<PAGE>
SCHEDULE 14A INFORMATION
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:
<TABLE>
<S> <C>
[X]Preliminary Proxy Statement [_]Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PORTAL SOFTWARE, INC.
(Name of Registrant as Specified in its Charter)
Registrant
(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 Rule 14a-6(i)(1) 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 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:
<PAGE>
PORTAL SOFTWARE, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 26, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Portal
Software, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, July 26, 2000 at 10:00 a.m. at The Hilton Garden Inn Cupertino,
10741 North Wolfe Road, Cupertino, CA 95014, for the following purposes:
1. To elect one Class I director to serve a three-year term expiring upon
the 2003 Annual Meeting of Stockholders or until a successor is duly
elected and qualified;
2. To approve an amendment to the Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of Common
Stock from 250,000,000 to 1,000,000,000 shares;
3. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company for the fiscal year ending January 31, 2001;
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on May 31, 2000 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope provided for that purpose. Should you receive more than one
proxy because your shares are registered in different names or addresses, each
proxy should be signed and returned to assure that all your shares are voted.
You may revoke your proxy at any time prior to the Annual Meeting. Any
stockholder attending the meeting may vote in person even if he or she returned
a Proxy.
By Order of the Board of Directors
Mitchell L. Gaynor
Vice President, General Counsel, and
Secretary
Cupertino, California
May 29, 2000
<PAGE>
PORTAL SOFTWARE, INC.
----------------
PROXY STATEMENT
----------------
INFORMATION CONCERNING PROXY SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of Portal Software, Inc. (the "Company" or "Portal"), for the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on Wednesday, July
26, 2000 at 10:00 a.m. at The Hilton Garden Inn Cupertino, 10741 North Wolfe
Road, Cupertino, CA 95014 , or any adjournment or adjournments thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Company's principal executive offices are located at 10200 South De Anza
Boulevard, Cupertino, California 95014, and its telephone number at that
location is (408) 572-2000.
These Proxy materials were mailed to stockholders on or about June 9, 2000.
Record Date; Outstanding Shares
Only stockholders of record at the close of business on May 31, 2000 (the
"Record Date") are entitled to receive notice of and to vote at the meeting.
The outstanding voting securities of the Company on the Record Date consisted
of [161,000,000] shares of Common Stock. No shares of Preferred Stock are
outstanding. A list of stockholders entitled to vote ate the Annual Meeting
will be available for inspection at the executive offices of the Company. The
closing market price of the Company's Common Stock on the Nasdaq National
Market on May 31, 2000 was $[XX.XX] per share.
Voting and Revocability of Proxies
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election
of the director proposed by the Board unless the authority to vote for the
election of such director is withheld and, if no contrary instructions are
given, the proxy will be voted FOR approval of Proposals 2 and 3 described in
the this Proxy Statement. The enclosed Proxy is revocable at any time before
its use by delivery to the Company of a written notice of revocation or a duly
executed Proxy bearing a later date. If a person who has executed and returned
a Proxy is present at the meeting and wishes to vote in person, he or she may
elect to do so; and any such vote in person will automatically revoke the power
of the proxy holders to vote his or her Proxy.
Voting and Solicitation
Each share of Common Stock issued and outstanding as of the Record Date
shall have one vote on each of the matters presented herein. Stockholders do
not have the right to cumulate votes in the election of directors. The required
quorum for the transaction of business at the Annual Meeting is a majority of
the votes eligible to be cast by holders of shares of Common Stock issued and
outstanding on the Record Date. Shares that are voted "For", "Against" or
"Withheld From" a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares entitled to
vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
Abstentions and broker non-votes also will be counted by the Company as present
at the meeting for purposes of determining the presence of a quorum.
Abstentions will be counted by the Company in determining the total number of
Votes Cast with respect to a proposal (other than the election of directors)
and, therefore, will have the same effect as a vote against the proposal. With
respect to Proposal 2,
1
<PAGE>
the approval of a majority of the Company's outstanding Common Stock as of the
Record Date is required. Therefore, broker non-votes will have the same effect
as a vote against the proposal. With respect to all other proposals, broker
non-votes will not be counted in determining the number of Votes Cast with
respect to a proposal and, therefore, will not affect the outcome of the voting
on a proposal that requires a majority of the Votes Cast.
The cost of soliciting Proxies will be borne by the Company. Proxies may be
solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, in person or by telephone,
electronic mail or facsimile. In addition, the Company has retained the
services of Georgeson & Company, Inc. to assist in the solicitation of proxies
for an estimated fee of $8,500 plus reimbursement of expenses. The Company may
also reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation materials to such
beneficial owners.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's Annual Meeting of Stockholders to be held
in 2001 must be received by the Company no later than February 10, 2001 in
order that they may be considered for possible inclusion in the proxy statement
and form of proxy relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the 2001
Annual Meeting will confer discretionary authority to vote for or against any
stockholder proposal presented at that meeting, unless the Company receives
notice of that proposal not later than April 25, 2001.
Share Ownership by Principal Stockholders and Management
The following table sets forth the beneficial ownership of Common Stock of
the Company as of April 30, 2000 as to (a) each current director and nominee
for director; (b) each executive officer and former executive officer named in
the Summary Compensation Table (hereafter referred to as the "named executive
officers"); (c) all current directors and executive officers as a group; and
(d) each person known to the Company to beneficially own at that time more than
5% of the outstanding shares of Portal's Common Stock. Unless otherwise
specified, the address of each beneficial owner is 10200 South De Anza
Boulevard, Cupertino, California 95014.
<TABLE>
<CAPTION>
Shares Approximate
Beneficially Percent of
Name of Beneficial Owner Owned (1) Class Owned
------------------------ ------------ -----------
<S> <C> <C>
Entities affiliated with Accel Partners (2).......... 17,530,844 10.90%
428 University Avenue
Palo Alto, CA 94301
John E. Little (3)................................... 35,203,828 21.89%
David S. Labuda (4).................................. 11,480,645 7.14%
Jack L. Acosta (5)................................... 650,502 *
William T. Coleman (6)............................... 443,334 *
Kevin P. Mosher (7).................................. 1,105,502 *
Arthur C. Patterson (2).............................. 17,530,844 10.90%
David C. Peterschmidt (8)............................ 399,834 *
Steven R. Sommer (9)................................. 1,175,500 *
Edward J. Zander (10)................................ 596,002 *
All current executive officers and directors as a
group (13 persons) (11)............................. 69,793,742 43.41%
</TABLE>
- --------
* Less than one percent.
(1) The table is based upon information supplied by executive officers,
directors and principal stockholders. Unless otherwise indicated, each of
the stockholders named in the table has sole voting and investment
2
<PAGE>
power with respect to all securities shown as beneficially owned, subject
to community property laws where applicable and to the information
contained in the footnotes to the table.
(2) Represents 1,826,519 shares held by Accel Internet/Strategic Technology
Fund LP, 811,794 shares held by Accel Investors "96 LP, 270,598 shares
held by Accel Keiretsu V LP, 12,830 shares held by Accel Keiretsu V
Associates LLC, 13,631,266 shares held by Accel V LP, 2,755 shares held
by Accel Investors '99 L.P., 419,712 shares held by ACP Family
Partnership L.P. and 360,132 shares held by Ellmore C. Patterson
Partners (collectively the "Accel Partnerships"). Mr. Patterson is a
managing member of Accel Partners, the General Partner of each of the
Accel Partnerships, and a director of Portal. However, Mr. Patterson
disclaims beneficial ownership of all these shares, except to the extent
of his pecuniary interest in the Accel Partnerships.
(3) Includes 66,666 shares subject to options that are currently exercisable
or will become exercisable within 60 days after April 30, 2000.
(4) Includes 33,331 shares subject to options that currently exercisable or
will become exercisable within 60 days after April 30, 2000. Includes
9,105,140 shares held in trust by Mr. Labuda as trustee of the David S.
Labuda Separate Property Trust U/D/T dated December 30, 1998. Also
includes 1,646,400 shares held in trust by Mr. Labuda and Cindy A.
Labuda, Mr. Labuda's wife, as trustees of the Labuda Community Trust
U/D/T dated December 30, 1998. Also includes 400,772 shares of common
stock held by Cindy A. Labuda, trustee of the Cindy A. Labuda Separate
Property Trust U/D/T dated December 30, 1998 and 280,000 shares held in
the name of the Kira Anne Labuda Trust dated 12/31/97. Mr. Labuda
disclaims beneficial ownership of all of these latter 680,772 shares.
(5) Includes 648,000 shares subject to options that are currently
exercisable or will become exercisable within 60 days after April 30,
2000.
(6) Includes 137,500 shares of common stock subject to Portal's right of
repurchase as of the date 60 days after April 30, 2000. This repurchase
right lapses with respect to 6,250 shares per month.
(7) Includes 253,137 shares of common stock subject to Portal's right of
repurchase as of the date 60 days after April 30, 2000. This repurchase
right lapses with respect to 28,125 shares per month. Includes 262,496
shares subject to options that are currently exercisable or will become
exercisable within 60 days after April 30, 2000.
(8) Includes 137,500 shares of common stock subject to Portal's right of
repurchase as of the date 60 days after April 30, 2000. This repurchase
right lapses with respect to 6,250 shares per month.
(9) Includes 120,000 shares held in trust for Allison Sommer, 120,000 shares
held in trust for Julia Sommer and 120,000 shares held in trust for
Rachel Sommer. Mr. Sommer disclaims beneficial ownership of all of these
360,000 shares. Includes 584,908 shares of common stock subject to
Portal's right of repurchase as of the date 60 days after April 30,
2000. This repurchase right lapses with respect to 44,991 shares per
month. Includes 69,998 shares subject to options that are currently
exercisable or will become exercisable within 60 days after April 30,
2000.
(10) Includes 136,115 shares of common stock which are subject to Portal's
right of repurchase as of the date 60 days after April 30, 2000. Such
repurchase right lapses as to 9,722 shares per month.
(11) Includes 1,204,046 shares of common stock subject to Portal's right of
repurchase as of the date 60 days after April 30, 2000 and 1,543,516
shares subject to options that are currently exercisable or will become
exercisable within 60 days after April 30, 2000.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Directors
The Company currently has five directors divided among three classes as
follows: Class I--Arthur Patterson and William Coleman; Class II--Edward
Zander; and Class III--John Little and David Peterschmidt. Mr. Coleman has
decided not to stand for reelection and will cease to be a director as of the
Annual Meeting. On March 17, 2000, the Board of Directors reduced the number of
authorized directors to four, and upon the expiration of Mr. Coleman's term at
the Annual Meeting, the number of Class I directors will decrease to one.
One Class I director is to be elected at the Annual Meeting for a three-year
term ending at the annual meeting of stockholders in 2001. The Board has
nominated Arthur Patterson for election as the Class I director. Unless
otherwise instructed, the proxy holders will vote the Proxies received by them
for Mr. Patterson. In the event that the 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 to fill the vacancy.
The Company is not aware of any reason that Mr. Patterson will be unable or
will decline to serve as a director. Under the Company's Bylaws, stockholders
may nominate other individuals for election as directors only if the proposed
nomination is set forth in a written notice to the Company's Secretary that
complies with certain requirements described below under the caption "Other
Matters".
Certain information regarding the nominee and the incumbent members of the
Board whose terms will continue after the Annual Meeting is set forth below:
<TABLE>
<CAPTION>
Current
Term
Name of Director or Nominee Age Expires
--------------------------- --- -------
<S> <C> <C>
Arthur C. Patterson.............................................. 56 2000
Edward J. Zander................................................. 53 2001
John E. Little................................................... 42 2002
David C. Peterschmidt............................................ 52 2002
</TABLE>
John E. Little. Mr. Little founded Portal in March 1985 and has been Chief
Executive Officer and a Director since its inception. In addition, Mr. Little
served as President from inception to March 1996 and has served as President
since November 1996. Prior to founding Portal, Mr. Little was an independent
consultant for a number of companies including Knight-Ridder Inc., AT&T Corp.,
Raytheon Company, Dow Jones News Retrieval, a subsidiary of Dow Jones &
Company, Inc., Victor Company of Japan (JVC) and Sun Microsystems, Inc.
Arthur C. Patterson. Mr. Patterson has been a Director of Portal since March
1996. Mr. Patterson is a founder and General Partner of Accel Partners, a
venture capital firm. Mr. Patterson invests in enterprise software and
communications services companies. Mr. Patterson also serves as a director of
PageMart Wireless, Inc., a communications services company, Unify Corporation,
an enterprise software company, Actuate Software Corporation, an enterprise
reporting software company, Viasoft, Inc., a software tools company, as well as
several private enterprise software and communications companies.
David C. Peterschmidt. Mr. Peterschmidt has served as a Director of Portal
since April 1998. Mr. Peterschmidt has been President, Chief Executive Officer
and a Director of Inktomi Corporation, an internet search engine company, since
July 1996. He was appointed Chairman of the Board of Directors of Inktomi in
December 1997. From 1991 through June 1996, he served as Chief Operating
Officer and Executive Vice President of Sybase. Mr. Peterschmidt also served as
a Captain in the United States Air Force for nine years, where he was Lead
Contract Negotiator on Rockwell International's B1 Bomber Program.
4
<PAGE>
Edward J. Zander. Mr. Zander has been a Director of Portal since August
1997. Mr. Zander has served as President of Sun Microsystems since April 1999
and as Chief Operating Officer since January 1998. From February 1995 until
January 1998, Mr. Zander served as President of Sun Microsystems Computer
Company, a subsidiary of Sun Microsystems. From January 1991 to February 1995,
Mr. Zander was President of SunSoft, Inc., the software subsidiary of Sun
Microsystems. From October 1987 to January 1991, Mr. Zander was Vice President
of Marketing at Sun Microsystems. Mr. Zander also serves as a director of
Documentum, Inc., a developer of Internet and client/server software-based
solutions, Rhythms NetConnections Inc., a provider of broadband local access
communications services and the Jason Foundation for Education.
Board Meetings and Committees
The Board of Directors held seven meetings during the fiscal year ended
January 31, 2000. The Board has an Audit Committee, a Compensation Committee
and a Stock Committee. The Board has no committee performing the functions of a
nominating committee. No incumbent director who was a director during the year
ended January 31, 2000 attended fewer than 75% of the aggregate number of
meetings of the Board and the committees of the Board on which he served.
The Audit Committee currently consists of directors Arthur Patterson and
David Peterschmidt. The Audit Committee held seven meetings during the last
fiscal year. The Audit Committee recommends the engagement of the Company's
independent auditors and is primarily responsible for approving the services
performed by the Company's independent auditors and for reviewing and
evaluating the Company's accounting principles, its system of internal
accounting controls, the charter and projects undertaken by the Company's
internal audit function and the adequacy of the Company's financial reports. In
connection with these reviews, the Audit Committee meets with appropriate
financial personnel of the Company and the organizations responsible for
internal audit.
The Compensation Committee currently consists of directors Arthur Patterson,
David Peterschmidt and Edward Zander. The Compensation Committee held three
meetings during the last fiscal year. The principal functions of the
Compensation Committee are to review and approve the Company's executive
compensation policies and programs and, under certain circumstances, to
administer the Company's Stock Option and Employee Stock Purchase Plans.
The Stock Committee, currently consisting of John Little, is authorized to
make grants of stock options within authorized limits to employees who are not
executive officers of the Company. The Stock Committee acted by unanimous
written consents and held no meetings during the last fiscal year.
Director Compensation
In fiscal year 2000 non-employee directors received no cash fees in
connection with their service on the Board of Directors and its committees.
Pursuant to the Automatic Option Grant Program in effect under the Company's
1999 Stock Incentive Plan, on the date of the each Annual Stockholders Meeting,
beginning with the 2000 Annual Meeting, each of the continuing non-employee
Board members who has served in such capacity for at least 6 months will
receive an option grant for 12,000 shares with an exercise price per share
equal to the fair market value per share of the Common Stock on the grant date.
Each option will have a maximum term of ten (10) years measured from the grant
date, subject to the earlier termination upon the optionee's cessation of Board
service. The option will be immediately for all the option shares as fully-
vested shares.
The 1999 Stock Incentive Plan also contains a director fee option grant
program. Should this program be activated in the future, each non-employee
board member will have the opportunity to apply all or a portion of any annual
retainer fee otherwise payable in cash to the acquisition of a below-market
option grant. At this time, Portal does not anticipate paying any annual
retainer fee or other cash compensation to any non-employee members of the
board of directors.
5
<PAGE>
Required Vote
The nominee for director receiving the highest number of affirmative votes
of the shares of the Company's Common Stock voted at the Annual Meeting shall
be elected as the Class I director. Votes withheld from any nominee will be
counted for purposes of determining the presence or absence of a quorum but
will have no other effect.
The Board of Directors recommends that the stockholders vote "FOR" election
of Arthur Patterson as the Class I director of the Company.
PROPOSAL 2
APPROVAL OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") presently provides that the Company is authorized to issue two
classes of stock consisting of 250,000,000 shares of Common Stock, $0.001 par
value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value per
share. In March 2000, the Board of Directors authorized an amendment to the
Certificate, subject to stockholder approval, to increase the authorized number
of shares of Common Stock to 1,000,000,000 shares. The stockholders are being
asked to approve such amendment to the Certificate. The proposed amendment
would give the Board the authority to issue additional shares of Common Stock
without requiring future stockholder approval of such issuances except as may
be required by applicable law.
The Company currently has 250,000,000 authorized shares of Common Stock. As
of May 31, 2000, [161,000,000] shares of Common Stock were issued and
outstanding. In addition, as of May 31, 2000 [9,908,441] shares were reserved
for future grant or for issuance upon the exercise of outstanding options under
the 1999 Stock Incentive Plan; and [6,279,128] shares were reserved for future
sale under the 1999 Employee Stock Purchase Plan.
The principal purpose of the proposed amendment to the Certificate is to
authorize additional shares of Common Stock which will be available in the
event the Board of Directors determines that it is necessary or appropriate to
permit future stock dividends or stock splits, to raise additional capital
through the sale of securities, to acquire another company or its business or
assets or to establish a strategic relationship with a corporate partner. The
Board of Directors has no present agreement or arrangement to issue any such
shares. If the amendment is approved by the stockholders, the Board of
Directors does not intend to solicit further stockholder approval prior to the
issuance of any additional shares of Common Stock, except as may be required by
applicable law.
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the Company more difficult, and therefore
less likely. Any such issuance of additional stock could have the effect of
diluting Portal's earnings per share and book value per share of outstanding
shares of Common Stock, and such additional shares could be used to dilute the
stock ownership or voting rights of a person seeking to obtain control of the
Company. The holders of Common Stock of the Company have no preemptive rights.
Required Vote
The approval of the amendment to the Certificate requires the affirmative
vote of a majority of the outstanding shares of Common Stock of the Company. An
abstention or broker non-vote will have the same effect as a vote against the
proposal.
The Board of Directors has unanimously approved the amendment to the
Certificate and recommends that the stockholders vote FOR this proposal.
6
<PAGE>
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP, independent auditors, to audit the
financial statements of the Company for the year ending January 31, 2001 and
recommends that the stockholders ratify such selection. In the event of a
negative vote, the Board will reconsider its selection. Ernst & Young LLP (or
its predecessor) has audited the Company's annual financial statements since
1996. Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and are expected to be available to respond to appropriate questions.
The Board of Directors recommends that the stockholders vote "FOR" the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending January 31, 2001.
EXECUTIVE COMPENSATION
Summary Compensation
The following table provides certain summary information concerning
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated (determined based on fiscal year 2000 salary
and bonus) current executive officers of the Company (the "named executive
officers") for services rendered in all capacities to the Company and its
subsidiaries for the fiscal years ended January 31, 2000, 1999 and 1998. No
executive officer who would otherwise been included in such table on the basis
of salary and bonus earned for the 2000 fiscal year resigned or terminated
employment during that fiscal year.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------ ------------------------------------------ ------------
Number of
Name and Principal Shares
Position in Fiscal Year Fiscal Other Annual Underlying
2000 Year Salary ($) (1) Bonus ($) (2) Compensation Options
----------------------- ------ -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John E. Little.......... 2000 $260,015 $238,250 -- 400,000
Chairman of the
Board,................ 1999 $185,000 $ 40,000 -- 0
President and Chief
Executive............. 1998 $204,271 $ 20,000 -- 0
Officer
Jack L. Acosta.......... 2000 $200,636 $122,179 -- 0
Vice President Finance
and................... 1999 $ 0 $ 25,000(3) -- 2,160,000
Chief Financial
Officer............... --
David S. Labuda......... 2000 $203,860 $127,067 -- 200,000
Chief Technology
Officer............... 1999 $208,000 $ 52,000 -- 0
1998 $217,331 $ 48,000 -- 0
Kevin P. Mosher......... 2000 $200,202 $122,179 -- 900,000
Vice President, Sales.. 1999 $140,000 $110,000 -- 0
1998 $122,500 $ 55,090 -- 1,350,000
Steven R. Sommer........ 2000 $210,570 $130,679 -- 240,000
Vice President,
Marketing............. 1999 $180,000 $ 50,000 -- 0
and Business
Development........... 1998 $ 85,106 $ 12,500 -- 2,159,592
</TABLE>
- --------
(1) Salary includes amounts earned in the year indicated but deferred
pursuant to the Company's 401(k) savings plan
(2) Bonuses for each year include amounts earned for such year, even if paid
in a subsequent year, and exclude bonuses paid during such year that were
earned for a prior year.
(3) Sign-On bonus.
7
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table contains information concerning the grant of stock
options in fiscal year 2000 to the named executive officers and the potential
realizable value of such stock options at assumed annual rates of stock
appreciation over the terms of such stock options. No stock appreciation rights
were granted to the named executive officers during fiscal year 2000.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants (1) Option Term (2)
- ------------------------------------------------------------------- ----------------------
Number of % of Total
Shares Options Exercise
Underlying Granted to Price
Options Employees Per Expiration
Name Granted in FY 2000 Share(3) Date 5% 10%
---- ---------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John E. Little.......... 400,000 3.05% $27.00 10/05/09 $6,792,021 $17,212,391
Jack L. Acosta.......... 0 -- -- -- -- --
David S. Labuda......... 200,000 1.53% $27.00 10/05/09 $3,396,010 $ 8,606,195
Kevin P. Mosher......... 900,000 6.86% $ 5.00 03/31/09 $2,830,009 $ 7,171,029
Steven R. Sommer........ 240,000 1.83% $ 5.00 03/31/09 $ 754,668 $ 1,912,487
</TABLE>
- --------
(1) All options in the table have an exercise price equal to the fair market
value on the date of grant and will become exercisable in 48 successive
equal monthly installments upon the optionee's completion of each month
of service over the 48-month period measured from the grant date (October
6, 1999 for the grants made to Messrs. Little and Labuda and April 1,
1999 for the grants made to Messrs. Mosher and Sommer). All of the
options have a 10-year term, subject to earlier termination following the
optionee's cessation of employment. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, each outstanding option
that is not fully exercisable shall be accelerated and become fully
exercisable unless the successor corporation agrees to assume all
outstanding options or substitute equivalent options therefor.
(2) The 5% and 10% rates of appreciation are specified by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimates or projections of future Common Stock prices. Based on the
specified 5% and 10% assumed rates of appreciation, the approximate
market price per share at the end of ten years of options (i) with an
exercise price of $27.00 would be approximately $43.98 and $70.03,
respectively; and (ii) with an exercise price of $5.00 would be
approximately $8.14 and $12.97, respectively.
(3) The exercise price may be paid in cash, in shares of the Company's common
stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving the same-day sale of the purchased
shares. 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 withholding taxes to which
the optionee may become subject in connection with such exercise.
8
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information with respect to the named executive
officers concerning the exercise of options during the last fiscal year and the
number and value of unexercised options held as of the end of the last fiscal
year. No stock appreciation rights were exercised by the named executive
officers during the last fiscal year, an no stock appreciation rights were held
by them at the end of that year.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year- the-Money Options at
End Fiscal Year- End (2)
------------------------- -------------------------
Shares Aggregate
Acquired on Value
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Little.......... 0 0 24,998 375,002 $ 565,579 $ 8,484,420
Jack L. Acosta.......... 300,000 $11,530,610 600,000 1,260,000 $38,974,960 $60,847,416
David S. Labuda......... 0 0 12,498 187,502 $ 202,766 $ 4,242,232
Kevin P. Mosher......... 0 0 168,746 731,254 $ 7,530,290 $32,632,209
Steven R. Sommer........ 0 0 45,000 195,000 $ 2,008,124 $ 8,701,874
</TABLE>
- --------
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Market value of underlying securities on January 31, 2000 ($49.625 per
share), minus the exercise price of in-the-money options.
Board Compensation Committee Report on Executive Compensation
Compensation Committee Report. The Compensation Committee of the Board
currently consists of three outside directors. The Compensation Committee
believes that the Company's executive compensation programs should enable the
Company to attract and retain strong performers. The Company's compensation
programs motivate the senior management team to achieve or exceed key
objectives by making individual compensation directly dependent on the
Company's achievement of financial goals and by providing significant rewards
for exceeding those goals. The Committee believes that strong financial
performance, on a sustained basis, is the surest way for the Company to
positively affect long-term stockholder return.
Compensation Program Considerations. The Company takes the following factors
into consideration in designing various executive compensation programs:
(a) Compensation positioning and comparative framework.
In order to attract and retain the talent that it needs to meet corporate
objectives, the Company's executive compensation programs are designed to
deliver overall cash compensation and employee benefits competitive with
comparable technology companies if corporate objectives are achieved and, if
objectives are exceeded, to deliver compensation that is in some cases above
the median paid by comparable companies. Bonuses are tied closely to corporate
performance, such that actual awards vary considerably according to overall
Company performance.
The Company uses market compensation information obtained through technology
company surveys, customized surveys, and consulting arrangements to establish
appropriate compensation levels at target, exceptional, or below target
performance. In determining fiscal year 2000 compensation, the Company used
information obtained in two broad market surveys of primarily publicly-held
technology companies, one covering approximately 76 high technology companies
and one covering 132 software companies, many of which were located in Northern
California. This compensation information is used to evaluate relative market
position and to assist in designing programs that reward executives according
to both their job function and their actual performance.
9
<PAGE>
(b) Mix of compensation.
The Company's executive compensation program has three primary components.
All three are intended to attract and retain outstanding executives and focus
management on achieving or exceeding Company objectives.
(i) Base Salary and Basic Benefits. The Committee believes that executive
salaries and the basic employee benefit package must be sufficiently
competitive to attract and retain key executives. Base pay and annual increases
to base pay are determined primarily through an analysis of the individual's
salary and total target compensation relative to compensation for similar
positions within the Company and at other companies and, to a lesser extent,
through a subjective analysis of individual contributions to the Company's
success. Base salaries for the executive officers ranged from the 8th
percentile to the 71st percentile of the salary levels in effect for similar
executive positions with the technology and software companies surveyed for
comparative compensation purposes. Executive officers are eligible for
participation in the standard health plans and 401(k) savings plan offered by
the Company to its employees generally and, except for Mr. Little and Mr.
Labuda, in the Employee Stock Purchase Plan.
(ii) Annual, Quarterly and Special Bonuses. The Committee believes that one
of the key differentiators of executive compensation should be the variable
portion provided by short-term cash incentive plans. The Company's executive
bonus plans are designed such that if the Company performs significantly above
its stated objectives, bonus awards may be significantly above the award
target. If the Company performs below its stated objectives, awards may be
significantly reduced, and may be eliminated altogether if performance is below
defined thresholds. The Committee established a target incentive bonus amount
for each executive in fiscal year 2000. This target amount was 60% of base
salary for Mr. Little, 40% for Mr. Acosta, Mr. Labuda, Mr. Mosher, Mr. Michael
Regan, Mr. Sommer and Ms. Annette Surtees and 30% for Mr. Mitchell Gaynor. The
fiscal year 2000 executive bonuses (other than for Mr. Gaynor) were based 50%
upon the achievement of individual objectives, 25% based on bookings, 12.5% on
revenue and 12.5% on operating income. Performance was measured against the
targets established by the Board of Directors. Performance below a specified
percentage of a target would have resulted in no payment with respect to that
incentive component. The minimum thresholds in fiscal year 2000 were 70% of the
bookings target, for 90% of the revenue target and 125% of the operating loss
target. Performance at the minimum threshold for a target would result in
payment of 50% of the target amount of that component. Performance over target
could result in payment of up to 200% of the applicable component. Mr. Gaynor's
incentive for fiscal year 2000 was based entirely on achievement of individual
objectives. Under the fiscal year 2000 incentive structure, Messrs. Little,
Acosta, Labuda, Mosher and Sommer received incentive bonuses of $238,250,
$122,179, $127,067, $122,179, $122,179, and $122,179, respectively.
In addition, the Compensation Committee may approve discretionary executive
awards proposed by the President or a member of the Compensation Committee.
Such discretionary awards are based on a subjective evaluation of an executive
officer's contribution to the Company's success and are not based on
predetermined measures of corporate performance or achievement of specified
corporate objectives. None of the persons serving as executive officers in
fiscal year 2000 received any discretionary bonus in fiscal year 2000. In
connection with their joining Portal, Mr. Acosta and Mr. Regan each received a
$25,000 signing bonus.
(iii) Long-term Incentives. These are provided through initial stock option
grants at date of hire and periodic additional stock option grants. Executives
realize gains only if the stock price increases over the exercise price of
their options and they exercise their options. Stock options generally vest
over a four-year period and the Committee believes they are instrumental in
focusing executives on sustaining strong financial performance over a number of
years. The initial option grant is designed to be competitive with those of
comparable technology companies for the level of job the executive holds, and
to motivate the executive to make the kinds of decisions and implement
strategies and programs that will contribute to an increase in the Company's
stock price over time. Periodic additional stock options within a competitive
range for the job are granted to reflect the executive's ongoing contributions
to the Company's success, to create an incentive to
10
<PAGE>
remain with the Company, and to provide a long-term incentive to achieve or
exceed the Company's financial goals. Such options are generally granted once a
year. In determining the amount of such periodic additional grants, if any, for
an individual, the Committee considers the amount of options previously
granted, the amount of options outstanding, the vesting schedule of the
outstanding options, the aggregate amount of the outstanding options and new
awards, and the relative quantities of options offered by other companies for
comparable positions. During fiscal year 2000, Messrs. Little, Labuda, Mosher
and Sommer, received additional option grants to purchase 400,000, 200,000,
900,000, and 240,000 shares, respectively. Special additional stock options are
granted from time to time to executive officers in connection with promotions
or changes in responsibilities.
(c) Other compensation considerations.
Because the Company believes that Company-provided benefits programs in
general should be similar for all employees, perquisites are not ordinarily
used to compensate its executives. In fiscal year 2000, no executive
perquisites were included in the Company's compensation programs for named
executive officers.
Fiscal Year 2000 Compensation for the Chief Executive Officer. Because of
Mr. Little's significant Portal stockholdings, Mr. Little's fiscal year 2000
base salary and total compensation was established by the Compensation
Committee at a lower level than the average base pay for the chief executives
of comparable technology companies. The total compensation of the Chief
Executive Officer was designed to compensate him at market levels when
financial performance targets are significantly exceeded. The target incentive
portion of Mr. Little's compensation comprised 50% of total target compensation
and was dependent 25% on the Company's achievement of bookings targets, 12.5%
on achievement of revenue targets and 12.5% on achievement of operating profit
target specified by the board of directors. The remaining 50% was based on
achievement of other performance objectives specified by the Board. Mr. Little
received a total of $238,250 in incentive payments for fiscal year 2000. Mr.
Little was also granted an option to purchase 400,000 shares of Common Stock
with an exercise price equal to the market price of the shares on the grant
date. The grant is designed to provide him with a significant incentive to
remain in the Company's employ and to contribute to the creation of shareholder
value in the form of stock price appreciation, because the grant will not have
any value unless he remains with the Company during the vesting period and the
market price of the Company's common stock appreciates over the market price in
effect at the time the grant was made to him.
The Compensation Committee held three meetings in fiscal year 2000. At
several of the meetings, the Chief Executive Officer made recommendations to
the Compensation Committee with respect to compensation for executive officers
other than himself. Although present at the meetings, the Chief Executive
Officer did not participate in the deliberations concerning his compensation
and awards.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code generally disallows a tax deduction to publicly held
companies for compensation exceeding $1 million paid to certain of the
corporation's executive officers. The limitation applies only to compensation
which is not considered to be performance-based. The non-performance based
compensation paid to the Company's executive officers for fiscal year 2000 did
not exceed the $1 million limit per officer, nor is it expected that the non-
performance based compensation to be paid to the Company's executive officers
for fiscal 2001 will exceed that limit. The Company's 1999 Stock Incentive Plan
is structured so that any compensation deemed paid to an executive officer in
connection with the exercise of option grants made under that plan will qualify
as performance-based compensation and will therefore not be subject to the $1
million limitation. Because it is very unlikely that the cash compensation
payable to any of the Company's executive officers in the foreseeable future
will approach the $1 million limit, the Compensation Committee has decided at
this time not to take any other action to limit or restructure the elements of
cash compensation payable to the Company's executive officers. The Compensation
Committee will reconsider this decision should the individual compensation of
any executive officer ever approach the $1 million level.
11
<PAGE>
Report Submitted by:
William T. Coleman III (through January 24, 2000)
Arthur C. Patterson
David C. Peterschmidt
Edward J. Zander
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of Messrs. Patterson, Peterschmidt
and Zander. Each of the current members of the Compensation Committee will
receive an automatic annual stock option grant under the Company's 1999 Stock
Incentive Plan. See "Election of Directors--Director Compensation."
Employment Agreements and Certain Transactions
Under a letter agreement dated December 24, 1998, Mr. Jack L. Acosta,
Portal's Chief Financial Officer, Vice President, Finance and Secretary, is to
receive an annual salary of $200,000 for the fiscal year ending January 31,
2000, has received a one-time signing bonus of $25,000 and is eligible to
receive up to an aggregate of $80,000 upon the achievement of certain
performance milestones. Mr. Acosta was granted an option to purchase 2,160,000
shares of common stock with an exercise price of $1.3334 per share, of which
432,000 shares vested upon consummation of Portal's initial public offering and
the balance of which vests monthly from the date of grant over four years of
Mr. Acosta's continued employment with Portal. In the event that the employment
of Mr. Acosta is terminated by Portal or its successor for any reason other
than for cause, Mr. Acosta will receive one year of severance pay based on his
base salary for that year.
Under a letter agreement dated January 31, 1999, Mr. Michael E. Regan,
Portal's Vice President, Professional Services, received an annual salary of
$200,000 for the fiscal year ending January 31, 2000 and received a one-time
signing bonus of $25,000 and is eligible to receive up to an aggregate of
$80,000 upon the achievement of certain performance milestones. Mr. Regan was
granted an option to purchase 1,500,000 shares of common stock with an exercise
price of $5.00 per share, twenty-five percent of which will vest one year from
the date of grant and the balance of which will vest in thirty-six equal
monthly installments upon Mr. Regan's continued employment with Portal.
In connection with an acquisition of Portal by merger or asset sale,
Portal's repurchase right with respect to the unvested shares of common stock
acquired by Mr. Mosher pursuant to the exercise of stock options issued under
the 1995 Stock Option/Stock Issuance Plan will automatically lapse and the
shares will vest in full, unless the repurchase right is assigned to the
successor entity. If Mr. Acosta is terminated, or his role is materially
diminished, within 18 months after a change in control or acquisition of
Portal, all of his unvested options will vest in full. In addition, Mr. Sommer,
Portal's Vice President, Marketing and Business Development, will vest in the
lesser of (i) twenty-five percent of the shares purchased or purchasable under
his options or (ii) fifty percent of his unvested shares upon a merger or asset
sale.
In addition, the compensation committee as plan administrator of the 1999
Stock Incentive Plan will have the authority to grant options and to structure
repurchase rights under that plan so that the shares subject to those options
or repurchase rights will immediately vest in connection with a change in
control of Portal, whether by merger, asset sale, successful tender offer for
more than fifty percent of the outstanding voting stock or by a change in the
majority of the board by reason of one or more contested elections for board
membership, with this vesting to occur either at the time of this change in
control or upon the subsequent involuntary termination of the individual's
service within a designated period, not to exceed 18 months, following a change
in control.
12
<PAGE>
Performance Graph
The following graph and table compare the cumulative total return on a $100
investment in the Company with the cumulative total return on a $100 investment
(assuming reinvestment of dividends, if any) in the NASDAQ Stock Market (U.S.)
and the Chase H&Q 100 Internet Index for the period commencing on May 5 1999
(the effective date of the registration statement for Portal's initial public
offering that commenced on May 6, 1999) through January 31, 2000:
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
5/5/99 1/31/2000
------ ---------
<S> <C> <C>
Portal.................................................... $100 $708.93
Chase H&Q Internet Index.................................. $100 $178.51
NASDAQ Stock Market (U.S.)................................ $100 $154.51
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file an initial report of securities ownership
on Form 3 and reports of changes in securities ownership on Form 4 or 5 with
the Securities and Exchange Commission (the "SEC"). Such officers, directors
and 10% stockholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms that they file. Based solely on its review of
the copies of such forms received by it, or written representations from
certain reporting persons that no Forms 4 or 5 were required for such persons,
the Company believes that, for the reporting period from May 6, 1999 to January
31, 2000, all required Section 16(a) filings were made on a timely basis,
except that a stock option grant to Mr. Sommer was reported on a Form 3
amendment and two purchases of stock pursuant to the exercise of stock options
by Ms. Surtees were reported on two Form 4s that were filed after the deadline
for the applicable filing.
13
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any other matters to be brought
before the Annual Meeting. However, if any other matters properly come before
the Annual Meeting, it is the intention of the appointees named in the enclosed
proxy card to vote in accordance with their best judgment on such matters.
Under the Company's bylaws, in order for a matter (including nominations for
election) to be deemed properly brought before the Annual Meeting by a
stockholder, notice must be delivered to, or mailed and received by, the
Secretary of the Company, not less than 120 days prior to the Annual Meeting.
The stockholder's notice to the secretary must set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (b) the name and address, as they
appear on the corporation's books, of the stockholder proposing such business,
and the name and address of the beneficial owner, if any, on whose behalf the
proposal is made, (c) the class and number of shares of the corporation which
are owned beneficially and of record by such stockholder of record and by the
beneficial owner, if any, on whose behalf of the proposal is made and (d) any
material interest of such stockholder of record and the beneficial owner, if
any, on whose behalf the proposal is made in such business. A stockholder
nomination for election to the Board of Directors must contain the written
consent of each proposed nominee to serve as a director if so elected and the
following information as to each proposed nominee and as to each person, acting
alone or in conjunction with one or more other persons as a partnership,
limited partnership, syndicate or other group, who participates or is expected
to participate in making such nomination or in organizing, directing or
financing such nomination or solicitation of proxies to vote for the nominee:
(i) the name, age, residence, address, and business address of each
proposed nominee and of each such person;
(ii) the principal occupation or employment, the name, type of business
and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such
person;
(iii) the amount of stock of the corporation owned beneficially, either
directly or indirectly, by each proposed nominee and each such
person; and
(iv) a description of any arrangement or understanding of each proposed
nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the
corporation will or may be a party.
The presiding officer of the meeting may refuse to acknowledge any matter or
nomination not made in compliance with the foregoing procedure.
Annual Report
A copy of the Annual Report of the Company for the 2000 fiscal year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
Form 10-K
Portal filed an Annual Report on Form 10-K with the Securities and Exchange
Commission on April 28, 2000. Stockholders may obtain a copy of this report,
without charge, by writing to General Counsel and Secretary of Portal at 10200
South De Anza Boulevard, Cupertino, California 95014.
THE BOARD OF DIRECTORS
Dated: May 29, 2000
14
<PAGE>
Map to the meeting
<PAGE>
FORM OF PROXY
PROXY
PORTAL SOFTWARE, INC.
PROXY FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of PORTAL SOFTWARE, INC., a Delaware
Corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated as of May 29, 2000, and
hereby appoints John E. Little, Jack Acosta and Mitchell Gaynor, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
2000 Annual Meeting of Stockholders of PORTAL SOFTWARE, INC. to be held on July
26, 2000 at 10:00 a.m. local time, at The Hilton Garden Inn Cupertino, 10741
North Wolfe Road, Cupertino, CA 95014, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote, if then and there personally present, on the matters set forth
on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
/ SEE REVERSE /
/_____SIDE________/
<PAGE>
THE BOARD OF DIRECTORS
RECOMMENDS VOTING
FOR PROPOSAL 1
FOR PROPOSAL 2
FOR PROPOSAL 3
/X/ Please mark
-- votes as in
this example
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE NOMINATED DIRECTOR, FOR THE APPROVAL OF
EACH OF PROPOSALS 2 AND 3 SET FORTH BELOW, AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. Election of Class I Director
Nominee: Arthur C. Patterson
FOR WITHHELD
[____] [___] MARK HERE FOR [ ]
ADDRESS CHANGE
AND NOTE BELOW
2. Proposal to approve an amendment For Against Abstain
to the Amended Certificate of Incorporation to increase [ ] [ ] [ ]
the authorized number of shares of Common Stock
from 250,000,000 to 1,000,000,000 shares.
3. Proposal to ratify the appointment of Ernst & For Against Abstain
Young LLP as independent accountants for [ ] [ ] [ ]
the Company for fiscal year 2001.
4. In their discretion, the proxies are authorized to vote upon such other
matter or matters which may properly come before the meeting or any
adjournment or adjournments thereof.
(This proxy should be marked, dated, signed by each stockholder exactly as such
stockholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
Signature: _______________ Date: ______ Signature: _______________ Date: ______
