That only appears when you have iOS 5+ installed, you will need to do the update via your computer's iTunes.
Connect the iPad to your computer's iTunes and copy any purchases off the iPad via File > Transfer Purchases (you may also want to copy photos off the iPad as well) and then force a backup of the iPad by right-clicking the iPad 'Device' on the left-hand side of iTunes and selecting 'Backup'. You may also want to copy off the iPad any important documents, notes, files etc e.g. via the file sharing section at the bottom of the device's apps tab when connected to iTunes, via wifi, email, dropbox etc - they should be included in the backup, but it's best to have a copy of them outside of the backup just in case.
You can then start the update by selecting the iPad on the left-hand side of iTunes, and on the Summary tab on the right-hand side clicking the Check For Updates button.
Updating to iOS 5+ : http://support.apple.com/kb/HT4972