===============================================================================
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
PERVASIVE SOFTWARE 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.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
[LOGO]
PERVASIVE SOFTWARE
PERVASIVE SOFTWARE INC.
12365 Riata Trace Parkway, Building II
Austin, Texas 78727
October 15, 2001
TO THE STOCKHOLDERS OF PERVASIVE SOFTWARE INC.
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Pervasive Software Inc. (the "Company"), which will be held at The Renaissance
Hotel-Arboretum, 9721 Arboretum Boulevard, Austin, Texas 78759, on Thursday,
November 1, 2001, at 9:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. Returning the proxy does NOT deprive you of your right to attend the
Annual Meeting. If you decide to attend the Annual Meeting and wish to change
your proxy vote, you may do so automatically by voting in person at the
meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Ron R. Harris
Ron R. Harris
President, Chief Executive Officer
and Director
[LOGO]
PERVASIVE SOFTWARE
PERVASIVE SOFTWARE INC.
12365 Riata Trace Parkway, Building II
Austin, Texas 78727
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held November 1, 2001
The Annual Meeting of Stockholders (the "Annual Meeting") of Pervasive
Software Inc. (the "Company") will be held at The Renaissance Hotel-Arboretum,
9721 Arboretum Boulevard, Austin, Texas 78759, on Thursday, November 1, 2001,
at 9:00 a.m. for the following purposes:
1. To elect two directors of the Board of Directors to serve until their
three-year term expires or until their successors have been duly elected and
qualified;
2. To approve an amendment to the Company's 1997 Stock Incentive Plan to
increase the number of shares granted under the Automatic Option Grant Program
and certain other amendments, as set forth in the accompanying Proxy Statement;
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending June 30, 2002; and
4. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement.
Only stockholders of record at the close of business on October 3, 2001 are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 12365 Riata
Trace Parkway, Building II, Austin, Texas, during ordinary business hours for
the ten-day period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ John Farr
John E. Farr
Chief Financial Officer and Secretary
Austin, Texas
October 15, 2001
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING.
IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE,
YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
PERVASIVE SOFTWARE INC.
12365 Riata Trace Parkway, Building II
Austin, Texas 78727
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held November 1, 2001
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Pervasive Software Inc., a Delaware
corporation (the "Company"), for the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at The Renaissance Hotel-Arboretum, 9721 Arboretum
Boulevard, Austin, Texas 78759, on Thursday, November 1, 2001, at 9:00 a.m.,
and at any adjournment or postponement of the Annual Meeting. These proxy
materials were first mailed to stockholders on or about October 15, 2001.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders.
Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On October 3, 2001, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 16,816,094
shares of Common Stock outstanding, which excludes treasury shares held by the
Company that may not be voted by the Company or counted toward quorum. Each
stockholder of record on October 3, 2001 is entitled to one vote for each share
of Common Stock held by such stockholder on October 3, 2001. Shares of Common
Stock may not be voted cumulatively. All votes will be tabulated by the
inspector of election appointed for the meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes.
Quorum Required
The Company's bylaws provide that the holders of a majority of the Company's
Common Stock issued and outstanding and entitled to vote at the Annual Meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker non-votes
will be counted as present for the purpose of determining the presence of a
quorum.
Votes Required
Proposal 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled
to vote at the Annual Meeting. The two nominees for director receiving the
highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors.
Proposal 2. Approval of the amendment to the Company's 1997 Stock Incentive
Plan requires the affirmative vote of a majority of those shares present in
person or represented by proxy, and entitled to vote at the Annual Meeting.
Abstentions are not affirmative votes and, therefore, will have the same effect
as a vote against the proposal. Broker non-votes will not be treated as
entitled to vote on the matter and thus, will not affect the outcome of the
voting on the proposal.
Proposal 3. Ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending June 30, 2002
requires the affirmative vote of a majority of those shares present in person,
or represented by proxy, and cast either affirmatively or negatively at the
Annual Meeting. Abstentions and broker non-votes will not be counted as having
been voted on the proposal.
Proxies
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your
proxy when properly completed. In the event no directions are specified, such
proxies will be voted FOR the Nominees of the Board of Directors (as set forth
in Proposal No. 1), FOR Proposal No. 2, and FOR Proposal No. 3 and in the
discretion of the proxy holders as to other matters that may properly come
before the Annual Meeting. You may also revoke or change your proxy at any time
before the Annual Meeting. To do this, send a written notice of revocation or
another signed proxy with a later date to the Secretary of the Company at the
Company's principal executive offices before the beginning of the Annual
Meeting. You may also automatically revoke your proxy by attending the Annual
Meeting and voting in person. All shares represented by a valid proxy received
prior to the Annual Meeting will be voted.
Solicitation of Proxies
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the
proxy, and any additional soliciting material furnished to stockholders. Copies
of solicitation material will be furnished to brokerage houses, fiduciaries,
and custodians holding shares in their names that are beneficially owned by
others so that they may forward this solicitation material to such beneficial
owners. The Company has retained the services of Mellon Investor Services LLC
to aid in the solicitation of proxies from brokers, bank nominees and other
institutional owners. The Company estimates that it will pay Mellon Investor
Services a fee not to exceed $5,500 for its services and will reimburse Mellon
Investor Services for certain out-of-pocket expenses that are usual and proper.
In addition, the Company may reimburse brokerage houses, fiduciaries and
custodians representing beneficial owners of shares for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals
for any such services. Except as described above, the Company does not
presently intend to solicit proxies other than by mail.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company currently has authorized six directors. In accordance with the
terms of the Company's Certificate of Incorporation, the Board of Directors is
divided into three classes: Class I, whose term will expire at the 2001 Annual
Meeting; Class II, whose term will expire at the 2002 Annual Meeting; and Class
III, whose term will expire at the 2003 Annual Meeting. At the 2001 Annual
Meeting, two directors will be elected to serve until the Annual Meeting to be
held in 2004 or until his or her respective successor is elected and qualified.
The Board of Directors has selected two nominees as the nominees for Class I.
The nominees for the Board of Directors are both currently directors of the
Company and are set forth below. The proxy holders intend to vote all proxies
received by them in the accompanying form for the nominees for directors listed
below. In the event any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them for the nominees
listed below. As of the date of this Proxy Statement, the Board of Directors is
not aware of any nominee who is unable or will decline to serve as a director.
Nominees for Term Ending in 2004
Set forth below is information regarding the nominees, including their ages,
the period during which they have served as directors, and information
furnished by them as to principal occupations and directorships held by them in
corporations whose shares are publicly registered.
Director
Name Since Age
---- -------- ---
David R. Bradford. 1995 50
James R. Offerdahl 2001 45
Mr. Bradford has served as one of our directors since October 1995. Mr.
Bradford served as Senior Vice President, General Counsel of Novell, Inc., a
networking software company, from 1985 until July 2000. Mr. Bradford also
serves as a director of a private company. Mr. Bradford received a B.A. in
Political Science and a J.D. from Brigham Young University and an M.B.A. from
Pepperdine University.
Mr. Offerdahl has served as one of our directors since July 2001. Mr.
Offerdahl has served as President and Chief Executive Officer of traq-wireless,
a provider of enterprise wireless management solutions, since August 2001. Mr.
Offerdahl served as our Chief Operating Officer, Chief Financial Officer and
Secretary from September 1998 to July 2001. In addition, Mr. Offerdahl served
as our Chief Financial Officer, Vice President, Finance and Administration and
Secretary from October 1996 to September 1998. From May 1993 to September 1996,
Mr. Offerdahl served as Chief Financial Officer and Vice President of
Administration of Tivoli Systems Inc., a provider of enterprise systems
management solutions, acquired by IBM in March 1996. Mr. Offerdahl received a
B.S. in Accounting from Illinois State University and an M.B.A. from the
University of Texas at Austin.
Set forth below is information regarding the continuing directors of the
Company, including their ages, the period in which they have served as
directors, and information furnished by them as to principal occupations and
directorships held by them in corporations whose shares are publicly
registered.
Director
Name Since Age
---- -------- ---
Ron R. Harris........ 1995 48
David A. Boucher..... 1995 51
Shelby H. Carter, Jr. 1996 70
Nancy R. Woodward.... 1994 45
3
Mr. Harris has served as our President and Chief Executive Officer since our
inception and as a director since June 1995. Prior to joining us, Mr. Harris
served as a Vice President of Citrix Systems, Inc., a developer of
thin-client/server software, from October 1990 to May 1993. He also serves as a
director of several private companies. Mr. Harris received his B.S. in Computer
Science from Vanderbilt University and an M.B.A. from the University of Texas
at Austin.
Mr. Boucher has served as one of our directors since October 1995. Mr.
Boucher has served as a General Partner of Applied Technology, a venture
capital firm, since January 1993. From January 1981 to August 1992, Mr. Boucher
served as President and Chief Executive Officer of Interleaf, Inc., an
electronic-publishing software developer. Mr. Boucher also serves as director
of Interleaf, Inc. and various private companies.
Mr. Carter has served as a director of the Company since August 1996. Since
January 1986, Mr. Carter has served as a distinguished adjunct professor at the
University of Texas Graduate School of Business and College of Business
Administration. Mr. Carter has founded several successful high technology
companies. Mr. Carter currently serves as chairman of the board of a private
company and as a venture partner of Austin Ventures. Mr. Carter received a
B.B.A. from the University of Texas at Austin.
Ms. Woodward is one of our founders and has served as a director and
Chairman of the Board since our inception. Ms. Woodward received a B.S. in
Computer Science from the University of Michigan.
Board of Directors Meetings and Committees
During the fiscal year ended June 30, 2001, the Board of Directors held
eight (8) meetings and acted by written consent on two (2) occasions. For the
fiscal year, each of the directors during the term of his or her tenure
attended or participated in at least 75% of the aggregate of (i) the total
number of meetings or actions by written consent of the Board of Directors and
(ii) the total number of meetings held by all committees of the Board of
Directors on which each such director served. The Board of Directors has two
(2) standing committees: the Audit Committee and the Compensation Committee.
During the fiscal year ended June 30, 2001, the Audit Committee of the Board
of Directors held five (5) meetings. The Audit Committee reviews, acts on and
reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's independent
accountants, the scope of the annual audits, fees to be paid to the independent
accountants, the performance of the Company's independent accountants and the
accounting practices of the Company. The members of the Audit Committee are Mr.
Boucher, Mr. Bradford and Mr. Carter.
During the fiscal year ended June 30, 2001, the Compensation Committee of
the Board of Directors held four (4) meetings and acted by written consent on
two (2) occasions. The Compensation Committee establishes salaries, incentives
and other forms of compensation for officers and other employees of the Company
and administers the incentive compensation and benefit plans of the Company.
The members of the Compensation Committee are Ms. Woodward, Mr. Offerdahl and
Mr. Carter. In fiscal 2001, Joseph Aragona served as a member of the
Compensation Committee. Mr. Aragona resigned from the Board of Directors on
March 28, 2001.
Director Compensation
Non-employee directors receive $1,500 per meeting attended and $250 per
Committee meeting attended, plus a retainer of $10,000 annually for serving on
the Board of Directors. All directors are reimbursed for reasonable expenses
incurred by them in attending Board and Committee meetings. Certain
non-employee Board members are eligible for option grants under the Company's
1997 Stock Incentive Plan.
Under the proposed amendments to the Automatic Option Grant Program of the
1997 Stock Incentive Plan, each individual who first joins the Board as an
eligible non-employee director will receive at that time, an automatic option
grant for 50,000 shares of Common Stock. In addition, at each annual
stockholders meeting, beginning with the first annual meeting after June 30,
2001, each eligible non-employee director, whether or not he or she is standing
for re-election at that particular meeting, will be granted a stock option to
purchase 10,000 shares of Common Stock. Prior to its amendment in December
2000, the Automatic Option Grant Program
4
provided for an initial grant of 20,000 shares and an annual grant of 5,000
shares. The optionee will vest in each automatic option grant in a series of
four annual installments over the optionee's period of Board service, beginning
one year from the grant date. Each option will have an exercise price equal to
the fair market value of the Common Stock on the automatic grant date and a
maximum term of ten years, subject to earlier termination following the
optionee's cessation of Board service. Vesting of the automatic option shares
will automatically accelerate and the options become fully exercisable upon (i)
a change in control of the Company by merger or consolidation, sale of all or
substantially all of its assets or tender offer for 50% or more of the
Company's outstanding voting stock or (ii) the death or disability of the
optionee while serving as a Board member. Mr. Carter was granted options to
purchase 5,000 shares of Common Stock on November 4, 1998 at an exercise price
of $9.81 per share, 5,000 shares of Common Stock on November 3, 1999 at an
exercise price of $10.00 per share and 5,000 shares of Common Stock on November
9, 2000 at an exercise price of $2.31 per share. Mr. Bradford was granted
options to purchase 5,000 shares of Common Stock on November 4, 1998 at an
exercise price of $9.81 per share, 5,000 shares of Common Stock on November 3,
1999 at an exercise price of $10.00 per share and 5,000 shares of Common Stock
on November 9, 2000 at an exercise price of $2.31 per share. Mr. Boucher was
granted options to purchase 5,000 shares of Common Stock on November 4, 1998 at
an exercise price of $9.81 per share, 5,000 shares of Common Stock on November
3, 1999 at an exercise price of $10.00 per share and 5,000 shares of Common
Stock on November 9, 2000 at an exercise price of $2.31 per share. Mr. Aragona
was granted an option to purchase 5,000 shares of Common Stock on November 3,
1999 at an exercise price of $10.00 per share and 5,000 shares of Common Stock
on November 9, 2000 at an exercise price of $2.31 per share. On September 13,
2001, Mr. Offerdahl was granted an option to purchase 50,000 shares at an
exercise price of $1.29. On December 15, 2000, each of Messrs. Aragona,
Boucher, Bradford and Carter was granted an option to purchase 30,000 shares
and Ms. Woodward was granted an option to purchase 50,000 shares under the 1997
Stock Incentive Plan. Pursuant to the Automatic Option Grant Program, each of
Messrs. Boucher, Bradford, Carter and Offerdahl and Ms. Woodward will be
granted options to purchase 10,000 shares of Common Stock on the date of the
Annual Meeting.
Directors who are also employees of the Company are eligible to participate
in the Company's Bonus Plan, and are also eligible to participate, subject to
certain limitations, in the Company's Employee Stock Purchase Plan and all
directors are eligible to receive options and be issued shares under the 1997
Stock Incentive Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN.
5
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 2001, certain information
with respect to shares beneficially owned by (i) each person who is known by
the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors and the executive officers named in the Summary Compensation Table
and (iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within sixty (60) days of
the date as of which the information is provided; in computing the percentage
ownership of any person, the amount of shares is deemed to include the amount
of shares beneficially owned by such person (and only such person) by reason of
such acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
Shares Beneficially Owned
as of June 30, 2001 (1) (2)
- --------------------------
Number of Percentage
Beneficial Owner Shares of Class
---------------- --------- ----------
Firsthand Capital Management............................................. 2,179,923 13.7%
125 South Market, Suite 1200
San Jose, CA 95113-2206
Wells Fargo Bank, as trustee of The Douglas C. Woodward Trust............ 1,197,092 7.5%
Ron R. Harris (3)........................................................ 1,305,816 7.6%
James R. Offerdahl (4)................................................... 329,648 2.1%
David Dunnigan (5)....................................................... 70,000 *
Bruce N. Flory........................................................... -- *
Richard A. Tusia (6)..................................................... 33,500 *
Nancy R. Woodward........................................................ 1,499,592 9.4%
David A. Boucher (7)..................................................... 4,178 *
David R. Bradford (8).................................................... 13,750 *
Shelby H. Carter, Jr. (9)................................................ 16,250 *
All current directors and executive officers as a group (12 persons) (10) 3,413,219 19.4%
--------
* Less than 1% of the outstanding shares of Common Stock.
(1)Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock. To
the Company's knowledge, the entities named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Unless otherwise specified, each beneficial
owners address shall be 12365 Riata Trace Parkway, Building II, Austin,
Texas 78727.
(2)The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within sixty (60)
days after June 30, 2001.
(3)Includes options for 1,305,816 shares of Common Stock that were subsequently
exercised.
(4)Includes options exercisable into 154,999 shares of Common Stock.
(5)Includes options exercisable into 70,000 shares of Common Stock.
(6)Includes options exercisable into 32,500 shares of Common Stock.
(7)Includes options exercisable into 3,750 shares of Common Stock.
(8)Includes options exercisable into 13,750 shares of Common Stock.
(9)Includes options exercisable into 13,750 shares of Common Stock.
(10)Includes options exercisable into 1,679,065 shares of Common Stock.
6
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee" or the "Committee") has the exclusive authority to
establish the level of base salary payable to the Chief Executive Officer
("CEO") and certain other executive officers of the Company and to administer
the Company's 1997 Stock Incentive Plan and Employee Stock Purchase Plan. In
addition, the Committee has the responsibility for approving the individual
bonus programs to be in effect for the CEO and certain other executive officers
and other key employees each fiscal year.
For the 2001 fiscal year, the process utilized by the Committee in
determining executive officer compensation levels was based on the subjective
judgment of the Committee. Among the factors considered by the Committee were
the recommendations of the CEO with respect to the compensation of the
Company's key executive officers. However, the Committee made the final
compensation decisions concerning such officers.
General Compensation Policy. The Committee's fundamental policy is to offer
the Company's executive officers competitive compensation opportunities based
upon overall Company performance, their individual contribution to the
financial success of the Company and their personal performance. It is the
Committee's objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance, as well as upon his or
her own level of performance. Accordingly, each executive officer's
compensation package consists of: (i) base salary, (ii) cash bonus awards or
commissions, and (iii) long-term stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the basis
of general market levels and personal performance. Each individual's base pay
is positioned relative to the total compensation package, including cash
incentives and long-term incentives.
Annual Cash Bonuses and Commissions. The Company has established a cash
bonus program for all non-commission employees. Each employee has an
established cash bonus target. The annual pool of bonuses is funded on the
basis of the Company's achievement of the financial performance targets
established at the start of the fiscal year and distributed on the basis of
personal objectives established for each employee. Bonuses were paid for the
2001 fiscal year pursuant to the bonus plan. Specifically, targets were
established at the beginning of the year based on Company performance in the
areas of revenues and customer satisfaction. Commissions are paid to Mr.
Dunnigan pursuant to a commission plan in which all sales and other commission
employees are eligible to participate.
Long-Term Incentive Compensation. During fiscal 2001, the Committee, in its
discretion, made option grants under the 1997 Stock Incentive Plan. Generally,
a significant grant is made in the year that an officer commences employment.
Thereafter, option grants may be made at varying times and in varying amounts
at the discretion of the Committee. Generally, the size of each grant is set at
a level that the Committee deems appropriate to create a meaningful opportunity
for stock ownership based upon the individual's position with the Company, the
individual's potential for future responsibility and promotion, the
individual's performance in the recent period and the number of unvested
options held by the individual at the time of the new grant. The relative
weight given to each of these factors will vary from individual to individual
at the Committee's discretion. Applying these principles, grants were made in
fiscal 2001 to Mr. Flory in connection with his commencement of employment with
the Company and to Messrs. Dunnigan Tusia and Offerdahl during fiscal 2001.
The grants allow the officers to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a four
year period, contingent upon the executive officer's continued employment with
the Company. The vesting schedule and the number of shares granted are
established to ensure a meaningful incentive in each year following the year of
grant. Accordingly, the option will provide a return to the executive officer
only if he remains in the Company's employ, and then only if the market price
of the Company's Common Stock appreciates over the option term.
7
CEO Compensation. The annual base salary for Mr. Harris, the Company's
President and Chief Executive Officer, was increased by the Committee on
December 15, 2000. The Committee's decision was made primarily on the basis of
Mr. Harris' personal performance of his duties.
The remaining components of the Chief Executive Officer's 2001 fiscal year
incentive compensation were entirely dependent upon the Company's financial
performance and provided no dollar guarantees. Each year, the annual incentive
plan is reevaluated with a new achievement threshold and new targets for
revenue and profit. No option grant was made to the Chief Executive Officer
during the 2001 fiscal year, principally due to Mr. Harris' significant stock
holdings derived from options granted in 1995. Mr. Harris earned a bonus under
the Bonus Plan for all non-commission employees.
Mr. Aragona served as a member of the Compensation Committee until his
resignation effective March 28, 2001. The remaining members of the Compensation
Committee for the fiscal year ending June 30, 2001 were Mr. Carter and Ms.
Woodward.
Compensation Committee
Shelby H. Carter, Jr.
Nancy R. Woodward
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in March 1997,
and the current members of the Compensation Committee are James R. Offerdahl,
Shelby H. Carter, Jr. and Nancy R. Woodward. Nancy R. Woodward has served as
Secretary of the Company and is currently Chairman of the Board and James R.
Offerdahl served as Chief Operating Officer, Chief Financial Officer and
Secretary until July 13, 2001. Mr. Carter was not at any time during fiscal
2001, or at any other time, an officer or employee of the Company. No member of
the Compensation Committee of the Company serves as a member of the Board of
Directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board or Compensation
Committee, except that Mr. Harris served on the board of directors of
Exterprise, Inc. and Mr. Carter was the chairman of the board of directors of
Exterprise, Inc. which was acquired by Commerce One, Inc. on May 29, 2001.
AUDIT COMMITTEE REPORT (1)
The Securities and Exchange Commission rules now require the Company to include
in its Proxy Statement a report from the Audit Committee of the Board of
Directors. The following report concerns the Audit Committee's activities
regarding oversight of the Company's financial reporting and auditing process.
-----------------
The Audit Committee is comprised solely of independent directors, as defined
in the Marketplace Rules of The Nasdaq Stock Market, and it operates under a
written charter approved by the Board of Directors, a copy of which is attached
to this Proxy Statement as Exhibit A. The composition of the Audit Committee,
the attributes of its members and the responsibilities of the Audit Committee,
as reflected in its charter, are intended to be in compliance with the
applicable requirements for corporate audit committees. The Audit Committee
reviews and reassesses the adequacy of its charter annually.
As described more fully in its charter, the purpose of the Audit Committee
is to assist the Board of Directors in its general oversight of the Company's
financial reporting, internal control and audit functions. Management is
responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles, internal
controls and procedures designed to assure compliance with applicable
accounting standards, laws and regulations. Ernst & Young LLP, the Company's
independent auditor, is responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with generally
accepted auditing standards.
The members of the Audit Committee are not functioning as professional
accountants or auditors or experts in the fields of accounting or auditing, and
their responsibilities are not intended to duplicate or to certify the
activities of management or Ernst & Young LLP. The Audit Committee serves a
Board of Directors-level oversight role in which it provides advice, counsel
and direction to management and the independent auditors on the basis of the
information it receives, discussions with the auditors and the experience of
the Committee members in business, financial and accounting matters.
Among other matters, the Audit Committee recommends to the Board of
Directors the independent auditors to be selected to audit the annual financial
statements and review the quarterly financial statements of the Company. The
Audit Committee then monitors the activities and performance of the independent
auditors, including the overall audit scope, external audit fees, auditor
independence matters and the extent to which the independent auditor may be
retained to provide non-audit services. The Audit Committee and the Board of
Directors have ultimate authority and responsibility to select, evaluate and,
when appropriate, replace the
--------
(1)The information above regarding the Audit Committee is not "soliciting"
material and is not deemed "filed" with the SEC, and is not incorporated by
reference into any filings of the Company under the Securities Act of 1933,
as amended or the Exchange Act, as amended whether made before or after the
date hereof and irrespective of any general incorporation language contained
in such filing.
9
Company's independent auditor. The Audit Committee also reviews the results of
the independent audit with regard to the adequacy and appropriateness of the
Company's internal financial and accounting controls, including computerized
information system controls and security. The Audit Committee meets with
management and the independent auditors, both together and separately, as it
deems necessary, to discuss significant business risks and exposures and
controls in place to effectively manage such risks. The Audit Committee also
reviews the qualitative judgments concerning the appropriateness and
acceptability of accounting principles adopted, estimates made and financial
disclosures.
The Audit Committee has reviewed and discussed the consolidated financial
statements with management and Ernst & Young LLP. Management has represented to
the Audit Committee that the Company's consolidated financial statements were
prepared in accordance with generally accepted accounting principles. Ernst &
Young LLP has represented to the Audit Committee that its presentations
included the matters required to be discussed by the independent auditor as set
forth in Statement on Auditing Standards No. 61, as amended, "Communication
with Audit Committees".
Ernst & Young LLP also provided the Audit Committee with the written
disclosures required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees", and the Audit Committee
discussed with Ernst & Young LLP that firm's independence with respect to the
Company.
Following the Audit Committee's discussions with management and Ernst &
Young LLP, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended June 30, 2001.
10
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between September 26, 1997 and June 30, 2001 with
the cumulative total return of (i) the Nasdaq National Market Composite Index
and (ii) the JP Morgan H&Q Computer Software Index (the "JP Morgan H&Q Software
Index"), over the same period. This graph assumes the investment of $100.00 on
September 26, 1997 in the Company's Common Stock and on August 31, 1997 in the
Nasdaq National Market Composite Index and the JP Morgan H&Q Software Index,
and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data. The
Company cautions that the stock price performance shown in the graph below is
not indicative of, nor intended to forecast, the potential future performance
of the Company's Common Stock. Information used in the graph was obtained from
JP Morgan H&Q, a source believed to be reliable, but the Company is not
responsible for any errors or omissions in such information.
Comparison of 45 Month Cumulative Total Return*
Among Pervasive Software Inc., the Nasdaq Stock Market (U.S.) Index,
and the JP Morgan H&Q Computer Software Index
[CHART]
*The graph assumes that $100 was invested on 9/26/97 in Pervasive common
stock and $100 was invested in each of the indices on 8/31/97, including
reinvestment of dividends.
9/26/97** 12/31/97 6/30/98 12/31/98 6/30/99 12/31/99 6/30/00 12/31/00 6/30/01
--------- -------- ------- -------- ------- -------- ------- -------- -------
Pervasive Software Inc.......... $100.00 $65.91 $ 94.32 $175.00 $226.14 $153.98 $ 51.14 $ 10.23 $ 13.27
Nasdaq National Market Composite
Index.......................... 100.00 93.84 112.84 132.23 162.47 245.95 240.00 147.81 130.04
JP Morgan H&Q Computer Software
Index.......................... 100.00 92.57 124.56 120.93 137.96 275.14 256.33 205.71 165.54
--------
** The Company effected its initial public offering of its Common Stock on
September 25, 1997 and trading of the Company's Common Stock commenced on
September 26, 1997. The closing price on September 26, 1997 was $11.00 per
share. The graph above commences with the price of $11.00 per share on
September 26, 1997.
11
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings made by the Company under those statutes, the
Compensation Committee Report and Stock Performance Graph shall not be deemed
filed with the Securities and Exchange Commission and shall not be deemed
incorporated by reference into any of those prior filings or into any future
filings made by the Company under those statutes.
12
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Executive Compensation
The following Summary Compensation Table sets forth the compensation earned
for the three fiscal years ended June 30, 2001, by our chief executive officer
and the four other most highly compensated officers whose salary and bonus for
the 2001 fiscal year were in excess of $100,000 ("Named Officers").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
- ------------------- ------------
Awards
Securities All Other
Fiscal Underlying Compensation
Name and Principal Position Year Salary (1) Bonus Options (#) (2)
--------------------------- ------ ---------- -------- ------------ ------------
Ron R. Harris.......................... 2001 $261,539 $ 70,925 -- $846
President, Chief Executive Officer and 2000 223,077 -- -- 371
Director 1999 191,505 $ 28,500 -- 966
James R. Offerdahl..................... 2001 218,423 59,410 120,000 588
Former Chief Operating Officer, Chief 2000 193,846 6,750 -- 405
Financial Officer and Secretary 1999 166,172 41,255 150,000 526
David R. Dunnigan (3).................. 2001 203,029 198,177(4) 280,000 637
Senior Vice President, Worldwide 2000 80,822 131,693(4) 200,000 196
Customer Operations 1999 -- -- -- --
Richard A. Tusia (5)................... 2001 181,539 53,400 80,000 379
Vice President, Customer Engineering 2000 119,923 12,000 30,000 227
1999 21,635 -- 10,000 54
Bruce N. Flory (6)..................... 2001 110,769 115,610(7) 200,000 403
Vice President, Marketing 2000 -- -- -- --
1999 -- -- -- --
--------
(1)Salary includes amounts deferred under Pervasive's 401(k) Plan.
(2)All Other Compensation consists of life insurance premiums.
(3)Mr. Dunnigan commenced employment with the Company on November 5, 1999.
(4)Represents sales commissions of $85,824 plus loan forgiveness of $112,353 in
2001 and $59,231 of commissions and $50,000 of loan forgiveness and $22,462
of relocation in 2000.
(5)Mr. Tusia commenced employment with the Company on April 19, 1999.
(6)Mr. Flory commenced employment with the Company on November 6, 2000.
(7)Represents loan forgiveness of $33,550 plus $70,000 of relocation plus
$12,060 cash bonus in 2001.
13
Option Grants in Last Fiscal Year
The following table contains information concerning the stock option grants
made in the fiscal year ended June 30, 2001 to the Named Officers. No stock
appreciation rights were granted to these individuals during such year.
Individual Grants Potential Realizable
- --------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted To Exercise Option Terms (4)
Options Employees in Price per Expiration ----------------------
Name Granted (1) 2001 (2) Share (3) Date 5% ($) 10% ($)
---- ----------- ------------ --------- ---------- ------- -------
Ron R. Harris..... -- -- -- -- -- --
James R. Offerdahl 120,000 4% $3.09 8/2/10 233,194 590,960
David R. Dunnigan. 80,000 3% $3.09 8/2/10 155,463 393,973
200,000 7% $1.18 6/19/11 148,419 376,123
Richard A. Tusia.. 80,000 3% $3.09 8/2/10 155,463 393,973
Bruce N. Flory.... 120,000 4% $1.40 12/14/10 105,564 267,749
80,000 3% $1.18 6/19/11 59,368 150,449
--------
(1)The options listed in the table become exercisable in four equal annual
installments. Upon a merger or other change in control, the option shall
become exercisable as if the optionee had been employed for an additional 12
months. In addition, the option shares shall vest in full if outstanding
options are not assumed by the acquiring entity. Should options be assumed
but the optionee's employment be involuntarily terminated within 12 months
of such a change in control, then the option shall become fully exercisable.
Each option has a maximum term of ten years, subject to earlier termination
in the event of the optionee's cessation of employment with the Company.
(2)Based on an aggregate of 2,887,500 options granted in fiscal 2001.
(3)The exercise price may be paid in cash or through a cashless exercise
procedure. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability incurred by
the optionee in connection with such exercise. The plan administrator has
the discretionary authority to reprice the options through the cancellation
of those options and the grant of replacement options with an exercise price
based on the fair market value of the option shares on the regrant date. The
options have a maximum term of 10 years measured from the option grant date,
subject to earlier termination in the event of the optionee's cessation of
service with the Company.
(4)The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be 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
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values.
No options were exercised by the Named Officers in fiscal 2001. The
following table sets forth information concerning the fiscal year-end number
and value of unexercised options with respect to the Named Officers. No stock
appreciation rights were exercised by these individuals in fiscal 2001 or were
outstanding at the end of that year.
Number of
Securities Underlying Value of Unexercised
Unexercised Options in-the-Money Options at
at June 30, 2001 June 30, 2001 (1)
- ------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Ron R. Harris..... 1,305,816 -- $1,775,910 --
James R. Offerdahl 112,500 207,500 -- --
David Dunnigan.... 50,000 430,000 -- $56,000
Richard A. Tusia.. 12,500 107,500 -- --
Bruce N. Flory.... -- 200,000 -- $29,600
--------
(1)Based on the fair market value of the Company's Common Stock at fiscal year
end (June 30, 2001) ($1.46 per share), as reported on the Nasdaq National
Market.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Compensation Committee of the Board of Directors, as plan administrator
of the 1997 Plan, has the authority to provide for accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Named
Officers and any other executive officer, employee or director in connection
with certain changes in control of the Company or the subsequent termination of
the officer's employment following the change in control event. None of the
Named Officers have employment agreements with the Company, and their
employment may be terminated at any time.
The Company extended a loan to David R. Dunnigan in the amount of $200,000
on November 8, 1999 to assist him in relocating to Austin, Texas. The note
bears interest at the rate of 5.49% compounded annually; principal and interest
are due in four semi-annual installments over two years, subject to
acceleration upon borrower's cessation of employment and certain other events.
In addition, the note provides that 25% of the principal and interest accrued
to date shall be forgiven every six months as Mr. Dunnigan continues in
service, with the balance forgiven entirely if the Company should terminate his
employment without cause. Upon a change in control involving the Company, an
amount will be forgiven as though he had completed 12 additional months of
service. The largest aggregate amount of indebtedness outstanding under this
note during 2001 was $150,000 and the amount outstanding on August 31, 2001 was
$50,000. The Company extended a loan to Mr. Dunnigan in the amount of $137,500
on June 30, 2000 to assist him in acquiring a home in Austin, Texas. The note
bears interest at the rate of 6.43% compounded annually; principal is due in
three semi-annual installments over 18 months beginning May 2002, subject to
acceleration upon borrower's cessation of employment and certain other events.
In addition, the note provides that the principal and interest shall be
forgiven entirely if the Company should terminate his employment without cause.
The largest aggregate amount of indebtedness outstanding under this note during
2001 was $137,500 and the amount outstanding on August 31, 2001 was $137,500.
The Company extended a loan to Mr. Dunnigan in the amount of $137,500 on June
30, 2000 to assist him in acquiring a home in Austin, Texas. The note bears
interest at the rate of 6.51% compounded annually; principal is due in three
semi-annual installments over 18 months beginning May 2003, subject to
acceleration upon borrower's cessation of employment and certain other events.
The largest aggregate amount of indebtedness outstanding under this note during
2001 was $137,500 and the amount outstanding on August 31, 2001 was $137,500.
The Company extended a loan to Mr. Flory in the amount of $220,000 on
November 22, 2000 to assist him in relocating to Austin, Texas. The note bears
interest at the rate of 6% compounded annually; principal is due in
15
eight semi-annual installments over four years beginning May 2001, subject to
acceleration upon borrower's cessation of employment and certain other events.
In addition, the note provides that 1/8th of the principal and interest accrued
to date shall be forgiven every six months as Mr. Flory continues in service;
the balance shall be forgiven entirely if the Company should terminate his
employment without cause, upon Mr. Flory's disability or death, or upon Mr.
Flory's demotion, relocation or reduction in pay. The largest aggregate amount
of indebtedness outstanding under this note during 2001 was $220,000 and the
amount outstanding on August 31, 2001 was $192,500.
In July, 2001, the Company extended a loan of $130,582 to Mr. Harris,
President and Chief Executive Officer to assist him with the exercise of an
outstanding option. The note bears interest at the rate of 5.06% compounded
annually; principal is due in eight semi-annual installments over four years
beginning January 12, 2002, subject to acceleration upon borrower's cessation
of employment and certain other events. The note is secured by a portion of the
shares acquired upon exercise of the options. In addition, the note provides
that 1/8th of the principal and interest accrued to date shall be forgiven
every six months as Mr. Harris continues in service; the balance shall be
forgiven entirely if the Company should terminate his employment without cause
or upon Mr. Harris' disability or death. The amount outstanding on August 31,
2001 was $130,582.
16
PROPOSAL NO. 2
AMENDMENT OF THE 1997 STOCK INCENTIVE PLAN
The stockholders are being asked to approve an amendment to the Automatic
Option Grant Program under the Pervasive Software Inc. 1997 Stock Incentive
Plan (the "Incentive Plan") to (1) increase the number of shares issuable
pursuant to options granted automatically to non-employee directors as
described below and (2) permit directors who are preferred stockholders or who
own 5% or more of the voting power of the Company or who represent entities
that own preferred stock or 5% or more of the voting power of the Company to be
eligible to receive automatic grants.
The Incentive Plan is intended to benefit the Company as well as its
stockholders and employees. The Incentive Plan gives the Company the discretion
to grant options or awards to employees, directors and independent consultants.
The Company believes that option grants under the Automatic Option Grant
Program play an important role in the Company's efforts to attract, employ and
retain directors of outstanding ability. The Incentive Plan was adopted by the
Board on July 18, 1997 and approved by the stockholders on August 22, 1997. The
following summary of certain Incentive Plan provisions is qualified, in its
entirety, by reference to the Incentive Plan. Copies of the Incentive Plan
document may be obtained by a stockholder upon written request to the Secretary
of the Company at the executive offices in Austin, Texas.
The only provisions being amended are those relating to the number of shares
issuable pursuant to options granted automatically to non-employee directors
and the eligibility of certain directors. All other provisions of the Incentive
Plan are not affected by the amendment. The Board approved the amendment to the
Incentive Plan that is the subject of this Proposal No. 2 on December 15, 2000.
If the stockholders do not approve the amendment to the Automatic Option Grant
Program, the Incentive Plan will continue in effect in accordance with its
current terms. The following is a summary of certain key provisions of the
Incentive Plan:
Structure. The Incentive Plan is divided into three separate components: (i)
the Discretionary Option Grant Program under which eligible individuals may, at
the discretion of the plan administrator, be granted options to purchase shares
of Common Stock; (ii) the Stock Issuance Program under which eligible
individuals may, in the plan administrator's discretion, be issued shares of
Common Stock directly; and (iii) the Automatic Option Grant Program under which
option grants are automatically made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to the fair market value of the option shares on the grant date.
Administration. The Compensation Committee of the Board, which is comprised
of two (2) or more Board members, administers the Incentive Plan. Committee
members serve for such period of time as the Board may determine. The Incentive
Plan may also be administered with respect to optionees who are not executive
officers subject to the short-swing profit rules of the federal securities laws
by the Board or a secondary committee comprised of one or more Board members.
The Automatic Option Grant Program operates automatically and does not
generally require action on the part of the Board or committee acting as plan
administrator.
Shares and Terms. The maximum number of shares of Common Stock that may be
issued over the term of the Incentive Plan shall not exceed 8,365,878 shares.
This number includes the number of shares of Common Stock by which the
Incentive Plan's share reserve was automatically increased on July 1 of each of
the calendar years 1998 through 2000, which was an amount equal to the lesser
of five percent (5%) of the shares of Common Stock and Common Stock equivalents
outstanding on June 30 of that year, or 1,000,000 shares. Beginning July 1,
2001, the Incentive Plan's share reserve automatically increases on July 1 each
calendar year beginning 2001 by an amount equal to the lesser of five percent
(5%) of the shares of Common Stock outstanding on June 30 of that year or
1,000,000 shares and accordingly increased on July 1, 2001 by 796,352 shares.
No one person participating in the Incentive Plan may receive options and
direct stock issuances for more than 500,000 shares of Common Stock per
calendar year.
Common Stock subject to a terminated option or award, and Common Stock
previously issued under an option or award which are subsequently repurchased
by the Company, shall be available for future options or awards.
17
Eligibility. Employees (including officers), consultants who render services
to the Company or its subsidiary corporations (whether now existing or
subsequently established), and non-employee members of the Board or of the
board of directors of any parent or subsidiary corporation of the Company are
eligible to receive option grants and stock appreciation rights under the
Discretionary Option Grant Program and share issuances under the Stock Issuance
Program.
The individuals eligible to receive option grants under the Automatic Option
Grant Program are (i) individuals newly elected or appointed as non-employee
Board members, whether through appointment by the Board or election by the
Company's stockholders, and (ii) individuals who continue to serve as
non-employee Board members after one or more Annual Stockholders Meetings.
Prior to the amendment that is the subject of this Proposal No. 2, directors
who are preferred stockholders or who own 5% or more of the voting power of the
Company or who represent entities that own preferred stock or 5% or more of the
voting power of the Company were not eligible. Under the proposed amendment,
such directors would be eligible to receive automatic grants. A non-employee
Board member who has previously been in the employ of the Company (or any
Parent or Subsidiary) is not eligible to receive an initial option grant under
the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but is eligible to receive periodic option grants
under the Automatic Option Grant Program.
Five non-employee directors were eligible to be granted options under the
Automatic Option Grant Program as of August 31, 2001. Approximately 151
individuals (including 7 officers) were eligible to be granted options or
awards under the Incentive Plan as of August 31, 2001.
Automatic Option Grant Program. Under the proposed amendment to the
Automatic Option Grant Program, each individual who first joined the Board as a
non-employee director on or after the 2001 Annual Meeting receives at that
time, an automatic option grant for 50,000 shares of Common Stock. In addition,
at each annual stockholders meeting, beginning with the 2001 Annual Meeting,
each non-employee director, whether or not he or she is standing for
re-election at that particular meeting, is granted a stock option to purchase
10,000 shares of Common Stock. Prior to the amendment that is the subject of
this Proposal No. 2, under the Automatic Option Grant Program, each individual
who first joined the Board as a non-employee director on or after the effective
date of the 1997 Incentive Plan received an automatic option grant for 20,000
shares of Common Stock. In addition, at each annual stockholders meeting,
beginning with the 1998 annual meeting, each non-employee director, whether or
not standing for re-election at that particular meeting, was granted a stock
option to purchase 5,000 shares of Common Stock.
Vesting. The optionee vests in each automatic option grant in a series of
four annual installments over the optionee's period of Board service, beginning
one year from the grant date. Each option has an exercise price equal to the
fair market value of the Common Stock on the automatic grant date and a maximum
term of ten years, subject to earlier termination following the optionee's
cessation of Board service. Vesting of the automatic option shares will
automatically accelerate and the options become fully exercisable upon (i) an
acquisition of the Company by merger, consolidation or asset sale or (iii) the
death or disability of the optionee while serving as a Board member.
Price and Exercisability. The option exercise price per share for an
automatic option grant may not be less than one hundred percent (100%) of the
fair market value of the Common Stock on the grant date.
The exercise price may be paid in cash or in shares of Common Stock. Options
may also be exercised through a same-day sale program, pursuant to which a
designated brokerage firm is to effect the immediate sale of the shares
purchased under the option and pay over to the Company, out of the sale
proceeds on the settlement date, sufficient funds to cover the exercise price
for the purchased shares plus all applicable withholding taxes.
No optionee is to have any stockholder rights with respect to the option
shares until the optionee has exercised the option, paid the exercise price and
become a holder of record of the shares. Options are not assignable or
transferable other than by will or the laws of descent and distribution, and
during the optionee's lifetime, the option may be exercised only by the
optionee.
18
Adjustments. If any change in the Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration), appropriate adjustments shall
be made by the Company to the class and maximum number of shares subject to the
Incentive Plan, to the class and maximum number of shares for which the share
reserve is to increase automatically each year, to the class and maximum number
of shares for which any one person may be granted options over the term of the
Incentive Plan, the class and number of shares for which automatic option
grants are to be made, and the class and number of shares and exercise price
per share subject to outstanding options in order to prevent the dilution or
enlargement of benefits thereunder.
Amendment and Termination. The Incentive Plan shall continue in effect until
the earlier of (i) the last business day in April, 2007, (ii) the date on which
all shares available for issuance under the Plan shall have been issued or
(iii) certain acquisitions of the Company by merger, consolidation or asset
sale, unless the Incentive Plan is earlier terminated by the Board in its
discretion. The Board may at any time alter, amend, suspend or discontinue the
Incentive Plan. The approval of the stockholders will be obtained as to any
share increase or other amendment to the extent required by applicable law.
New Plan Benefits. Benefits to be received by individual optionees are set
forth below. The number indicated below is the number of option shares to be
granted to each non-employee director at the Annual Meeting.
Number Of
Name of Non-Employee Director Option Shares
----------------------------- -------------
David R. Bradford........ 10,000
David A. Boucher......... 10,000
Shelby H. Carter, Jr..... 10,000
James R. Offerdahl....... 10,000
Nancy R. Woodward........ 10,000
Federal Income Tax Consequences of Options Granted under the Incentive Plan
Options granted under the Automatic Grant Program are non-statutory options
that are not intended to meet the requirements of Section 422 of the Code. The
federal income tax treatment for non-statutory options follows:
No taxable income is recognized by an optionee upon the grant of a
non-statutory option. The optionee will in general recognize ordinary income in
the year in which the option is exercised equal to the excess of the fair
market value of the purchased shares on the exercise date over the exercise
price paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT
TO THE AUTOMATIC OPTION GRANT PROGRAM UNDER THE COMPANY'S 1997 STOCK INCENTIVE
PLAN.
19
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending June
30, 2002. The affirmative vote of the holders of a majority of shares present
or represented by proxy and voting at the Annual Meeting will be required to
ratify the appointment of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the appointment is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors feels that such a change would be in the Company's and its
stockholders' best interests.
Fees Billed to the Company by Ernst & Young LLP During Fiscal 2001
Audit Fees. Audit Fees billed to the Company by Ernst & Young LLP during the
Company's 2001 fiscal year for review of the Company's annual financial
statements and those financial statements included in the Company's quarterly
reports on Form 10-Q totaled $126,000.
Financial Information Systems Design and Implementation Fees. The Company
did not engage Ernst & Young LLP to provide advice to the Company regarding
financial information systems design and implementation during the fiscal year
ended June 30, 2001.
All Other Fees. Fees billed to the Company for all other non-audit services
rendered to the Company by Ernst & Young LLP during the Company's fiscal year
ended June 30, 2001, primarily tax related services, totaled $125,000.
Ernst & Young LLP has audited the Company's financial statements since
inception through June 30, 2001. Its representatives are expected to be present
at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JUNE 30, 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1999, the Company loaned $200,000 to Mr. Dunnigan. Mr. Dunnigan
issued a promissory note to us bearing interest at the rate of 5.49%. Also, in
June 2000, the Company loaned Mr. Dunnigan $137,500 to assist him in acquiring
a home. This note bears interest at the rate of 6.43%. The Company also loaned
Mr. Dunnigan $137,500 in June 2000 and this note bears interest at the rate of
6.51%.
In November 2000, the Company loaned Mr. Flory $220,000 to assist him in
relocation expenses. This note bears interest at the rate of 6%.
In July 2001, the Company loaned Mr. Harris $130,582 to assist him with the
exercise of an outstanding option. This note bears interest at the rate of
5.06%.
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
20
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements with
its officers and directors containing provisions that may require the Company,
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 and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than 10% of the Company's outstanding Common Stock
are subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, which require them to file reports with
respect to their ownership of the Company's Common Stock and their transactions
in such Common Stock. Based upon (i) the copies of Section 16(a) reports that
the Company received from such persons for their 2001 fiscal year transactions
in the Common Stock and their Common Stock holdings and (ii) the written
representations received from one or more of such persons that no annual Form 5
reports were required to be filed by them for the 2001 fiscal year, the Company
believes that all reporting requirements under Section 16(a) for such fiscal
year were met in a timely manner by its executive officers, Board members and
greater than ten-percent stockholders, except that each of Messrs. Carter,
Boucher, Bradford and Aragona filed one report late reporting one transaction.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S FORM 10-K REPORT FOR FISCAL YEAR 2001, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULE AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO PERVASIVE
SOFTWARE INC., 12365 RIATA TRACE PARKWAY, BUILDING II, AUSTIN, TEXAS 78727,
ATTN: PAM HANNAH, INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 2002 Annual
Meeting that are eligible for inclusion in the Company's proxy statement and
related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than September 2, 2002, in order to be included. Such stockholder proposals
should be addressed to Pervasive Software Inc., 12365 Riata Trace Parkway,
Building II, Austin, Texas 78727, Attn: John E. Farr, Corporate Secretary.
21
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ John Farr
John E. Farr
Chief Financial Officer and Secretary
Austin, Texas
October 15, 2001
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING.
IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY
VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
22
EXHIBIT A
PERVASIVE SOFTWARE INC.
Audit Committee Charter
MEMBERSHIP:
The audit committee shall be comprised of at least three (3) outside members
of the Board of Directors of Pervasive Software Inc. (the "Company") elected by
the Board of Directors to serve until their successors are duly elected. A
chairperson of the audit committee shall be designated by the Board of
Directors. Each member of the audit committee must be:
(1)an "independent director" (as defined below); and
(2)able to read and understand fundamental financial statements, including
a company's balance sheet, income statement, and cash flow statement, or
become able to read and understand such financial statements within a
reasonable period of time after his or her appointment to the audit
committee.
An "independent director" means a person other than an officer or employee
of the Company or its subsidiaries or any other individual having a
relationship which, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director. The following persons shall not be considered independent:
(1)a director who is employed by the Company or any of its affiliates for
the current year or any of the past three years;
(2)a director who accepts compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year, other
than compensation for service on the Board of Directors, benefits under
a tax-qualified retirement plan, or non-discretionary compensation;
(3)a director who is a member of the immediate family of an individual who
is, or has been in any of the past three years, employed by the Company
or any of its affiliates as an executive officer. "Immediate family"
includes a person's spouse, parents, children, siblings, mother-in-law,
father-in-law, brother-in-law, sister-in-law, son-in-law,
daughter-in-law, and anyone who resides in such person's home;
(4)a director who is a partner in, or a controlling stockholder or an
executive officer of, any for-profit business organization to which the
Company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities) that
exceed 5% of the Company's or business organization's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the
past three years; or
(5)a director who is employed as an executive officer of another entity
where any of the Company's executives serve on that entity's
compensation committee.
In addition to the requirements above, at least one member of the audit
committee must have either (i) past employment experience in finance or
accounting; (ii) requisite professional certificate in accounting; or (iii) a
background which results in the individual's financial sophistication,
including experience as a chief executive officer, chief financial officer or
other senior officer with financial oversight responsibilities.
A-1
Notwithstanding the requirement that each member be an "independent
director," the Board of Directors, under exceptional and limited circumstances,
may appoint one director who is not an "independent director" to the audit
committee if:
(1)such director is not a current employee or immediate family member of a
current employee of the Company;
(2)such director's appointment to the audit committee is required by the
best interests of the Company and its stockholders; and
(3)the Board of Directors discloses in the next annual proxy statement
after such appointment (i) the nature of the relationship between such
director and the Company; and (ii) the reasons for the Board of
Directors' determination that such appointment is in the best interests
of the Company and its stockholders.
RESPONSIBILITIES:
In carrying out its responsibilities, the audit committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions to ensure to the Board of Directors and the stockholders
that the corporate accounting and reporting practices of the Company are in
accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
. Have a clear understanding with management and the independent auditors
that the independent auditors are ultimately responsible to the Board of
Directors and the audit committee as representatives of the Company's
stockholders.
. Review and recommend to the Board of Directors the independent auditors
to be selected to audit the financial statements of the Company and its
divisions and subsidiaries.
. Evaluate and, when appropriate, recommend that the Board of Directors
replace the independent auditors.
. Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
. Review with the independent auditors and the Company's financial and
accounting personnel, the adequacy and effectiveness of the accounting
and financial controls of the Company, and elicit any recommendations
for the improvement of such internal control procedures or particular
areas where new or more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy of such internal
controls to expose any payments, transactions or procedures that might
be deemed illegal or otherwise improper.
. Review the financial statements contained in the annual report to
stockholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the stockholders.
Any changes in accounting principles should be reviewed.
. Provide sufficient opportunity for the independent auditors to meet with
the members of the audit committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluation of the Company's financial, accounting,
and auditing personnel, and the cooperation that the independent
auditors received during the course of the audit.
. Obtain and review a formal written statement from the Company's
independent auditors delineating all relationships between the
independent auditors and the Company, consistent with Independence
Standards Board Standard 1.
A-2
. Actively engage in a dialogue with the independent auditors with respect
to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditors and, if
necessary, recommend that the Board of Directors take appropriate action
to oversee the independence of the independent auditors.
. Recommend to the Board of Directors appropriate actions to oversee the
independence of the Company's independent auditors.
. Review accounting and financial human resources and financial succession
planning within the Company.
. Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each committee meeting with, the Board of
Directors.
. Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
. Review the interim financial statements with management and the
independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the audit committee shall discuss the results
of the quarterly review and any other matters required to be
communicated to the audit committee by the independent auditors under
generally accepted auditing standards. The chair of the audit committee
may represent the entire committee for the purposes of this review.
. Review with management and the independent auditors the financial
statements to be included in the Company's Annual Report on Form 10-K
(or the annual report to shareholders if distributed prior to the filing
of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the audit committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the audit committee by the independent auditors under
generally accepted auditing standards.
. Review the Company's disclosure in the proxy statement for its annual
meeting of shareholders that describes that the audit committee has
satisfied its responsibilities under this charter for the prior year. In
addition, the audit committee shall include a copy of this charter in
the annual report to shareholders or the proxy statement at least once
every three years or in the year after any significant amendment to the
charter.
MINUTES:
Minutes will be kept of each meeting of the audit committee and will be
provided to each member of the Board of Directors. Any action of the audit
committee shall be subject to revision, modification, rescission or alteration
by the Board of Directors, provided that no rights of third parties shall be
affected by any such revision, modification, rescission or alteration.
A-3
PROXY
PERVASIVE SOFTWARE INC.
PROXY
12365 Riata Trace Parkway, Building II, Austin, Texas 78727
This Proxy is Solicited on Behalf of the Board of Directors of Pervasive
Software Inc.
for the Annual Meeting of Stockholders to be held November 1, 2001
The undersigned holder of Common Stock, par value $.001, of Pervasive
Software Inc. (the "Company") hereby appoints John E. Farr proxy for the
undersigned, with full power of substitution, to represent and to vote as
specified in this Proxy all Common Stock of the Company that the
undersigned stockholder would be entitled to vote if personally present at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Thursday, November 1, 2001 at 9:00 a.m. local time, at The Renaissance
Hotel-Arboretum, 9721 Arboretum Boulevard, Austin, Texas 78759, and at any
adjournments or postponements of the Annual Meeting. The undersigned
stockholder hereby revokes any proxy or proxies heretofore executed for
such matters.
This proxy, when properly executed, will be voted in the manner as directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS, FOR PROPOSAL NO. 2 AND FOR
PROPOSAL NO. 3, AND IN THE DISCRETION OF THE PROXY AS TO ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE MEETING. The undersigned stockholder may
revoke this proxy at any time before it is voted by delivering to the
Corporate Secretary of the Company either a written revocation of the proxy
or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
DIRECTORS, "FOR" PROPOSAL NO. 2 AND "FOR" PROPOSAL NO. 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
RETURN ENVELOPE.
If you receive more than one proxy card, please sign and return ALL cards
in the enclosed envelope.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
PERVASIVE SOFTWARE INC.
[X] Please mark votes as in this example
1. To elect the following directors to serve for a term ending upon the 2004
Annual Meeting of Stockholders or until their successors are elected and
qualified:
NOMINEES: David R. Bradford and James R. Offerdahl
[_] FOR [_] WITHHELD [_] For all nominees, except for nominees
written below.
--------------------------------------------------------------------------------
Nominee exception(s).
2. To approve an amendment to the Company's 1997 Stock Incentive Plan to
increase the number of shares granted under the Automatic Option Grant
Program and certain other amendments.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending June 30, 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
The undersigned acknowledges receipt of the accompanying Notice of Annual
Meeting of Stockholders and Proxy Statement.
Signature: __________________________
Signature (if held jointly): ________
Date: _________________________, 2001
Please date and sign exactly as your
name(s) is (are) shown on the share
certificate(s) to which the Proxy
applies. When shares are held as
joint tenants, both should sign. When
signing as an executor,
administrator, trustee, guardian,
attorney-in-fact or other fiduciary,
please give full title as such. When
signing as a corporation, please sign
in full corporate name by President
or other authorized officer. When
signing as a partnership, please sign
in partnership name by an authorized
person.