Pervasive Software DEF 14A 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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Pervasive Software Inc.
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PERVASIVE SOFTWARE INC.
12365 Riata Trace Parkway, Building B
Austin, Texas 78727
October 7, 2005
TO THE STOCKHOLDERS OF PERVASIVE SOFTWARE INC.
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 Tuesday, November 1, 2005, 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.
President, Chief Executive Officer and Director
PERVASIVE SOFTWARE INC.
12365 Riata Trace Parkway, Building B
Austin, Texas 78727
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held November 1, 2005
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 Tuesday, November 1, 2005, at 9:00 a.m. for the following purposes:
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, 2005 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 Companys headquarters located at 12365 Riata Trace Parkway, Building B, Austin, Texas, during ordinary business hours for the ten-day period prior to the Annual Meeting.
By Order of the Board of Directors,
John E. Farr
Chief Financial Officer and Secretary
October 7, 2005
PERVASIVE SOFTWARE INC.
12365 Riata Trace Parkway, Building B
Austin, Texas 78727
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held November 1, 2005
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 Tuesday, November 1, 2005, 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 7, 2005.
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 Companys Common Stock is the only type of security entitled to vote at the Annual Meeting. On October 3, 2005, the record date for determination of stockholders entitled to vote at the Annual Meeting, there were 22,455,431 shares of Common Stock outstanding. Each stockholder of record on October 3, 2005 is entitled to one vote for each share of Common Stock held by such stockholder on October 3, 2005. 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.
The Companys bylaws provide that the holders of a majority of the Companys 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.
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 nominees total. Stockholders may not cumulate votes in the election of directors.
Proposal 2. Ratification of the appointment of Grant Thornton LLP as the Companys independent auditors for the fiscal year ending June 30, 2006 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.
Whether or not you are able to attend the Companys Annual Meeting, you are urged to complete and return the enclosed proxy, which is solicited by the Companys 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), and FOR Proposal No. 2 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 Companys 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. 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.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company currently has authorized seven directors. In accordance with the terms of the Companys Certificate of Incorporation, the Board of Directors is divided into three classes: Class I, David Sikora and David R. Bradford, whose term will expire at the 2007 Annual Meeting; Class II, Shelby H. Carter and Nancy R. Woodward, whose term will expire at the 2005 Annual Meeting; and Class III, David A. Boucher, Jeffrey S. Hawn and Michael E. Hoskins, whose term will expire at the 2006 Annual Meeting. At the 2005 Annual Meeting, two directors will be elected to serve until the Annual Meeting to be held in 2008 or until his or her respective successor is elected and qualified. The Board of Directors has selected two nominees as the nominees for Class II. 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 2008
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.
Mr. Carter has served as a director of the Company since August 1996 and as Chairman of the Board since January 2004. 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 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 since our inception. Ms. Woodward served as Chairman of the Board from inception through June 2002 and has served as Vice Chairman of the Board since July 2002. Ms. Woodward received a B.S. in Computer Science from the University of Michigan.
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.
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. Bradford has served as one of our directors since October 1995. In April 2005, Mr. Bradford joined the law firm of Greenberg Traurig as a Partner working out of their Orange County California office. From July 2000 to April 2005, Mr. Bradford worked as a consultant to a number of private equity funds, General Counsel to Dynix Corporation, a leading supplier of Library Software and Services, and General Counsel to Utah Governor Jon M. Huntsmans Transition team. Mr. Bradford served as Senior Vice President, General Counsel of Novell, Inc., a networking software company, from 1985 until July 2000. 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. Hawn has served as one of our directors since February 2003. Mr. Hawn currently serves as Chairman and CEO of AttachmateWRQ, a position he assumed in May 2005. He remains an Operating Partner of JMI-Inc., a private equity firm, a role he assumed in April 2004. Previously, he served as Senior Vice President of Operations for BMC Software, Inc., a leading provider of enterprise management solutions from July 2000 to March 2004 and as a partner with McKinsey & Company, a leading management consulting firm from July 1990 to July 2000. Mr. Hawn also serves as a director of Vignette Corporation, a content management software company (NASDAQ: VIGN). Mr. Hawn received a B.S. in Mechanical Engineering from Southern Methodist University and an M.B.A. from the University of Texas at Austin.
Mr. Hoskins has served as our Chief Technology Officer since June 2004 and as General Manager of the IPD Products Division from December 2003 to June 2004. Mr. Hoskins has also served as a director since December 2003. Prior to joining the Company, Mr. Hoskins served as President and director of Data Junction Corporation from September 1999 to December 2003, when the Company acquired Data Junction. Mr. Hoskins graduated from the Bowling Green State University with a bachelor of business administration and a major in finance.
Mr. Sikora has served as our President and Chief Executive Officer since July 2002 and as a director since February 2002. Prior to joining the Company, Mr. Sikora served as Interim CEO and Chairman of Powered, Inc, an e-learning software company, from October 2001 to February 2002, as Chairman and CEO of Question Technologies, an enterprise software company, from January 2000 to April 2002, and as President, CEO and director of Ventix Systems, an enterprise software company, from July 1998 to January 2000. Prior to joining Ventix, Mr. Sikora served as President and CEO of Houston-based ForeFront Group, Inc., an e-learning software company. Mr. Sikora also serves as a director of Motive, Inc., a service management software company (NASDAQ: MOTV). Mr. Sikora received his B.S. in Electrical Engineering Technology from the University of Houston and an M.B.A. from Harvard Graduate School of Business Administration.
Board of Directors Meetings and Committees
During the fiscal year ended June 30, 2005, the Board of Directors held nine (9) meetings. 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 three (3) standing committees: the Audit Committee, the Compensation Committee and the Nominating Committee.
During the fiscal year ended June 30, 2005, the Audit Committee of the Board of Directors held nine (9) meetings and acted by written consent one (1) time. 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 Companys independent accountants, the scope of the annual audits, fees to be paid to the independent
accountants, the performance of the Companys independent accountants and the accounting practices of the Company. The members of the Audit Committee are Mr. Boucher, Mr. Bradford and Mr. Hawn. The Audit Committee Charter is available on our corporate website at www.pervasive.com.
During the fiscal year ended June 30, 2005, the Compensation Committee of the Board of Directors held five (5) meetings and acted by written consent two (2) times. 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. Boucher and Mr. Carter.
The Nominating Committee selects candidates for open Board of Directors positions among other responsibilities and duties. There are certain minimum qualifications for Board members that Director candidates should possess, including issues of character, judgment, diversity, age, expertise, corporate experience, length of service, and other commitments. Other factors that are considered include meeting applicable independent standards for directors (where independence is required) as defined in Rule 4200 of the Nasdaq Stock Market, Inc. (Nasdaq), and absence of conflicts of interest. The Nominating Committee may modify minimum qualifications from time to time, as it deems necessary and/or appropriate.
The Nominating Committee identifies, considers, and recommends candidates to fill new positions or vacancies on the Board, and reviews candidates recommended by stockholders. In performing these duties, the Nominating Committee has the authority to retain and terminate any search firm used to identify Board candidates and also has the authority to approve the search firms fees and other retention terms.
The Nominating Committee will consider nominees recommended by Company stockholders provided that such recommendations are submitted to the Company not more than 90 days and not less than 60 days prior to the first anniversary of the preceding years annual meeting. Such notice must set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a Director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made the name and address of the stockholder as appearing on the Companys books and of such beneficial owner and the class and number of shares of the Company that are owned beneficially and of record by the stockholder and such beneficial owner. The Nominating Committee consists of Messrs. Carter and Hawn, both of whom are independent.
The Nominating Committee was created in March 2004. During the fiscal year ended June 30, 2005, the Nominating Committee held one (1) meeting. The Nominating Committee operates under a charter, which is available on our corporate website at www.pervasive.com. You will find the charter of the Nominating Committee and the charters of all of our other Board committees under the Company Overview/Corporate Governance heading of our corporate website at www.pervasive.com. All committee members are Independent under the standards established by the Nasdaq exchange.
Statement on Corporate Governance
We have reviewed internally and with the Board of Directors the provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the rules of the SEC and the Nasdaqs new corporate governance listing standards regarding corporate governance policies and processes, and we believe that we are in compliance with the rules and listing standards. We have amended the charter of our Audit Committee and created the Nominating
Committee charter to comply with the new rules and standards. You can access our committee charters free of charge on our website at www.pervasive.com or by writing to us at Pervasive Software Inc., 12365 Riata Trace Parkway, Building B, Austin, Texas 78727 Attn: Investor Relations. We encourage, but do not require, our Board members to attend the annual stockholders meeting. Last year, all seven of our directors attended the annual stockholders meeting. We have adopted the following standards for director independence in compliance with the Nasdaq corporate governance listing standards:
Non-employee directors receive $1,500 per meeting attended and $500 per Committee meeting attended, plus a retainer of $10,000 annually for serving on the Board of Directors. Beginning on January 1, 2004, the Chairman of the Board of Directors also receives a monthly retainer of $3,000 for serving as the Chairman. 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 Companys 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 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 optionees 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 optionees 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 Companys 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, 5,000 shares of Common Stock on November 9, 2000 at an exercise price of $2.31 per share, 10,000 shares of Common Stock on November 1, 2001 at an exercise price of $1.71 per share, 10,000 shares of Common Stock on November 11, 2002 at an exercise price of $3.99 per share, 10,000 shares of Common Stock on December 3, 2003 at an exercise price of $7.56 per share and 10,000 shares of Common Stock on November 2, 2004 at an exercise price of $3.92.
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, 5,000 shares of Common Stock on November 9, 2000 at an exercise price of $2.31 per share, 10,000 shares of Common Stock on November 1, 2001 at an exercise price of $1.71 per share, 10,000 shares of Common Stock on November 11, 2002 at an exercise price of $3.99 per share, 10,000 shares of Common Stock on December 3, 2003 at an exercise price of $7.56 per share and 10,000 shares of Common Stock on November 2, 2004 at an exercise price of $3.92.
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, 5,000 shares of Common Stock on November 9, 2000 at an exercise price of $2.31 per share, 10,000 shares of Common Stock on November 1, 2001 at an exercise price of $1.71 per share, 10,000 shares of Common Stock on November 11, 2002 at an exercise price of $3.99 per share, 10,000 shares of Common Stock on December 3, 2003 at an exercise price of $7.56 per share and 10,000 shares of Common Stock on November 2, 2004 at an exercise price of $3.92.
Mr. Hawn was granted options to purchase 50,000 shares of Common Stock on February 19, 2003 at an exercise price of $4.10 per share, 10,000 shares of Common Stock on December 3, 2003 at an exercise price of $7.56 per share and 10,000 shares of Common Stock on November 2, 2004 at an exercise price of $3.92.
Ms. Woodward was granted options to purchase 10,000 shares of Common Stock on November 1, 2001 at an exercise price of $1.71 per share, 10,000 shares of Common Stock on November 11, 2002 at an exercise price of $3.99 per share, 10,000 shares of Common Stock on December 3, 2003 at an exercise price of $7.56 per share and 10,000 shares of Common Stock on November 2, 2004 at an exercise price of $3.92.
On December 15, 2000, each of Messrs. 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 at an exercise price of $1.40 per share. On January 6, 2004, Mr. Carter was granted options to purchase 50,000 shares with a two year vesting period under the 1997 Stock Incentive Plan at an exercise price of $7.27 per share. Pursuant to the Automatic Option Grant Program, each of Messrs. Boucher, Bradford, Carter and Hawn and Ms. Woodward will be granted options to purchase 10,000 shares of Common Stock on the date of the 2005 Annual Meeting.
Directors who are also employees of the Company are eligible to participate in the Companys Bonus Plan, and were also eligible to participate, subject to certain limitations, in the Companys Employee Stock Purchase Plan (Plan terminated effective May 1, 2005). In addition, all directors are eligible to receive options and be issued shares under the 1997 Stock Incentive Plan.
The Board of Directors periodically reviews compensation levels for directors. In light of recent legislative and regulatory developments impacting the time and risk associated with being a member of any board of directors and the number of independent directors required to satisfy requirements to be effective in the future, the Board may in the coming year consider increases in director compensation and the recruitment of additional independent directors.
Stockholder Communications with Directors
The Company provides for a process for stockholders to communicate with the Board of Directors. Stockholders may send written communication to the attention of the Board, a specific Board member or committee, in care of Pervasive Software Inc., Attention John Farr, Secretary, 12365 Riata Trace Parkway, Building B, Austin, Texas 78727.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED HEREIN.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2005, 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 Companys outstanding shares of Common Stock, (ii) each of the Companys 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 persons actual voting power at any particular date.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Companys 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 Companys 1997 Stock Incentive Plan and Employee Stock Purchase Plan (Plan terminated effective May 1, 2005). 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 2005 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 Companys key executive officers. However, the Committee made the final compensation decisions concerning such officers.
General Compensation Policy. The Committees fundamental policy is to offer the Companys 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 Committees objective to have a substantial portion of each officers compensation contingent upon the Companys performance, as well as upon his or her own level of performance. Accordingly, each executive officers 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 individuals 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 Companys achievement of the financial performance targets established at the start of the fiscal year and distributed based on an assessment of the individual performance of each employee. Bonuses were not paid for the 2005 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 operating income. Commissions were paid to Mr. Harmon pursuant to a commission plan in which all sales and other commission employees are eligible to participate.
Long-Term Incentive Compensation. During fiscal 2005, 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 individuals position with the Company, the individuals potential for future responsibility and promotion, the individuals 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 Committees discretion.
The grants allow the officers to acquire shares of the Companys Common Stock at a fixed price per share (the market price on the grant date) over a specified period of time. The options vest in periodic installments over a four year period, contingent upon the executive officers 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 Companys employ, and then only if the market price of the Companys Common Stock appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Sikora, the Companys President and Chief Executive Officer was established by the Committee based on reviews of compensation of other chief executive officers of other comparable companies.
The remaining components of the Chief Executive Officers 2005 fiscal year incentive compensation were dependent upon the Companys financial performance. Mr. Sikora did not receive a bonus under the Bonus Plan for all non-commission employees. Each year, the annual incentive plan is reevaluated with a new achievement threshold and new targets for revenue and profit.
Shelby H. Carter, Jr.
David A. Boucher
Nancy R. Woodward
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Companys Board was formed in March 1997, and the current members of the Compensation Committee are David A. Boucher, Shelby H. Carter, Jr. and Nancy R. Woodward. Ms. Woodward has served as Chairman of the Board and as Secretary of the Company and is currently Vice Chairman of the Board and Mr. Carter currently serves as Chairman of the Board. Mr. Carter and Mr. Boucher were not at any time during fiscal 2005, or at any other time, officers or employees 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 Companys Board or Compensation Committee.
AUDIT COMMITTEE REPORT1
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 Committees activities regarding oversight of the Companys 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. 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 Companys financial reporting, internal control and audit functions. Management is responsible for the preparation, presentation and integrity of the Companys 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 Companys independent auditor for fiscal year 2005, is responsible for performing an independent audit of the Companys consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.
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 Companys independent auditor. The Audit Committee also reviews the results of the independent audit with regard to the adequacy and appropriateness of the Companys 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 Companys 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 firms independence with respect to the Company.
Following the Audit Committees discussions with management and Ernst & Young LLP, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Companys Annual Report on Form 10-K for the year ended June 30, 2005.
David A. Boucher
David R. Bradford
Jeffrey S. Hawn
Independence of Audit Committee Members
The Board of Directors believes that each of the members of the Audit Committee is an independent director as that term is defined by the Nasdaq listing standards and Rule 10A-3 of the Securities and Exchange Act of 1934. In addition, the Board of Directors believes that Mr. Hawn is an audit committee financial expert, as defined by the Securities and Exchange Commission guidelines.
Subject to ratification by the Stockholders, the Board of Directors has appointed Grant Thornton LLP as the independent auditors to audit the consolidated financial statements of the Company for fiscal year 2006.
Audit and Non-Audit Fees
The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of the Companys annual financial statements for the years ended June 30, 2005 and June 30, 2004 and fees billed for other services rendered by Ernst & Young LLP during those periods.
In making its recommendation to ratify the appointment of Grant Thornton LLP as the Companys independent auditors for the fiscal year ending June 30, 2006, the Audit Committee has considered whether services other than audit and audit-related services provided by Grant Thornton LLP are compatible with maintaining the independence of Grant Thornton LLP.
Representatives of Ernst & Young LLP and Grant Thornton LLP are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. The Audit Committee of the Board of Directors has adopted a policy requiring pre-approval by the Audit Committee of all audit and non-audit services to be provided to the Company by the independent auditor and other accounting firms (or subsequently approving non-audit services in those circumstances where a subsequent approval is necessary and permissible). The Audit Committee also has the sole authority to approve the hiring and firing of the independent auditors, all audit engagement fees and terms and all non-audit engagements, as may be permissible, with the independent auditors. In accordance with this policy, the Audit Committee has given its approval for the provision of audit services by Grant Thornton LLP for fiscal 2006.
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return on the Companys Common Stock between June 30, 2000 and June 30, 2005 with the cumulative total return of (i) the Nasdaq Stock Market (U.S.) Index and (ii) the S & P Information Technology Index, over the same period. This graph assumes the investment of $100.00 on June 30, 2000 in the Companys Common Stock and the Nasdaq Stock Market (U.S.) Index and the S & P Information Technology 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 Companys Common Stock. Information used in the graph was obtained from Research Data Group, Inc., a source believed to be reliable, but the Company is not responsible for any errors or omissions in such information.
Notwithstanding anything to the contrary set forth in any of the Companys 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.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation earned for the three fiscal years ended June 30, 2005, by our chief executive officer and the four other most highly compensated officers whose salary and bonus for the 2005 fiscal year were in excess of $100,000 (Named Officers).
Summary Compensation Table
Option Grants in Last Fiscal Year
The following table contains information concerning the stock option grants made in the fiscal year ended June 30, 2005 to the Named Officers. No stock appreciation rights were granted to these individuals during such year.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values.
The following table sets forth information concerning the exercise of options by the Named Officers in the 2005 fiscal year and 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 2005 or were outstanding at the end of that year.
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 officers 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.
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Company is asking the stockholders to ratify the appointment of Grant Thornton LLP as the Companys independent registered public accounting firm for the fiscal year ending June 30, 2006. 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 Grant Thornton 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 registered public accounting firm at any time during the year if the Board of Directors feels that such a change would be in the Companys and its stockholders best interests.
Ernst & Young LLP has audited the Companys financial statements since inception through June 30, 2005.
Representatives of Grant Thornton LLP are expected to be present at the Meeting to respond to appropriate questions and to make a statement if they so desire.
Change in Independent Registered Public Accounting Firm
Ernst & Young LLP (E&Y) served as the Companys independent registered public accounting firm for the fiscal year ended June 30, 2005.
The Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. Beginning in 2003, the Audit Committee, or a designated member thereof, pre-approves each audit and non-audit service rendered by its independent public accountants to the Company.
On October 3, 2005, our Audit Committee voted to appoint Grant Thornton LLP as the Companys independent certifying public accountant to replace the firm of Ernst & Young LLP, who were dismissed as the independent registered public accounting firm of the Company effective October 3, 2005. The decision to change accountants was approved by our Audit Committee in connection with the Audit Committees solicitation of bids for the Companys audit engagement.
E&Ys reports on the Companys consolidated financial statements for the year ended June 30, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Companys financial statements for each of the two years in the period ended June 30, 2005, (1) there was no disagreement between the Company and E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to E&Ys satisfaction, would have caused the auditors to make reference to the subject matter of the disagreement in connection with any report issued by them, and (2) there were no reportable events as such term is defined in Item 304(a)(1)(v) of Regulation S-K.
The Company has requested that E&Y furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. A copy of such letter, along with a copy of a letter from E&Y to the Company confirming the termination of the client-auditor relationship between the Company and E&Y, will be filed on Form 8-K upon receipt of such letters.
The Company notified Grant Thornton LLP on October 3, 2005, that they were selected as the principal accountant to audit the Companys consolidated financial statements for the year ending June 30, 2006.
Grant Thornton LLP replaces E&Y, whose services were dismissed by the Company on October 3, 2005. During the years ended June 30, 2003, 2004 and 2005 and the subsequent interim period prior to the engagement of Grant Thornton LLP, the Company did not consult with Grant Thornton LLP regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Companys financial statements; or (iii) any matter that was the subject of a disagreement or reportable event as defined in Items 304(a)(1)(iv) and (v), respectively, of Regulation S-K with the Companys former accountant.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF GRANT THORNTON LLP TO SERVE AS THE COMPANYS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Companys 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.
The Companys 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 Companys 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 Companys 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 2005 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 2005 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.
CODE OF ETHICS
In March 2004, the Company adopted a Code of Business Conduct and Ethics for all employees and directors, which specifically applies to the Companys Chief Executive Officer, Chief Financial Officer and persons performing similar functions. A copy of the code of ethics is available on our website at www.pervasive.com.
We intend to post on our website any amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics within five business days following the date of such amendment or waiver.
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE COMPANYS FORM 10-K REPORT FOR FISCAL YEAR 2005, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULE AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO PERVASIVE SOFTWARE INC., 12365 RIATA TRACE PARKWAY, BUILDING B, AUSTIN, TEXAS 78727, ATTN: DAWN MILLER, INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 2006 Annual Meeting that are eligible for inclusion in the Companys 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 3, 2006, in order to be included. Such stockholder proposals should be addressed to Pervasive Software Inc., 12365 Riata Trace Parkway, Building B, Austin, Texas 78727, Attn: John E. Farr, Corporate Secretary.
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,
John E. Farr
Chief Financial Officer and Secretary
October 7, 2005
12365 Riata Trace Parkway, Building B, Austin, Texas 78727
This Proxy is Solicited on Behalf of the Board of Directors of Pervasive
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 Tuesday, November 1, 2005 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 AND FOR PROPOSAL NO. 2, 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
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
PERVASIVE SOFTWARE INC.
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NOMINEES: Shelby H. Carter, Jr. and Nancy R. Woodward
¨ FOR ¨ WITHHELD ¨ For all nominees, except for nominees written below.
¨ 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.