq
Threshold rather than pay cash for the Series A Preferred at maturity.
Accordingly, the Company is seeking the approval of the stockholders of the
Company for the discretion to issue shares of Common Stock upon redemption at
maturity of the Series A Preferred in excess of the Nasdaq Threshold.
The Company intends to use the proceeds of the sale of Series A Preferred
for general working capital purposes. The Company issued and sold the Series A
Preferred in order to meet its continuing working capital requirements.
6
<PAGE>
Redemption of Series A Preferred
Each share of Series A Preferred has a stated value of $1,000 and is
convertible, at the election of the holder, into that number of shares of
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 the
Common Stock during the five day trading period immediately preceding
June 28, 2000, and
. an amount equal to 101% of the average of the three lowest closing bid
prices of the Common Stock for the 10 day trading period immediately
preceding the day of conversion (the "market conversion price").
The Series A Preferred may be converted into Common Stock only at the fixed
conversion price on or before September 26, 2000. In general, the aggregate
number of shares of Common Stock issuable upon conversion or redemption of the
Series A Preferred and any other shares of Common Stock aggregated with such
shares under the Nasdaq Marketplace Rules may not exceed the Nasdaq Threshold.
The Series A Preferred may be converted in the manner as described above
prior June 28, 2002 except that any shares of Series A Preferred converted
prior to September 26, 2000 must be converted at $18.266. On June 28, 2002, the
Company, at its election, may either redeem any shares of Series A Preferred
then outstanding for their stated value (not their liquidation value) or
convert the Series A Preferred 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.
The Company may not redeem the Series A Preferred for Common Stock on June
28, 2002 unless certain conditions are satisfied. Those conditions include
conditions related to: written notice of the Company's intention to convert the
Series A Preferred; the Common Stock being actively traded on the New York
Stock Exchange, the American Stock Exchange, or the Nasdaq National Market;
stockholder approval of the issuance of shares of Common Stock in excess of the
Nasdaq Threshold in connection with the redemption at maturity, if necessary;
and the availability of a registration statement covering the shares of Common
Stock issuable upon redemption of the Series A Preferred.
The following are examples of how the redemption for Common Stock works,
assuming that: (i) the stated value of each share of Series A Preferred on June
28, 2002 is equal to $1,000; (ii) all 15,000 shares of Series A Preferred are
outstanding on June 28, 2002; and (iii) all of the conditions to redemption for
Common Stock at maturity are satisfied:
Example 1: If the average closing bid price of the Common Stock for the
five-day trading period immediately preceding June 28, 2002 is $4, then
each share of Series A Preferred would be redeemable for approximately 250
shares of Common Stock and the aggregate number of shares of Common Stock
issuable upon redemption of the Series A Preferred for Common Stock on June
28, 2002 would be 3,750,000.
Example 2: If the average closing bid price of the Common Stock for the
five-day trading period immediately preceding June 28, 2002 is $10, then
each share of Series A Preferred would be redeemable for approximately 100
shares of Common Stock and the aggregate number of shares of Common Stock
issuable upon redemption of the Series A Preferred for Common Stock on June
28, 2002 would be 1,500,000.
The Company cannot determine in advance the number of shares of Common Stock
issuable upon maturity of the Series A Preferred because the redemption depends
upon the market price of the Common Stock in the trading days immediately prior
to June 28, 2002. Accordingly, the Company is seeking your approval of an
issuance of shares of Common Stock upon redemption at maturity of the Series A
Preferred in
7
<PAGE>
excess of 3,014,199, as in Example 1. Using the assumptions applied with
respect to the examples above, the number of shares issuable upon redemption at
maturity of the Series A Preferred would exceed 3,014,199 if the conversion
price were to fall below approximately $4.98.
On June 28, 2002, the Company has the discretion to elect to redeem the
Series A Preferred for cash or for Common Stock. The Company believes that it
may be in the best interests of the Company and its stockholders to redeem the
Series A Preferred for Common Stock on June 28, 2002 in order to avoid
depleting its working capital, which could occur if the Company were required
to redeem the Series A Preferred for cash. While such a redemption only
requires stockholder approval if the number of shares of Common Stock issuable
on redemption exceeds the Nasdaq Threshold, the Company is seeking stockholder
approval now so as to have the flexibility to make its decision regarding the
redemption of the Series A Preferred based on financial and market conditions
existing on June 28, 2002.
Effect Upon Existing Stockholders
As described above, the shares issuable upon redemption of the Series A
Preferred at maturity are shares of Common Stock and have the same rights and
preferences as other shares of Common Stock. However, while the issuance of
Common Stock upon redemption of the Series A Preferred at maturity can not be
determined in advance, such an issuance will be likely to have a dilutive
effect on the holders of other Company securities outstanding on June 28, 2002.
Financial and Other Information
The financial and other information required with respect to this Proposal
No. 2 is incorporated by reference to the Company's Annual Report on Form 10-K,
as filed by the Company with the SEC on June 30, 2000.
Recommendation of the Board:
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE ISSUANCE OF COMMON
STOCK UPON REDEMPTION AT MATURITY OF THE COMPANY'S SERIES A
CONVERTIBLE PREFERRED STOCK, TO THE EXTENT THAT SUCH
ISSUANCE EXCEEDS THE NASDAQ THRESHOLD.
8
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
KPMG LLP has served as the Company's independent auditors since 1994 and has
been appointed by the Board to continue as the Company's independent auditors
for the fiscal year ending March 31, 2001. In the event that ratification of
this selection of auditors is not approved by a majority of the shares of
Common Stock present in person or represented by proxy and entitled to vote on
this matter at the Annual Meeting, the Board will reconsider its selection of
auditors.
A representative of KPMG LLP is expected to be present at the Annual
Meeting. This representative will have an opportunity to make a statement and
will be available to respond to appropriate questions.
Recommendation of the Board:
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING MARCH 31, 2001
9
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of September 30, 2000.
<TABLE>
<CAPTION>
Name Age Office(s)
---- --- ---------
<C> <C> <S>
M. Marketta Silvera... 57 Chairman of the Board of Directors, President and
Chief Executive Officer
Dana R. Nelson........ 51 Executive Vice President
Thomas C. Chesterman.. 47 Senior Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
Martin W. Wegenstein.. 50 Senior Vice President, Operations
Thomas A. Wadlow...... 43 Chief Technology Officer
</TABLE>
Dana R. Nelson has served as Executive Vice President since April 2000, and
Senior Vice President, Sales, since January 1999. From 1997 to 1999, Mr. Nelson
served as the Senior Vice President of Sales of NetVantage, a networking
company that was sold to Cabletron Systems in 1998. From 1995 to 1997,
Mr. Nelson was the Vice President, Worldside Sales and Marketing for Digi
International, a data communications hardware and software provider. From 1983
to 1995, Mr. Nelson held various positions with Ascom Timeplex, a supplier of
networking equipment, most recently serving as Vice President, Worldwide Sales.
Thomas C. Chesterman has served as Senior Vice President, Finance and
Administration, Chief Financial Officer, Treasurer, and Secretary of the
Company since September 2000. From 1996 to September 2000, Mr. Chesterman
served as Chief Financial Officer of Bio-Rad Laboratories, Inc., a life
sciences company. From 1993 to 1996, Mr. Chesterman served as Vice President-
Strategy and Chief Financial Officer of Europolitan Holdings AG, a
telecommunications company. From 1991 to 1993, Mr. Chesterman served as
Treasurer of Pacific Telesis Corporation, a telecommunications company and,
from 1989 to 1991, as corporate controller of PacTel Corporation, a
telecommunications company.
Martin W. Wegenstein has served as Senior Vice President, Operations, since
April 1999. From 1998 through April 1999, Mr. Wegenstein was the owner of The
Wegenstein Group, an information and knowledge management consulting firm. From
1995 through 1998, Mr. Wegenstein served as Vice President and CIO of Applied
Materials, a silicon wafer fabrication company. From 1992 to 1995, Mr.
Wegenstein served as Vice President of Information Technology and CIO of Rachem
Corporation, a material science company. From 1985 Mr. Wegenstein served as
Director of Corporate Information Systems at Emerson Electric Co., an
electrical manufacturing company.
Thomas A. Wadlow has served as Chief Technology Officer of the Company since
January 1996, and Director of Engineering from September 1993 to January 1996.
From 1989 to September 1993, he served as Research Network Architect at Sun
Microsystems Laboratories, Inc., a workstation manufacturer. From 1988 to 1989,
Mr. Wadlow served as Systems and Network Manager of ParcPlace Systems, an
object oriented software developer. From 1987 to 1988, Mr. Wadlow served as an
engineer of the Smalltalk Group of Xerox Palo Alto Research Center, a computer
science research laboratory. Prior to 1988 Mr. Wadlow served in various senior
technical staff positions at Schlumberger Limited, a petroleum exploration and
research company, and Lawrence Livermore National Laboratories, a national
defense contractor.
10
<PAGE>
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of October 1, 2000 for (i) each person who is known by the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each of the executive officers
named in the Summary Compensation Table of this proxy statement (the "Named
Executive Officers"), and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Common
Name and Address Ownership(1) Stock(1)(2)
---------------- ------------ -----------
<S> <C> <C>
M. Marketta Silvera (3).............................. 1,174,375 7.7%
Primus Telecommunications Group, Incorporated (4).... 1,119,540 7.3
1700 Old Meadow Road
Suite 300
McLean, VA 22102
Marshall Capital Management, Inc. (5)................ 1,806,368 10.7
11 Madison Avenue, 7th Floor
New York, NY 10010
Thomas O'Rourke (6).................................. 404,580 2.7
Thomas A. Wadlow (7)................................. 243,019 1.6
Dana R. Nelson (8)................................... 68,750 *
Martin W. Wegenstein (9)............................. 59,375 *
William C. Leetham (10).............................. 29,413 *
Thomas B. Kelly (11)................................. 11,250 *
Shanda Bahles (12)................................... 10,000 *
K. Paul Singh........................................ -- *
All directors and executive officers as a group (9
persons) (13)....................................... 2,000,762 12.9%
</TABLE>
--------
*Represents beneficial ownership of less than 1% of the Company's Common
Stock.
(1) Except pursuant to applicable community property laws or as indicated in
the footnotes of this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Applicable percentage of ownership for each stockholder is based on
15,106,719 shares of Common Stock outstanding as of October 1, 2000,
together with applicable options and warrants for such stockholders.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially
owned by a person includes shares of Common Stock subject to options held
by that person that are currently exercisable within 60 days of October 1,
2000. Such shares issuable pursuant to such options are deemed outstanding
for computing the percentage ownership of the person holding such options
but are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. Unless otherwise indicated, the
address of each of the individuals named above is: c/o Pilot Network
Services, Inc., 1080 Marina Village Parkway, Alameda, CA 94501.
11
<PAGE>
(3) Includes 104,375 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
(4) Includes 200,000 shares subject to currently outstanding warrants.
(5) Includes 1,549,747 shares of common stock issuable upon conversion of
15,000 shares of Series A Convertible Preferred Stock of the Company held
by such stockholder based on the $9.679 per share conversion price in
effect on October 1, 2000. Also includes 256,621 shares issuable upon
exercise of currently outstanding warrants. Except under limited
circumstances, no holder of Series A Preferred is entitled to convert such
securities into Common Stock to the extent that the shares of Common Stock
to be received by such holder upon 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.
(6) Includes 394,580 shares held by O'Rourke Investment Corporation ("OIC").
Mr. O'Rourke, a Director of the Company and Chairman and CEO of OIC, owns
a majority of the outstanding voting shares of OIC and is a director of
OIC. Also includes 10,000 shares issuable upon exercise of stock options
that are exercisable within 60 days of October 1, 2000.
(7) Includes 58,437 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
(8) Includes 68,750 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
(9) Includes 59,375 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
(10) Includes 26,667 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000. Mr. Leetham served as our
Senior Vice President, Finance and Administration, Chief Financial
Officer, Treasurer and Secretary until September 2000.
(11) Includes 11,250 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
(12) Includes 10,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
(13) Includes 348,854 shares issuable upon exercise of stock options that are
exercisable within 60 days of October 1, 2000.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation earned by (a) the individual who
served as the Company's Chief Executive Officer during the fiscal year ended
March 31, 2000; and, (b) the four other most highly compensated individuals who
were serving as executive officers of the Company at the end of fiscal year
ended March 31, 2000; and (c) the compensation received by each such individual
for the Company's two preceding fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------ ------------
Securities
Name and Principal Fiscal Underlying All Other
Position Year Salary($)(1) Bonus($)(2) Options(#) Compensation(3)
------------------ ------ ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
M. Marketta Silvera..... 2000 $225,000 $ 96,200 30,000 $358
President and Chief 1999 225,000 10,200 60,000 261
Executive Officer 1998 205,000 43,650 60,000 237
Dana R. Nelson.......... 2000 175,000 124,625 -- 322
Executive Vice 1999 39,824 12,500 150,000 44
President
Thomas C. Chesterman.... 2000 150,000 72,150 20,000 304
Senior Vice President, 1999 129,563 6,800 150,000 223
Finance and
Administration, Chief
Financial Officer,
Treasurer and Secretary
Martin W. Wegenstein.... 2000 173,093 72,150 150,000 300
Senior Vice President,
Operations
Thomas A. Wadlow........ 2000 139,827 48,100 20,000 297
Chief Technology 1999 125,000 4,080 35,000 261
Officer 1998 110,000 18,188 30,000 178
</TABLE>
--------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Include bonuses earned in the indicated year and paid in the subsequent
year. Excludes bonuses paid in the indicated year but earned in the
preceding year.
(3) Amounts listed represent term life insurance premiums paid on behalf of the
listed individual.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the persons listed in the Summary Compensation Table in the
last fiscal year. In addition, as required by Securities and Exchange
Commission rules, the table sets forth the hypothetical gains that would exist
for the options based on assumed rates of annual compound stock price
appreciation during the option term.
<TABLE>
<CAPTION>
Individual Grants(1)
---------------------------------------------------------
Potential Realizable
Percent Value at Assumed
of Total Options Annual Rates of
Granted Stock Price
Number of Securities to Employees Exercise Appreciation For
Underlying Options in Fiscal Price Expiration Option Term(3)($)
Name Granted(#) Year(%)(2) ($/sh) Date 5% / 10%
---- -------------------- ---------------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
M. Marketta Silvera..... 30,000 1.8% $15.438 4/2/09 $ 291,266/$ 738,126
Dana R. Nelson.......... -- -- -- -- -- /--
William C. Leetham...... 20,000 1.2 15.438 4/2/09 194,178/492,084
Martin W. Wegenstein.... 150,000 9.1 15.438 4/2/09 1,456,331/3,690,629
Thomas A. Wadlow........ 20,000 1.2 15.438 4/2/09 194,178/492,084
</TABLE>
--------
(1) No stock appreciation rights were granted to the above officers in the last
fiscal year. Options vest 25% upon the first anniversary of the vesting
commencement date, with the remaining shares vesting in equal monthly
installments over the following three years.
(2) Based on an aggregate of 1,640,000 options granted to employees during the
fiscal year ended March 31, 2000.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to stock
options exercised by the persons listed in the Summary Compensation Table
during the fiscal year ended March 31, 2000. In addition, the table sets forth
the number of shares covered by stock options as of the fiscal year ended March
31, 2000, and the value of "in-the-money" stock options, which represents the
positive spread between the exercise price of a stock option and the market
price of the shares subject to such option at the end of the fiscal year ended
March 31, 2000.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-
Options at Money Options at Fiscal
Shares Fiscal Year End Year End
Acquired Value (#) Exercisable/ ($) Exercisable/
Name on Exercise(#) Realized($)(3) Unexercisable(1) Unexercisable(2)
---- -------------- -------------- --------------------- ----------------------------
<S> <C> <C> <C> <C>
M. Marketta Silvera..... -- $ -- 72,500/77,500 $2,269,380/$1,983,930
Dana R. Nelson.......... -- -- 43,749/106,251 1,052,732/2,556,718
William C. Leetham...... 65,624 1,392,434 3,125/166,875 84,572/2,551,396
Martin W. Wegenstein.... -- -- -- /150,000 -- /2,643,750
Thomas A. Wadlow........ 13,958 421,936 39,582/46,640 1,241,796/1,166,542
</TABLE>
--------
(1) No stock appreciation rights (SARs) were outstanding during fiscal 2000.
(2) Based on the $33.063 per share closing price of the Company's Common Stock
on The Nasdaq Stock Market on March 31, 2000, less the exercise price of
the options.
(3) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq Stock Market on the date of exercise
minus the exercise price of the option and does not necessarily indicate
that the optionee sold such stock.
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934
that might incorporate future filings, including this Proxy Statement, in whole
or in part, the following report and the Stock Performance Graph which follows
shall not be deemed to be incorporated by reference into any such filings.
15
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers during the fiscal year ended March 31, 2000.
The Committee is responsible for establishing and monitoring the general
compensation policies and compensation plans of the Company, as well as the
specific compensation levels for executive officers, including administration
of the Company's stock plans and approving stock option grants. Executive
officers who are also directors have not participated in deliberations or
decisions involving their own compensation.
General Compensation Policy
Under the supervision of the Board of Directors, the Company's compensation
policy is designed to attract and retain qualified key executives critical to
the Company's growth and long-term success. It is the objective of the Board of
Directors to have a portion of each executive's compensation contingent upon
the Company's performance as well as upon the individual's personal
performance. Accordingly, each executive officer's compensation package is
comprised of three elements: (i) base salary which reflects individual
performance and expertise, (ii) variable bonus awards payable in cash and tied
to the achievement of certain performance goals that the Board of Directors
establishes from time to time for the Company and (iii) long-term stock-based
incentive awards which are designed to strengthen the mutuality of interests
between the executive officers and the Company's stockholders.
The summary below describes in more detail the factors which the Board of
Directors considers in establishing each of the three primary components of the
compensation package provided to the executive officers.
Base Salary
The level of base salary is established primarily on the basis of the
individual's qualifications and relevant experience, the strategic goals for
which he or she has responsibility, the compensation levels at companies which
compete with the Company for business and executive talent, and the incentives
necessary to attract and retain qualified management. Base salary is adjusted
each year to take into account the individual's performance and to maintain a
competitive salary structure. Company performance does not play a significant
role in the determination of base salary.
Cash-Based Incentive Compensation
Cash bonuses are awarded on a discretionary basis to executive officers on
the basis of their success in achieving designated individual goals and the
Company's success in achieving specific company-wide goals, such as customer
satisfaction, revenue growth and earnings growth.
Long-Term Incentive Compensation
The Company has utilized its stock option plans to provide executives and
other key employees with incentives to maximize long-term stockholder values.
Awards under this plan by the Board of Directors take the form of stock options
designed to give the recipient a significant equity stake in the Company and
thereby closely align his or her interests with those of the Company's
stockholders. Factors considered in making such awards include the individual's
position in the Company, his or her performance and responsibilities, and
internal comparability considerations.
Each option grant allows the executive officer to acquire shares of Common
Stock at a fixed price per share (the fair market value on the date of grant)
over a specified period of time (up to 10 years). The options typically vest in
periodic installments over a four-year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return to the executive officer only if he or she remains in the
Company's service, and then only if the market price of the Common Stock
appreciates over the option term.
16
<PAGE>
Compensation of the Chief Executive Officer
M. Marketta Silvera has served as the Company's President and Chief
Executive Officer since June 1993. Her base salary and cash bonus for fiscal
2000 was $225,000 and $96,200, respectively.
The factors discussed above in "Base Salary," "Cash-Based Incentive
Compensation," and "Long-Term Incentive Compensation" were also applied in
establishing the amount of Ms. Silvera's salary and stock option grant for
fiscal 2000. Significant factors in establishing Ms. Silvera's compensation
were Ms. Silvera's personal performance during the fiscal year as well as her
role in attaining the Company's overall objectives in revenue attainment and
operating results. The actual bonus paid to Ms. Silvera was based on the
quantitative attainment of revenue and operating income targets established at
the beginning of their fiscal year.
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the CEO and four
other most highly compensated executive officers, respectively, unless such
compensation meets the requirements for the "performance-based" exception to
Section 162(m). As the cash compensation paid by the Company to each of its
executive officers is expected to be below $1 million and the Committee
believes that options granted under the Company's 1998 Stock Plan or its 1994
Stock Plan to such officers will meet the requirements for qualifying as
performance-based, the Committee believes that Section 162(m) will not affect
the tax deductions available to the Company with respect to the compensation of
its executive officers. It is the Committee's policy to qualify, to the extent
reasonable, its executive officers' compensation for deductibility under
applicable tax law. However, the Company may from time to time pay compensation
to its executive officers that may not be deductible.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
Shanda Bahles and Thomas O'Rourke. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
17
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company has entered into service agreements with entities affiliated
with General Electric Company containing standard terms and conditions
resulting from third party arm's length negotiations between the Company and
each such entity. Such entities may be affiliated with GE Capital Corporation,
a subsidiary of General Electric Company and a former holder of more than 5% of
the Company's Common Stock. The Company also entered into an agreement with
AmeriData Technologies Inc. a subsidiary of GE Capital Corp. ("AmeriData") on
June 18, 1996 whereby the Company granted AmeriData options to purchase 200,000
shares of the Company's Common Stock at $2.00 per share and Ameridata agreed to
sell the Company's Internet security service to AmeriData customers in exchange
for a commission on the first two years of revenue from those customers. The
current aggregate value of the 100,000 remaining options held by AmeriData,
based on the 30-day average trading value of the Company's Common Stock as of
October 1, 2000, is approximately $980,000. The Company and AmeriData also
agreed to cooperate in areas such as training and marketing. AmeriData was
acquired by GE Capital Corp., and is now GE Capital Information Technologies
Solutions, Inc.
In fiscal 2000, the Company recognized $2.0 million in revenue from Primus
Telecommunications Group, Inc., On March 31, 2000, the Company had $1.0 million
in accounts receivable due from Primus. Primus owns 919,540 shares of the
Company's common stock as well as a warrant to purchase 200,000 shares of
common stock at a price of $25.00 per share. The chairman and chief executive
officer of Primus, K. Paul Singh, is also a member of the Company's board of
directors.
18
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return data
for the Company's stock since August 10, 1998 (the date on which the Company's
stock was first registered under Section 12 of the Securities Exchange Act of
1934, as amended) to the cumulative return over such period of (i) The Nasdaq
National Market Composite Index, and (ii) the Credit Suisse First Boston EC
Index. The graph assumes that $100 was invested on August 11, 1998, the date on
which the Company completed the initial public offering of its Common Stock, in
the Common Stock of the Company and in each of the comparative indices. The
graph further assumes that such amount was initially invested in the Common
Stock of the Company at a per share price of $14.00, the price to which such
stock was first offered to the public by the Company on the date of its initial
public offering, and reinvestment of any dividends. The stock price performance
on the following graph is not necessarily indicative of future stock price
performance.
COMPARISON OF 19-MONTH CUMULATIVE TOTAL RETURN *
AMONG PILOT NETWORK SERVICES, INC., THE NASDAQ NATIONAL
MARKET COMPOSITE INDEX AND CREDIT SUISSE FIRST BOSTON EC INDEX
[PERFORMANCE GRAPH APPEARS HERE]
--------
* Assumes $100 invested on August 11, 1998 in stock or index, including
reinvestment of dividends.
<TABLE>
<CAPTION>
8/11/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pilot Network Services,
Inc.................... 100.0 47.3 63.8 106.7 70.1 66.1 171.4 236.2
The Nasdaq National
Market Composite
Index.................. 100.0 94.5 122.3 137.3 149.8 153.2 227.0 255.1
Credit Suisse First
Boston EC Index........ 100.0 85.5 137.0 212.5 162.7 169.7 228.3 258.5
</TABLE>
19
<PAGE>
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
FOR 2001 ANNUAL MEETING
Proposals of stockholders intended to be included in the Company's proxy
statement for the 2001 Annual Meeting of Stockholders must be received by
Thomas C. Chesterman, Secretary, 1080 Marine Village Parkway, Alameda,
California 94501, no later than [ ] , 2001.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on its review of the copies
of such reports received or written representations from certain Reporting
Persons that no other reports were required, the Company believes that during
its fiscal year ended March 31, 2000, all Reporting Persons complied with all
applicable filing requirements.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented to
the Annual Meeting. If any other business is properly brought before the Annual
Meeting, proxies in the enclosed form will be voted in respect thereof as the
proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors
Thomas C. Chesterman
Secretary
Alameda, California
[ ] , 2000
20
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PILOT NETWORK SERVICES, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD [ ], 2000
The undersigned stockholder of Pilot Network Services, Inc., a Delaware
corporation, (the "Company") hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated [ ], 2000,
and hereby appoints M. Marketta Silvera and Thomas C. Chesterman or either of
them, proxies and attorneys-in-fact, with full power to each of substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Annual Meeting of Stockholders of Pilot Network Services, Inc. to be held
on [ ], 2000 at 10:00 a.m., local time, at the Waterfront Plaza Hotel, Ten
Washington street, Oakland, California 94607 and at any adjournment or
postponement thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
1. ELECTION OF CLASS II DIRECTORS
[_] FOR all nominees listed below (except as indicated)
[_] WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
K. Paul Singh Thomas O'Rourke
2. PROPOSAL TO APPROVE THE ISSUANCE OF COMMON STOCK UPON THE REDEMPTION AT
MATURITY OF THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK, TO THE EXTENT
THAT SUCH ISSUANCE EXCEEDS THE NASDAQ THRESHOLD:
[_] FOR[_] AGAINST[_] ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS
OF THE COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 2001:
[_] FOR[_] AGAINST[_] ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF CLASS II DIRECTOR NOMINEES;
(2) TO APPROVE THE ISSUANCE OF COMMON STOCK UPON THE REDEMPTION AT MATURITY OF
THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK, TO THE EXTENT THAT SUCH
ISSUANCE EXCEEDS THE NASDAQ THRESHOLD; (3) FOR RATIFICATION OF THE APPOINTMENT
OF KPMG, LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING MARCH 31, 2001; AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS
AS MAY COME BEFORE THE MEETING.
Dated: _______________________,
_______________________________
Signature
Dated: ________________________
_______________________________
Signature
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
