AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 2003
REGISTRATION NO. 333-______
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
PERSISTENCE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3138935
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1720 South Amphlett Blvd., Third Floor
San Mateo, CA 94402
(650) 372-3600
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
_____________________
Christopher T. Keene
Chief Executive Officer
Persistence Software, Inc.
1720 South Amphlett Blvd., Third Floor
San Mateo, CA 94402
(650) 372-3600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________________
COPIES TO:
Laurel Finch
Amy Elizabeth Paye
Laura L. McDaniels
VENTURE LAW GROUP
A Professional Corporation
2775 Sand Hill Road
Menlo Park, CA 94025
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
_____________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registrations statement number of the earlier effective registration
statement for the same offering. |_| _______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
================================= ================== ============================= ============================== ==================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE REGISTRATION FEE
- --------------------------------- ----------------- ----------------------------- ------------------------------ ------------------
Common Stock, par value $0.001 5,093,822 $0.25 $1,273,455.50 $254.69
================================= ================== ============================= ============================== ==================
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933
based upon the average of the high and low prices of the Common Stock as
reported on the Nasdaq SmallCap Market on April 25, 2003.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated April 30, 2003
PROSPECTUS
PERSISTENCE SOFTWARE, INC.
5,093,822 shares of Common Stock
______________________________
THE SHARES OF COMMON STOCK OF PERSISTENCE SOFTWARE, INC. OFFERED BY
THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE
"RISK FACTORS" ON PAGE 1 IN DETERMINING WHETHER TO PURCHASE THE COMMON STOCK.
______________________________
The selling stockholders identified on page 17 of this prospectus are
offering these shares of common stock. We issued certain of these shares of
common stock to certain of the selling stockholders in connection with two
private placements of warrants to purchase our common stock on June 28, 2001,
and October 18, 2002. We issued certain of these shares of common stock to
certain of the selling stockholders in connection with a private placement of
our common stock and warrants on November 26, 2002. For additional information
concerning these private placements, you should refer to the section entitled
"Issuance of Common Stock and Warrants to Selling Stockholders" on page 14. The
selling stockholders may sell the shares of common stock from time to time on
the Nasdaq SmallCap Market, or otherwise, at prices and at terms then prevailing
or at prices related to the then current market price or in private sales at
negotiated prices directly or through a broker or brokers, who may act as agent
or principal or by a combination of such methods of sale. For additional
information on the method of sale, you should refer to the section entitled
"Plan of Distribution" on page 14. We will not receive any proceeds from the
sale of these shares.
The selling stockholders may be deemed to be a "underwriters," as such
term is defined in the Securities Act of 1933, as amended.
Our common stock is quoted on the Nasdaq SmallCap Market under the
symbol "PRSW".
On April 25, 2003, the last sale price of our common stock on the
Nasdaq SmallCap Market was $0.26 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _____________ ___, 2003.
TABLE OF CONTENTS
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PAGE
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RISK FACTORS...................................................................1
THE COMPANY...................................................................13
USE OF PROCEEDS...............................................................14
ISSUANCE OF COMMON STOCK AND WARRANTS TO SELLING STOCKHOLDERS.................14
PLAN OF DISTRIBUTION..........................................................14
SELLING STOCKHOLDERS..........................................................17
LEGAL MATTERS.................................................................18
EXPERTS.......................................................................18
WHERE YOU CAN FIND ADDITIONAL INFORMATION.....................................18
FORWARD-LOOKING STATEMENTS....................................................19
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. YOU
SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE
OTHER INFORMATION IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS INCLUDING
OUR FINANCIAL STATEMENTS BEFORE DECIDING WHETHER TO BUY SHARES OF OUR COMMON
STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE INTENDED TO BE THE ONES
THAT ARE SPECIFIC TO OUR COMPANY OR INDUSTRY AND THAT WE DEEM TO BE MATERIAL,
BUT ARE NOT THE ONLY ONES THAT WE FACE. THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE DUE TO ANY OF THESE AND OTHER RISKS AND UNCERTAINTIES, AND YOU
COULD LOSE PART OR ALL OF YOUR INVESTMENT.
WE HAVE A LIMITED OPERATING HISTORY IN THE DATA SERVICES MARKETS.
Because we only commenced selling EDGEXTEND and DIRECTALERT in 2002, we
have a limited operating history in the data services markets. We thus face the
risks, expenses and difficulties frequently encountered by companies in early
stages of development, particularly companies in the rapidly changing software
industry. These risks include:
o the timing and magnitude of capital expenditures by our customers and
prospective customers;
o our need to achieve market acceptance for our new product
introductions, including DIRECTALERT and EDGEXTEND;
o our dependence for revenue from our POWERTIER product, which was
first introduced in 1997 and has achieved only limited market acceptance;
o our need to expand our distribution capability through various sales
channels, including a direct sales organization, original equipment
manufacturers, third party distributors, independent software vendors and
systems integrators;
o our unproven ability to anticipate and respond to technological and
competitive developments in the rapidly changing market for dynamic data
management;
o our unproven ability to compete in a highly competitive market;
o the decline in spending levels in the software infrastructure market;
o our dependence on the Java programming language, commonly known as
J2EE, becoming a widely accepted standard in the transactional application
server market; and
o our dependence upon key personnel.
BECAUSE WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW, WE MAY NOT BECOME OR
REMAIN PROFITABLE.
We may not achieve our targeted revenues, and we may not be able to
achieve or maintain profitability in the future. We have incurred net losses
each year since 1996. In particular, we incurred losses of $5.4 million in 2002,
$15.1 million in 2001 and $16.7 million in 2000. As of March 31, 2003, we had an
accumulated deficit of $62.4 million. While we are currently targeting decreases
in sales and marketing, research and development, and general and administrative
expenses for 2003, as compared to the levels of those expenses in 2002, we will
still need to achieve our revenue targets in order to preserve cash. Because our
product markets are new and evolving, we cannot accurately predict either the
future growth rate, if any, or the ultimate size of the markets for our
products.
WE HAVE FINANCED OUR BUSINESS THROUGH THE SALE OF STOCK AND NOT THROUGH CASH
GENERATED BY OUR OPERATIONS.
Since inception, we have generally had negative cash flow from
operations. To date, we have financed our business primarily through sales of
common stock and convertible preferred stock and not through cash generated by
our operations. We expect to have negative cash flow from operations for the
year ending December 31, 2003.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE.
We are currently targeting that our current cash and cash equivalents
will be sufficient to meet our anticipated cash needs through at least March 31,
2004 provided that we meet our targets with respect to revenues and accounts
receivable collections.
If we experience difficulties in achieving our revenue targets, our
cash and cash equivalents may not be sufficient to meet our anticipated cash
needs. Accordingly, our operating plans could be restricted and our business
could be harmed. If cash generated from operations is insufficient to satisfy
our liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a credit facility. If additional funds are raised
through the issuance of debt securities, these securities could have rights,
preferences and privileges senior to holders of common stock, and the term of
this debt could impose restrictions on our operations. The sale of additional
equity or convertible debt securities could result in additional dilution to our
stockholders, and we may not be able to obtain additional financing on
acceptable terms, if at all. If we are unable to obtain this additional
financing, our business could be jeopardized.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE PRICE OF
OUR COMMON STOCK.
Our quarterly operating results have fluctuated significantly in the
past and may continue to fluctuate significantly in the future as a result of a
number of factors, many of which are outside our control. In prior years, we
have often experienced an absolute decline in revenues from the fourth quarter
to the first quarter of the next year. If our future quarterly operating results
are below the expectations of securities analysts or investors, the price of our
common stock would likely decline. The factors that may cause fluctuations of
our operating results include the following:
o our ability to close relatively large sales on schedule;
o delays or deferrals of customer orders or deployments;
o delays in shipment of scheduled software releases;
o shifts in demand for and market acceptance among our various
products, including our newer products, EDGEXTEND and DIRECTALERT, and our older
POWERTIER product;
o introduction of new products or services by us or our competitors;
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o annual or quarterly budget cycles of our customers or prospective
customers;
o the level of product and price competition in the application server
and data management markets;
o our lengthy sales cycle;
o our success in maintaining our direct sales force and expanding
indirect distribution channels;
o the mix of direct sales versus indirect distribution channel sales;
o the possible loss of sales people;
o the mix of products and services licensed or sold;
o the mix of domestic and international sales; and
o our success in penetrating international markets and general economic
conditions in these markets.
We typically receive a substantial portion of our orders in the last
two weeks of each fiscal quarter because our customers often delay purchases of
our products to the end of the quarter to gain price concessions. Also, we tend
to experience slower sales patterns in Europe in the third quarter. Because a
substantial portion of our costs are relatively fixed and based on anticipated
revenues, a failure to book an expected order in a given quarter would not be
offset by a corresponding reduction in costs and could adversely affect our
operating results.
OUR SALES CYCLE IS LONG, UNPREDICTABLE AND SUBJECT TO SEASONAL FLUCTUATIONS, SO
IT IS DIFFICULT TO FORECAST OUR REVENUES.
Any delay in sales of our products or services could cause our
quarterly revenues and operating results to fluctuate. The typical sales cycle
of our products is long and unpredictable and requires both a significant
capital investment decision by our customers and our education of prospective
customers regarding the use and benefits of our products. Our sales cycle is
generally between three and nine months. A successful sales cycle typically
includes presentations to both business and technical decision makers, as well
as a limited pilot program to establish a technical fit. Our products typically
are purchased as part of a significant enhancement to a customer's information
technology system. The implementation of our products involves a significant
commitment of resources by prospective customers. Accordingly, a purchase
decision for a potential customer typically requires the approval of several
senior decision makers. Our sales cycle is affected by the business conditions
of each prospective customer, as well as the overall economic climate for
technology-related capital expenditures. Due to the relative importance of many
of our product sales, a lost or delayed sale could adversely affect our
quarterly operating results. Our sales cycle is affected by seasonal
fluctuations as a result of our customers' fiscal year budgeting cycles and slow
summer purchasing patterns in Europe.
WE DEPEND ON A RELATIVELY SMALL NUMBER OF SIGNIFICANT CUSTOMERS, AND THE LOSS OF
ONE OR MORE OF THESE CUSTOMERS COULD RESULT IN A DECREASE IN OUR REVENUES.
Historically, we have received a substantial portion of our revenues
from product sales to a limited number of customers. In addition, the identity
of our top five customers has changed from year to year. In the three months
ended March 31, 2003, sales of products and services to our top five customers
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accounted for 52% of total revenues. Sales to Adobe Systems accounted for 23% of
total revenues and sales to J.P. Morgan Chase accounted for 10% of total
revenues. In the three months ended March 31, 2002, sales of products and
services to our top five customers accounted for 46% of total revenues. Sales to
Salomon Smith Barney accounted for 15% of total revenues and sales to Lucent
Technologies accounted for 10% of total revenues. In the year ended December 31,
2002, sales to our top five customers accounted for 55% of total revenues. Sales
to Cablevision accounted for 26% of total revenues and sales to Salomon Smith
Barney accounted for 13% of total revenues. In the year ended December 31, 2001,
sales to our top five customers accounted for 45% of total revenues. Sales to
Salomon Smith Barney accounted for 15% of total revenues and sales to
Cablevision accounted for 11% of total revenues. In year ended December 31,
2000, sales to Salomon Smith Barney accounted for 16% of total revenues and
sales to our top five customers accounted for 40% of total revenues. If we lose
a significant customer, or fail to increase product sales to an existing
customer as planned, we may not be able to replace the lost revenues with sales
to other customers. In addition, because our marketing strategy is to
concentrate on selling products to industry leaders, any loss of a customer
could harm our reputation within the industry and make it harder for us to sell
our products to other companies in that industry. The loss of, or a reduction in
sales to, one or more significant customers would likely result in a decrease in
our revenues.
WE ARE CURRENTLY TARGETING THAT A MATERIAL PORTION OF OUR REVENUES WILL BE
DERIVED FROM SALES OF OUR NEWEST PRODUCT, EDGEXTEND, HOWEVER THERE ARE TECHNICAL
AND MARKET RISKS ASSOCIATED WITH NEW PRODUCTS.
Sales of our EDGEXTEND products currently represent a material
percentage of our revenues. New products, like EDGEXTEND, often contain errors
or defects, particularly when first introduced. Any errors or defects could be
serious or difficult to correct and could result in a delay of product release
or adoption resulting in lost revenues or a delay in gaining market share, which
could harm our revenues and reputation. In addition, market adoption is often
slower for newer products, like EdgeXtend, than for existing products. Because
we are focusing our marketing and sales efforts on our newer EDGEXTEND data
management product, any failure in market adoption of this product could affect
our business.
BECAUSE OUR PRODUCTS PROVIDE ADDITIONAL FEATURES TO SUCCESSFUL APPLICATION
SERVER PRODUCTS FROM IBM AND BEA, THEY MAY ADD THESE FEATURES TO A FUTURE
VERSION OF THEIR PRODUCT, REDUCING THE NEED FOR OUR PRODUCTS.
Because IBM and BEA control the development schedule and feature set of
their products, we need to maintain a good working relationship with IBM and BEA
if we decide to develop future versions of EDGEXTEND for those new versions of
WebSphere and WebLogic. Failure to develop future versions compatible with the
latest versions from IBM and BEA could greatly reduce market acceptance for our
products. IBM or BEA could add features to their products, which would reduce or
eliminate the need for our products, which could harm our business. They could
develop their products in a more proprietary way to favor their own products, or
as those offered by a third party, which could make it much harder for us to
compete in the J2EE software market.
WE DEPEND ON THE JAVA PROGRAMMING LANGUAGE, THE ENTERPRISE JAVABEANS STANDARD
AND THE JAVA 2 ENTERPRISE EDITION (J2EE) STANDARD AND DISTRIBUTED OBJECT
COMPUTING, AND IF THESE TECHNOLOGIES FAIL TO GAIN ACCEPTANCE, OUR BUSINESS COULD
SUFFER.
We are focusing our marketing efforts on our EDGEXTEND products, which
are based on three technologies, which have not been widely adopted by a large
number of companies. These three technologies are a distributed object computing
architecture, Sun Microsystems' Java programming language and J2EE. Distributed
object computing combines the use of software modules, or objects, communicating
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across a computer network to software applications, such as our EDGEXTEND
products. Our products depend upon and conform to the EJB standard. Sun
Microsystems released the EJB standard in 1998, and thus far EJB has had limited
market acceptance. EJB is a part of the J2EE standard; J2EE is the Java
programming standard for use in an application server. Since most of our
products depend upon the specialized J2EE and EJB standards, we face a limited
market compared to competitors who may offer application servers based on more
widely accepted standards, including the Java programming language. We expect a
material portion of our future revenues will come from sales of products based
on the J2EE standard. Thus, our success depends significantly upon broad market
acceptance of distributed object computing in general, and Java application
servers in particular. If J2EE and EJB does not become a widespread programming
standard for application servers, our revenues and business could suffer.
IF WE DO NOT DELIVER PRODUCTS THAT MEET RAPIDLY CHANGING TECHNOLOGY STANDARDS
AND CUSTOMER DEMANDS, WE WILL LOSE MARKET SHARE TO OUR COMPETITORS.
The market for our products and services is characterized by rapid
technological change, dynamic customer demands and frequent new product
introductions and enhancements. Customer requirements for products can change
rapidly as a result of innovation in software applications and hardware
configurations and the emergence or adoption of new industry standards,
including Internet technology standards. We may need to increase our research
and development investment over our current targeted spending levels to maintain
our technological leadership. Our future success depends on our ability to
continue to enhance our current products and to continue to develop and
introduce new products that keep pace with competitive product introductions and
technological developments. For example, as Sun Microsystems introduces new J2EE
specifications, we may need to introduce new versions of EDGEXTEND designed to
support these new specifications to remain competitive. If IBM or BEA introduce
new versions of WebSphere and WebLogic, we may need to introduce new versions of
EDGEXTEND designed to support these new versions. If we do not bring
enhancements and new versions of our products to market in a timely manner, our
market share and revenues could decrease and our reputation could suffer. If we
fail to anticipate or respond adequately to changes in technology and customer
needs, or if there are any significant delays in product development or
introduction, our revenues and business could suffer.
Our EDGEXTEND for WebSphere product was released in March 2002, our
EDGEXTEND for WebLogic product was released in August 2002 and our EDGEXTEND for
..NET product was released in October 2002. Any delays in releasing future
enhancements to these products or new products on a generally available basis
may materially effect our future revenues.
BECAUSE OUR DIRECT SALES TEAM IS CURRENTLY OUR MOST CRITICAL SALES CHANNEL, ANY
FAILURE TO MAINTAIN AND TRAIN THIS TEAM MAY RESULT IN LOWER REVENUES.
We must maintain a strong direct sales team to generate revenues. In
the last several years, we have experienced significant turnover in our sales
team. In the past, newly hired employees have required training and
approximately six to nine months experience to achieve full productivity. Like
many companies in the software industry, we are likely to continue to experience
turnover in our sales force and we may not be able to hire enough qualified
individuals in the future. As a result of our employee turnover, a number of our
sales people are relatively new and we may not meet our sales goals. In
addition, our recently hired employees may not become productive.
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BECAUSE OUR FUTURE REVENUE GOALS ARE BASED ON OUR DEVELOPMENT OF A STRONG SALES
CHANNEL THROUGH INDEPENDENT SOFTWARE VENDORS, SYSTEMS INTEGRATORS, OEM PARTNERS
AND OTHER RESELLERS, ANY FAILURE TO DEVELOP THIS CHANNEL MAY RESULT IN LOWER
REVENUES.
To date, we have sold our products primarily through our direct sales
force, but our ability to achieve revenue growth will depend in large part on
our success in establishing and leveraging relationships with independent
software vendors, system integrators, OEM partners and third parties. It may be
difficult for us to establish these relationships, and, even if we establish
these relationships, we will then depend on the sales efforts of these third
parties. In addition, because these relationships are nonexclusive, these third
parties may choose to sell application servers, data management products or
other alternative solutions offered by our competitors, and not our products. If
we fail to successfully build our third-party distribution channels or if our
third party partners do not perform as expected, our business could be harmed.
BECAUSE OUR PRODUCTS ARE OFTEN INCORPORATED INTO ENTERPRISE-WIDE SYSTEM
DEPLOYMENTS, ANY DELAYS IN THESE PROJECTS MAY RESULT IN LOWER REVENUES.
Because our products are often incorporated into multi-million dollar
enterprise projects, we depend on the successful and timely completion of these
large projects to fully deploy our products and achieve our revenue goals. These
enterprise projects often take many years to complete and can be delayed by a
variety of factors, including general or industry-specific economic downturns,
our customers' budget constraints, other customer-specific delays, problems with
other system components or delays caused by the OEM, independent software
vendors, system integrators or other third-party partners who may be managing
the system deployment. If our customers cannot successfully implement
large-scale deployments, or they determine for any reason that our products
cannot accommodate large-scale deployments or that our products are not
appropriate for widespread use, our business could suffer. In addition, if an
OEM, independent software vendors, system integrator or other third-party
partner fails to complete a project utilizing our product for a customer in a
timely manner, our revenues or business reputation could suffer.
BECAUSE WE COMPETE WITH SUN MICROSYSTEMS, WHO CONTROLS THE J2EE APPLICATION
SERVER STANDARD, WE FACE THE RISK THAT THEY MAY DEVELOP THIS STANDARD TO FAVOR
THEIR OWN PRODUCTS.
Because Sun Microsystems controls the J2EE standard, we need to
maintain a good working relationship with Sun Microsystems as we decide to
develop future versions of EDGEXTEND, as well as additional products using J2EE,
that will gain market acceptance. In March 1998, we entered into a license
agreement with Sun Microsystems, pursuant to which we granted Sun Microsystems
rights to manufacture and sell, by itself and not jointly with others, products
under a number of our patents, and Sun Microsystems granted us rights to
manufacture and sell, by ourselves and not jointly with others, products under a
number of Sun Microsystems' patents. As a result, Sun Microsystems may develop
and sell some competing products that would, in the absence of this license
agreement, infringe our patents. Because Sun Microsystems controls the J2EE
standard, it could develop the J2EE standard in a more proprietary way to favor
a product offered by its own products, or a third party, which could make it
much harder for us to compete in the J2EE software market.
MICROSOFT HAS ESTABLISHED A COMPETING APPLICATION SERVER STANDARD, WHICH COULD
DIMINISH THE MARKET POTENTIAL FOR OUR PRODUCTS IF IT GAINS WIDESPREAD
ACCEPTANCE.
Our primary success has come in the J2EE market. Microsoft has
established a competing standard for distributed computing, .NET. Our .NET
products are new and unproven in the marketplace. If this standard gains
widespread market acceptance over the J2EE or CORBA standards, our business
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could suffer. Because of Microsoft's resources and commanding position with
respect to other markets and technologies, Microsoft's entry into the
application server market may cause our potential customers to delay or change
purchasing decisions. We expect that Microsoft's presence in the application
server market will increase competitive pressure in this market.
WE FACE SIGNIFICANT COMPETITION FROM COMPANIES WITH GREATER RESOURCES THAN WE
HAVE AND MAY FACE ADDITIONAL COMPETITION IN THE FUTURE.
The markets for our products are intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. We believe that the principal
competitive factors in our markets are:
o performance, including scalability, integrity and availability;
o ability to provide a competitive return on investment to the
customer;
o flexibility;
o use of standards-based technology (e.g. J2EE);
o ease of integration with customers' existing enterprise systems;
o ease and speed of implementation;
o quality of support and service;
o security;
o company reputation and perception of viability; and
o price.
In the EDGEXTEND market, alternative technology is available from a
variety of sources. Companies such as Versant, Gemstone and Excelon are
middleware vendors that offer alternative data management solutions that
directly target EDGEXTEND's market. In addition, many prospective customers may
build their own custom solutions.
In the DIRECTALERT market, alternative approaches are provided by a
variety of sources, including the potential for internal development. Company
vendors such as SpiritSoft, TIBCO, and IBM provide message-oriented middleware
software which may evolve into competitive products. Vendors such as webMethods
and Business Objects provide alternative architectures for business intelligence
information. DIRECTALERT is based on licensed technology, which the Company is
licensed to distribute on a non-exclusive basis.
We continue to sell current and earlier versions of POWERTIER for J2EE
application server to current customers. Our competitors for POWERTIER include
both publicly and privately-held enterprises, including BEA Systems (WebLogic),
IBM (WebSphere), Oracle (OAS), Secant Technologies and Sun Microsystems (Sun ONE
Application Server). Many customers may not be willing to purchase our POWERTIER
products because they have already invested heavily in databases and other
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enterprise software components offered by these competing companies. Many of
these competitors have pre-existing customer relationships, longer operating
histories, greater financial, technical, marketing and other resources, greater
name recognition and larger installed bases of customers than we do.
IF THE MARKETS FOR INFRASTRUCTURE SOFTWARE FOR NETWORKS AND WEB-BASED PRODUCTS
AND SERVICES DO NOT DEVELOP AS WE CURRENTLY ENVISION, OUR BUSINESS MODEL COULD
FAIL AND OUR REVENUES COULD DECLINE.
Our performance and future success will depend on the growth and
widespread adoption of the markets for infrastructure software for networks and
web-based products and services. If these markets do not develop in the manner
we currently envision, our business could be harmed. Moreover, critical issues
concerning the commercial use of the Internet, including security, cost,
accessibility and quality of network service, remain unresolved and may
negatively affect the growth of the Internet as a platform for conducting
various forms of electronic commerce. In addition, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased activity or due to increased government
regulation.
OUR FAILURE TO MANAGE OUR RESOURCES COULD IMPAIR OUR BUSINESS.
Achieving our planned revenue targets and other financial objectives
will place significant demands on our management and other resources, in
particularly because we must achieve our revenue and product development goals
using both fewer people and less money. Our ability to manage our resources
effectively will require us to continue to improve our sales process and to
train, motivate and manage our employees. If we are unable to manage our
business effectively within our current budget, we may not be able to retain key
personnel and the quality of our services and products may suffer.
OUR BUSINESS COULD SUFFER IF WE CANNOT ATTRACT AND RETAIN THE SERVICES OF KEY
EMPLOYEES.
Our future success depends on the ability of our management to operate
effectively, both individually and as a group. We are substantially dependent
upon the continued service of our existing executive personnel, especially
Christopher T. Keene, our Chief Executive Officer. We do not have a key person
life insurance policy covering Mr. Keene or any other officer or key employee.
Our success will depend in large part upon our ability to attract and retain
highly-skilled employees, particularly sales personnel and software engineers.
If we are not successful in attracting and retaining these skilled employees,
our sales and product development efforts would suffer. In addition, if one or
more of our key employees resigns to join a competitor or to form a competing
company, the loss of that employee and any resulting loss of existing or
potential customers to a competitor could harm our business. If we lose any key
personnel, we may not be able to prevent the unauthorized disclosure or use of
our technical knowledge or other trade secrets by those former employees.
OUR SOFTWARE PRODUCTS MAY CONTAIN DEFECTS OR ERRORS, AND SHIPMENTS OF OUR
SOFTWARE MAY BE DELAYED.
Complex software products often contain errors or defects, particularly
when first introduced or when new versions or enhancements are released. Our
products have in the past contained and may in the future contain errors and
defects, which may be serious or difficult to correct and which may cause delays
in subsequent product releases. Delays in shipment of scheduled software
releases or serious defects or errors could result in lost revenues or a delay
-8-
in market acceptance, which could have a material adverse effect on our revenues
and reputation.
WE MAY BE SUED BY OUR CUSTOMERS FOR PRODUCT LIABILITY CLAIMS AS A RESULT OF
FAILURES IN THEIR CRITICAL BUSINESS SYSTEMS.
Because our customers use our products for important business
applications, errors, defects or other performance problems could result in
financial or other damages to our customers. They could pursue claims for
damages, which, if successful, could result in our having to make substantial
payments. Although our purchase agreements typically contain provisions designed
to limit our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate these limitation of liability
provisions. A product liability claim brought against us, even if meritless,
would likely be time consuming and costly for us to litigate or settle.
A SIGNIFICANT PORTION OF OUR REVENUES IS DERIVED FROM INTERNATIONAL SALES, WHICH
COULD DECLINE AS A RESULT OF LEGAL, BUSINESS AND ECONOMIC RISKS SPECIFIC TO
INTERNATIONAL OPERATIONS.
Our future success will depend, in part, on our successful development
of international markets for our products. Approximately 64% of our total
revenues came from sales of products and services outside of the United States
for the three months ended March 31, 2003 and approximately 37% of our total
revenues came from sales of products and services outside of the United States
for the three months March 31, 2002. Approximately 44% of our total revenues
came from sales of products and services outside of the United States for the
year ended December 31, 2002, and approximately 33% of our total revenues came
from sales of products and services outside of the United States for the year
ended December 31, 2002. We expect international revenues to continue to
represent a significant portion of our total revenues. To date, almost all of
our international revenues have resulted from our direct sales efforts. In
international markets, however, we expect that we will depend more heavily on
third party distributors to sell our products in the future. The success of our
international strategy will depend on our ability to develop and maintain
productive relationships with these third parties. The failure to develop key
international markets for our products could cause a reduction in our revenues.
Additional risks related to our international expansion and operation include:
o difficulties of staffing, funding and managing foreign operations;
o future dependence on the sales efforts of our third party
distributors to expand business;
o longer payment cycles typically associated with international sales;
o tariffs and other trade barriers;
o failure to comply with a wide variety of complex foreign laws and
changing regulations;
o exposure to political instability, acts of war, terrorism and
economic downturns;
o failure to localize our products for foreign markets;
o restrictions under U.S. law on the export of technologies;
o potentially adverse tax consequences;
-9-
o reduced protection of intellectual property rights in some countries;
and
o currency fluctuations.
The majority of our product sales outside the United States are
denominated in U.S. dollars. We do not currently engage in any hedging
transactions to reduce our exposure to currency fluctuations as a result of our
foreign operations. We are not currently ISO 9000 compliant, nor are we
attempting to meet all foreign technical standards that may apply to our
products. Our failure to develop our international sales channel as planned
could cause a decline in our revenues.
IF WE DO NOT PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE POSITION
MAY BE IMPAIRED.
Our success depends on our ability to protect our proprietary rights to
the technologies used in our products, and yet the measures we are taking to
protect these rights may not be adequate. If we are not adequately protected,
our competitors could use the intellectual property that we have developed to
enhance their products and services, which could harm our business. We rely on a
combination of patents, copyright and trademark laws, trade secrets,
confidentiality provisions and other contractual provisions to protect our
proprietary technology, but these legal means afford only limited protection.
Unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. In addition, the laws of some
foreign countries may not protect our intellectual property rights to the same
extent as do the laws of the United States. Litigation may be necessary to
enforce our intellectual property rights, which could result in substantial
costs and diversion of management attention and resources.
WE MAY BE SUED FOR PATENT INFRINGEMENT.
The software industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement and the violation of other intellectual property rights. As the
number of entrants into our market increases, the possibility of an intellectual
property claim against us grows. For example, we may be inadvertently infringing
a patent of which we are unaware. In addition, because patent applications can
take many years to issue, there may be a patent application now pending of which
we are unaware, which will cause us to be infringing when it issues in the
future. To address these patent infringement claims, we may have to enter into
royalty or licensing agreements on disadvantageous commercial terms.
Alternatively, we may be unable to obtain a necessary license. A successful
claim of product infringement against us, and our failure to license the
infringed or similar technology, would harm our business. In addition, any
infringement claims, with or without merit, would be time-consuming and
expensive to litigate or settle and would divert management attention from
administering our core business.
FUTURE SALES OF OUR COMMON STOCK, INCLUDING THE SHARES BEING OFFERED BY THIS
PROSPECTUS, MAY DEPRESS OUR STOCK PRICE.
If our current stockholders sell substantial amounts of common stock,
including the shares being offered by this prospectus, in the public market, the
market price of our common stock could fall. In addition, these sales of common
stock could impede our ability to raise funds at an advantageous price, or at
all, through the sale of securities. As of March 31, 2003, we had approximately
24,044,735 shares of common stock outstanding. Virtually all of our shares,
other than shares held by affiliates, are freely tradable. In addition, shares
held by affiliates are tradable, subject to the volume and other restrictions of
Rule 144. When the SEC declares the Registration Statement on Form S-3, of which
this prospectus is a part, effective, the selling stockholders will be able to
freely trade their shares in the public market, which could result in a decrease
in the price of our stock, provided however, that the selling stockholders that
are affiliated with Needham Capital Partners will be able to freely trade their
shares subject to certain restrictions as a result of their status as an
affiliate.
-10-
OUR STOCK PRICE HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE, AND WE HAVE RECEIVED
A NOTICE FROM NASDAQ REGARDING THE POSSIBLE DELISTING OF OUR STOCK FROM THE
NASDAQ SMALLCAP MARKET.
Our common stock price has been and may continue to be highly volatile,
and we expect that the market price of our common stock will continue to be
subject to significant fluctuations, as a result of variations in our quarterly
operating results and the overall volatility of the Nasdaq SmallCap Market.
These fluctuations have been, and may continue to be, exaggerated because an
active trading market has not developed for our stock. Thus, investors may have
difficulty selling shares of our common stock at a desirable price, or at all.
Furthermore, we have received a notice from the Nasdaq SmallCap Market that if
our stock does not meet the minimum $1.00 per share minimum requirement for a
10-day period by June 2, 2003, our stock may be delisted from the Nasdaq
SmallCap Market. If we cannot achieve compliance we expect to receive a formal
delisting notice from the Nasdaq SmallCap Market. We currently intend to seek a
Nasdaq hearing for appeal if and when we receive such notice of delisting. The
maintenance of our Nasdaq SmallCap Market listing is very important to us. We
are seeking approval for a reverse stock split at our upcoming annual meeting of
stockholders in June 2003 in order to enable us to maintain our Nasdaq SmallCap
Market listing. If our stock is delisted from the Nasdaq SmallCap Market, our
stock would trade on the OTC "bulletin board". Delisting from the Nasdaq
SmallCap Market could negatively impact our reputation and consequently our
business.
In addition, the market price of our common stock may rise or fall in
the future as a result of many factors, such as:
o variations in our quarterly results;
o announcements of technology innovations by us or our competitors;
o introductions of new products by us or our competitors;
o acquisitions or strategic alliances by us or our competitors;
o hiring or departure of key personnel;
o the gain or loss of a significant customer or order;
o changes in estimates of our financial performance or changes in
recommendations by securities analysts;
o market conditions and expectations regarding capital spending in the
software industry and in our customers' industries; and
o adoption of new accounting standards affecting the software industry.
The market prices of the common stock of many companies in the software
and Internet industries have experienced extreme price and volume fluctuations,
which have often been unrelated to these companies' operating performance. In
the past, securities class action litigation has often been brought against a
company after a period of volatility in the market price of its stock. We may in
the future be a target of similar litigation. Securities litigation could result
in substantial costs and divert management's attention and resources, which
could harm our business.
-11-
THE ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW
COULD DISCOURAGE A TAKEOVER.
Provisions in our certificate of incorporation, bylaws and Delaware law
may discourage, delay or prevent a merger or other change in control that a
stockholder may consider favorable. These provisions may also discourage proxy
contests or make it more difficult for stockholders to take corporate action.
These provisions include the following:
o establishing a classified board in which only a portion of the total
board members will be elected at each annual meeting;
o authorizing the board to issue preferred stock;
o prohibiting cumulative voting in the election of directors;
o limiting the persons who may call special meetings of stockholders;
o prohibiting stockholder action by written consent; and
o establishing advance notice requirements for nominations for election
of the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT COULD DISRUPT OUR BUSINESS AND DILUTE
OUR STOCKHOLDERS.
As part of our business strategy, we expect to review acquisition
prospects that we believe would be advantageous to the development of our
business. While we have no current agreements or negotiations underway with
respect to any major acquisitions of third-party technology, we may make
acquisitions of businesses, products or technologies in the future. If we make
any acquisitions, we could take any or all of the following actions, any of
which could materially and adversely affect our financial results and the price
of our common stock:
o issue equity securities that would dilute existing stockholders'
percentage ownership;
o incur substantial debt;
o assume contingent liabilities; or
o take substantial charges in connection with the impairment of
goodwill and amortization of other intangible assets.
Acquisitions also entail numerous risks, including:
o difficulties in assimilating acquired operations, products and
personnel with our pre-existing business;
-12-
o unanticipated costs;
o diversion of management's attention from other business concerns;
o adverse effects on existing business relationships with suppliers and
customers;
o risks of entering markets in which we have limited or no prior
experience; and
o potential loss of key employees from either our preexisting business
or the acquired organization.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could harm our business.
THE COMPANY
Persistence provides a suite of Data Services products that sit between
existing databases--such as Oracle and DB2, and application servers--such as
BEA, WebLogic, IBM, WebSphere, and Microsoft .NET. Developers can configure
these products, creating a "Data Services" layer that positions business
information for more efficient access for users, dramatically reduces network
traffic and data latency, and results in better application performance at a
much lower infrastructure cost. Persistence integrated Data Services include:
object-relational mapping, transactional caching, guaranteed synchronization,
"uninterruptible" application fail over and rule-based client notification.
Persistence's Data Services are also cross-platform, providing a "data bridge"
between J2EE, .Net, Java and C++ applications.
Persistence caching solutions help systems "remember" answers from each
processing step. When the system receives a request for which it has an answer,
it can respond immediately, without traveling to back-end databases to generate
an answer. Synchronization technology ensures that these cached answers are
always accurate, even as the source data changes. Customer profile management,
logistics, exchanges, trading desks, and supply chain management systems are
just a few examples of query-intensive online systems that can realize
significant increases in capacity and performance through online caching.
Customers are able to more effectively manage enterprise data through
re-architecting their IT infrastructure using Persistence Data Services
products. Persistence Data Services solutions result in real-time, highly
scalable, distributed applications without incurring the high costs of
additional hardware and replicated databases. Decision makers and customers
located at any location can now have an immediate "business visibility" into
their data, that is, an up-to-date view into the data that they need, when and
where they need it.
Enterprises are creating competitive advantage by achieving the goal of
the zero-latency enterprise through Data Services, the immediate distribution
and management of business information. Delivering real-time data enhances
employee productivity, improves operations, and enables improved relationships
with customers. Data Services also ensures business continuity by providing
immediate fail-over options preventing data center outages from interrupting
business processing.
Our EDGEXTEND data services software for Sun Microsystems' full Java 2
Platform, Enterprise Edition (J2EE, formerly known as Enterprise Java Beans or
EJB) application servers, C++ and .NET application servers offers a data
architecture that integrates with IBM's WebSphere, BEA's WebLogic, and Microsoft
..NET, plus C++ application servers to support highly distributed and
transaction-oriented applications both within data centers and in remote
locations. Our DIRECTALERT product is a proactive, personalized client caching
-13-
and notification reporting product for zero latency applications which extends
the reach of enterprise systems to small form-factor devices such as mobile
phones, wireless PDAs, and digital set-top boxes.
We were incorporated in May 1991 as Fulcrum Innovations, Inc. and
subsequently changed our name to Persistence Software, Inc. Our principal
executive offices are located at 1720 South Amphlett Blvd., Third Floor, San
Mateo, California 94402 and our telephone number at that location is (650)
372-3600. References in the prospectus to "we," "our," "us," the "Company" and
"Persistence" refer to Persistence Software, Inc., a Delaware corporation.
Information contained in our website at http://www.persistence.com does not
constitute part of this prospectus.
USE OF PROCEEDS
The proceeds from the sale of the shares of common stock offered
pursuant to this prospectus are solely for the account of the selling
stockholders. We will not receive any of the proceeds from the sale of these
shares.
ISSUANCE OF COMMON STOCK AND WARRANTS TO SELLING STOCKHOLDERS
On June 28, 2001, we issued a warrant to purchase up to 80,000 shares
of our common stock at an exercise price of $0.57 per share to RCG Capital
Markets Group, Inc. in a private placement transaction. On October 18, 2002, we
issued a warrant to purchase 50,000 shares of our common stock at an exercise
price of $0.38 per share to RTX Securities Corporation in a private placement
transaction. On November 26, 2002, we issued 3,758,692 shares of our common
stock at a purchase price of $0.5321 per share, and warrants to purchase up to
1,205,130 shares of our common stock at an exercise price of $0.75 per share, to
certain purchasers affiliated with Needham Capital Partners identified under the
heading "Selling Stockholders" on page 17 of this prospectus in a private
placement transaction. This prospectus covers the resale of these shares of
common stock, including the shares of common stock issuable upon exercise of the
warrants.
PLAN OF DISTRIBUTION
We are registering shares on behalf of the selling stockholders. We are
required to keep the Registration Statement on Form S-3 of which this prospectus
is a part effective until the earlier of (i) the date when the selling
stockholders have sold all the shares pursuant to the Registration Statement on
Form S-3, (ii) the date on which all of the shares may be sold pursuant to Rule
144(k) under the Securities Act of 1933, as amended or (iii) _____________,
2004, the date that is 18 months after the date on which the Registration
Statement on Form S-3 is declared effective by the SEC. We are also required to
file an additional registration statement at the request of certain of the
selling stockholders under certain circumstances.
As used in this prospectus, "selling stockholders" includes donees and
pledgees selling shares received from a named selling stockholder after the date
of this prospectus. All costs, expenses and fees in connection with the
registration of the shares offered by this prospectus will be borne by us.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares will be borne by the selling stockholders. Sales of shares may be
effected by selling stockholders from time to time in one or more types of
transactions (which may include block transactions) on the Nasdaq SmallCap
-14-
Market, or otherwise, in negotiated transactions, through put or call options
transactions relating to the shares, through short sales of shares, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Such transactions may or may not involve brokers
or dealers.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The selling
stockholders may effect such transactions by selling shares directly to
purchasers or to or through broker-dealers, which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
To the extent required, we may amend or supplement this prospectus from
time to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers or other financial institutions.
In connection with those transactions, broker-dealers or other financial
institutions may engage in short sales of the common stock in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders also may sell the common stock short and redeliver the shares to
close out those short positions. The selling stockholders also may enter into
option or other transactions or the creation of one or more derivative
securities with broker-dealers or other financial institutions that require the
delivery to the broker-dealer or other financial institution of shares offered
by this prospectus, which shares the broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect those transactions). The selling stockholders also may pledge or
hypothecate shares to a broker-dealer or other financial institution, and, upon
a default, that broker-dealer or other financial institution may effect sales of
the pledged shares pursuant to this prospectus (as supplemented or amended to
reflect that transaction). In effecting sales, broker-dealers or agents engaged
by the selling stockholders may arrange for other broker-dealers to participate.
Broker-dealers or agents may receive commissions, discounts or concessions from
the selling stockholders in amounts to be negotiated immediately prior to the
sale.
The selling stockholders and any broker-dealers that act in connection
with the sale of the common stock may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, and any commission
received by them and any profit on the resale of the shares of common stock as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933. The selling stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against some liabilities, including liabilities arising under the
Securities Act of 1933. Liabilities under the federal securities laws cannot be
waived.
The selling stockholders will be subject to prospectus delivery
requirements under the Securities Act of 1933. In the event of a "distribution"
of shares by a selling stockholder, the selling stockholder, any selling broker
or dealer and any "affiliated purchasers" may be subject to Regulation M under
the Securities Exchange Act of 1934, which would generally prohibit these
persons from bidding for or purchasing any security that is the subject of the
distribution until his or her participation in that distribution is completed.
In addition, Regulation M generally prohibits any "stabilizing bid" or
"stabilizing purchase" for the purpose of pegging, fixing or stabilizing the
price of common stock in connection with this offering.
-15-
Selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
80,000 shares of common stock offered pursuant to this prospectus, all
of which are issuable upon exercise of a warrant, were originally issued by us
to RCG Capital Markets Group, Inc. on June 28, 2001 in a private placement
transaction. As part of that transaction, we agreed to indemnify RCG Capital
Markets Group, Inc. against certain liabilities, including liabilities arising
under the Securities Act that could arise in connection with the sale of the
shares by RCG Capital Markets Group, Inc. RCG Capital Markets Group, Inc. has
also agreed to indemnify us against certain liabilities arising under the
Securities Act.
50,000 shares of common stock offered pursuant to this prospectus, all
of which are issuable upon exercise of a warrant, were originally issued by us
to RTX Securities Corporation on October 18, 2002 in a private placement
transaction. As part of that transaction, we agreed to indemnify RTX Securities
Corporation against certain liabilities, including liabilities arising under the
Securities Act that could arise in connection with the sale of the shares by RTX
Securities Corporation. RTX Securities Corporation has also agreed to indemnify
us against certain liabilities arising under the Securities Act.
4,963,822 shares of common stock offered pursuant to this prospectus
(including 1,205,130 shares of our common stock issuable upon exercise of
warrants) were originally issued by us to certain purchasers affiliated with
Needham Capital Partners identified under "Selling Stockholders" on page 17 of
this prospectus on November 26, 2002 in a private placement transaction. As part
of that transaction, we agreed to indemnify each of such selling stockholders
against certain liabilities, including liabilities arising under the Securities
Act that could arise in connection with the sale of the shares by the selling
stockholders. Such selling stockholders have also agreed to indemnify us against
certain liabilities arising under the Securities Act. In connection with the
private placement we also appointed Thomas P. Shanahan, a managing member of
certain funds affiliated with Needham Capital Management, to our board of
directors as a Class III director.
-16-
SELLING STOCKHOLDERS
The following table sets forth certain information as of March 31, 2003
with respect to the selling stockholders. We are unable to determine the exact
number of shares that actually will be sold by the selling stockholders. We do
not know how long the selling stockholders will hold the shares before selling
them. We assume each selling stockholder will sell all shares offered by such
selling stockholder in this prospectus.
We have determined beneficial ownership in accordance with the rules of
the Securities and Exchange Commission. Except as indicated by the footnotes
below, we believe, based on the information furnished to us, that the persons
and entities named in the tables below have sole voting and investment power
with respects to all shares of common stock that they beneficially own, subject
to applicable community property laws. We have based our calculation of the
percentage of beneficial ownership on 24,044,735 shares of common stock
outstanding on March 31, 2003.
Asterisks represent beneficial ownership of less than one percent.
Except as indicated by the footnotes below, no selling stockholder has had any
material relationship with us or any of our predecessors or affiliates within
the last three years. None of the selling stockholders are broker/dealers or
affiliates of broker/dealers.
SHARES BENEFICIALLY SHARES OFFERED SHARES BENEFICIALLY
OWNED PRIOR BY THIS OWNED AFTER
SELLING STOCKHOLDER TO THE OFFERING PROSPECTUS THE OFFERING (1)
------------------- --------------- ---------- ----------------
Number Percent Number Percent
------ ------- ------ -------
Needham Capital Partners III, L.P. (2)(3) 3,818,932 15.88% 3,818,932 -- *
445 Park Avenue
New York, NY 10022
Needham Capital Partners III (Bermuda), L.P. (2)(4) 752,732 3.13 752,732 -- *
445 Park Avenue
New York, NY 10022
Needham Capital Partners IIIA, L.P (2)(5) 392,158 1.63 392,158 -- *
445 Park Avenue
New York, NY 10022
RCG Capital Markets Group, Inc. (6) 80,000 * 80,000 -- *
5635 E. Thomas Road
Phoenix, AX 85018
RTX Securities Corporation (7) 50,000 * 50,000 -- *
100 Pine Street, Suite 500
San Francisco, CA 94111
- -----------------------
*Represents less than 1 percent ownership
(1) Assumes each selling stockholder will sell all shares offered by such
selling stockholder in this prospectus.
-17-
(2) Needham Capital Management, L.L.C. is the general partner of each of
Needham Capital Partners III, L.P. and Needham Capital Partners IIIA, L.P.
Needham Capital Management (Bermuda), L.L.C. is the general partner of
Needham Capital Partners III (Bermuda), L.P. Thomas P. Shanahan, a member
of our board of directors, is a managing member of each of Needham Capital
Management, L.L.C. and Needham Capital Management (Bermuda), L.L.C.
(3) Includes 927,171 shares of common stock issuable upon exercise of a warrant
at an exercise price of $0.75 per share.
(4) Includes 182,750 shares of common stock issuable upon exercise of a warrant
at an exercise price of $0.75 per share.
(5) Includes 95,209 shares of common stock issuable upon exercise of a warrant
at an exercise price of $0.75 per share.
(6) Consists of 80,000 shares of common stock issuable upon exercise of a
warrant at an exercise price of $0.57 per share. RCG Capital Markets Group,
Inc. may exercise the warrant in accordance with the following schedule:
(i) 20,000 shares of common stock were exercisable as of June 28, 2001; and
(ii) 60,000 shares of common stock shall become exercisable on or after
June 28, 2006, subject to certain shares becoming exercisable earlier upon
the achievement of certain milestones or events.
(7) Consists of 50,000 shares of common stock issuable upon exercise of a
warrant at an exercise price of $0.38 per share.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Persistence by Venture Law Group, A Professional Corporation, 2775 Sand Hill
Road, Menlo Park, California 94025. Mark Medearis, a director of Venture Law
Group, is our Assistant Secretary.
EXPERTS
The consolidated financial statements and the dated financial statement
schedule incorporated in this prospectus by reference from our Annual Report on
Form 10-K for the year ended December 31, 2002 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the Securities and Exchange Commission. Certain information in the
registration statement has been omitted from this prospectus in accordance with
the rules of the SEC. We file our annual, quarterly and special reports, proxy
statements and other information with the SEC. You can inspect and copy the
registration statement as well as reports, proxy statements and other
information we have filed with the SEC at the public reference room maintained
by the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. You can obtain
copies from the public reference room of the SEC at 450 Fifth Street, NW,
Washington, D.C. 20549 upon payment of certain fees. You can call the SEC at
1-800-732-0330 for further information about the public reference room. We are
also required to file electronic versions of these documents with the SEC, which
may be accessed through the SEC's Internet site at http://www.sec.gov.
Our website is www.persistence.com. We make our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports available free of charge as soon as reasonably
practicable as we file these reports with the Securities and Exchange
Commission.
-18-
Our common stock is quoted on the Nasdaq SmallCap Market. Reports,
proxy and information statements and other information concerning Persistence
may be inspected at the Nasdaq Stock Market at 1735 K Street, NW, Washington,
D.C. 20006.
The SEC allows us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in these documents is considered part of this prospectus. Information
that we file with the SEC subsequent to the date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, until the selling stockholders have sold all the shares.
The following documents filed with the SEC are incorporated by
reference in this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 2002
filed with the SEC on March 31, 2003 (File No. 000-25857).
2. Our Proxy Statement dated April 29, 2003, filed on April 29, 2003
in connection with our June 5, 2003 Annual Meeting of Stockholders (File No.
000-25857).
3. The description of our common stock set forth in our Registration
Statement on Form 8-A, filed with the SEC on April 23, 1999 (File No.
000-25857).
All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended after the
date of this registration statement and prior to the effectiveness of this
registration statement, shall be deemed to be incorporated by reference.
We will furnish without charge to you, on written or oral request, a
copy of any or all of the documents incorporated by reference, including
exhibits to such documents. You should direct any requests for documents to
Christine Russell, 1720 South Amphlett Blvd., Third Floor, San Mateo, California
94402, (650) 372-3600.
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including those identified by the words
"believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates" and similar expressions. These forward-looking statements include,
among others, statements regarding:
o the trends we see in our business and the markets in which we
operate;
o the features, functionality and market acceptance of our products
(including newly launched products and services); and
o our expectations for our future operating results and cash flows.
-19-
These statements are subject to risks and uncertainties, including
those set forth in the "Risk Factors" section beginning on page 1, and actual
results could differ materially from those expressed or implied in these
statements. All forward-looking statements included in this prospectus are made
as of the date hereof. We assume no obligation to update any such
forward-looking statement or reason why actual results might differ except as
required by the Exchange Act. You should carefully review the section entitled
"Risk Factors" and of our subsequently filings with the SEC.
-20-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale and distribution of the shares of common
stock being registered. Selling commissions and brokerage fees and any
applicable transfer taxes and fees and disbursements of counsel for the selling
stockholders are payable individually by the selling stockholders. All amounts
shown are estimates except the SEC registration fee.
AMOUNT
TO BE PAID
----------
SEC registration fee........................................ $ 254.69
Legal fees and expenses..................................... 65,000.00
Accounting fees and expenses................................ 10,000.00
Transfer agent fees......................................... 2,000.00
Miscellaneous expenses...................................... 34,500.00
-----------------
Total.............................................. $ 111,754.69
=================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended Bylaws provide generally for indemnification of our
officers, directors, agents and employees to the maximum extent authorized and
in the manner permitted by the General Corporation Law of the State of Delaware
(the "DGCL"). Pursuant to Section 145 of the DGCL, a corporation generally has
the power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of a
corporation, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. With respect to suits by or in the
right of a corporation, however, indemnification is not available if such person
is adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless the court determines that indemnification is
appropriate. In addition, a corporation has the power to purchase and maintain
insurance for such person. The statute also expressly provides that the power to
indemnify that it authorizes is not exclusive of any rights granted under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
As permitted by Section 102 of the DGCL, our stockholders have approved
and incorporated provisions into Article XII of our Amended and Restated
Certificate of Incorporation and Article XII of our Amended Bylaws eliminating a
director's personal liability for monetary damages to us and our stockholders
arising from a breach of a director's fiduciary duty, except for liability under
Section 174 of the DGCL or liability for any breach of the director's duty of
loyalty to us or its stockholders, for acts or omissions not in good faith or
II-1
that involve intentional misconduct or a knowing violation of law or for any
transaction in which the director derived an improper personal benefit.
Persistence has also entered into agreements with its directors and certain of
its officers that will require Persistence, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by law.
In connection with this offering, the selling stockholders have agreed
to indemnify Persistence, its directors and officers and each such person who
controls Persistence, against any and all liability arising from inaccurate
information provided to Persistence by the selling stockholders and contained
herein, up to a maximum of the net proceeds received by the selling stockholders
from the sale of their shares hereunder, except in the case of willful fraud.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
4.2* Common Stock Warrant, Warrant No. W-CS-1, dated June 28, 2001,
issued to RCG Capital Markets Group, Inc.
4.3 Common Stock Warrant, Warrant No. W-CS-2, dated October 18,
2002, issued to RTX Securities Corporation.
5.1 Opinion of Venture Law Group, A Professional Corporation.
10.12* Registration Rights Agreement dated as of June 28, 2001
between Persistence and RCG Capital Markets Group, Inc.
10.19** Common Stock Purchase Agreement dated as of November 26, 2002
by and between Persistence Software, Inc. and Needham Capital
Partners III, L.P., Needham Capital Partners IIIA, L.P. and
Needham Capital Partners III (Bermuda), L.P.
10.20** Registration Rights Agreement dated as of November 26, 2002 by
and between Persistence Software, Inc. and Needham Capital
Partners III, L.P., Needham Capital Partners IIIA, L.P. and
Needham Capital Partners III (Bermuda), L.P.
10.21** Voting Agreement dated as of November 26, 2002 by and between
Persistence Software, Inc., Christopher T. Keene and Needham
Capital Partners III, L.P., Needham Capital Partners IIIA,
L.P. and Needham Capital Partners III (Bermuda), L.P.
10.22** Form of Common Stock Warrant dated as of November 26, 2002
issued Needham Capital Partners III, L.P., Needham Capital
Partners IIIA, L.P. and Needham Capital Partners III
(Bermuda), L.P.
10.23 Registration Rights Agreement dated as of October 18, 2002
between Persistence and RTX Securities Corporation.
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
* Filed as an exhibit to our Registration Statement on Form 10-Q
for the quarter ended June 30, 2001, filed with the SEC on
August 14, 2001 and incorporated herein by reference.
** Filed as an exhibit to our Current Report on Form 8-K filed
with the SEC on November 27, 2002 and incorporated herein by
reference.
II-2
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To use its best efforts to distribute prior to the opening of bids,
to prospective bidders, underwriters, and dealers, a reasonable number of copies
of a prospectus which at that time meets the requirements of section 10(a) of
the Act, and relating to the securities offered at competitive bidding, as
contained in the registration statement, together with any supplements thereto,
and to file an amendment to the registration statement reflecting the results of
bidding, the terms of the reoffering and related matters to the extent required
by the applicable form, not later than the first use, authorized by the issuer
after the opening bids, of a prospectus relating to the securities offered at
competitive bidding, unless no further public offering of such securities by the
issuer and no reoffering of such securities by the purchasers is proposed to be
made.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 15 above or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered
hereunder, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Mateo, State of California, on the 30th day of
April, 2003.
PERSISTENCE SOFTWARE, INC.
By: /S/ CHRISTINE RUSSELL
-----------------------
Christine Russell
Chief Financial Officer
II-4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally,
Christopher T. Keene and Christine Russell, and each of them, as his or her
attorney-in-fact, each with full power of substitution, for him or her in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and any and all registration
statements filed pursuant to Rule 462 under the Securities Act of 1933, as
amended, in connection with or related to the offering contemplated by this
Registration Statement and its amendments, if any, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys-in-fact, or any of them,
or his or their substitute or substitutes to any and all amendments to said
Registration Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/S/ CHRISTOPHER T. KEENE Chief Executive Officer and Director April 30, 2003
----------------------------------- (Principal Executive Officer)
Christopher T. Keene
/S/ CHRISTINE RUSSELL Chief Financial Officer and Secretary April 30, 2003
----------------------------------- (Principal Accounting Officer)
Christine Russell
/S/ LAWRENCE OWEN BROWN Director April 30, 2003
-----------------------------------
Lawrence Owen Brown
/S/ CHRISTOPHER PAISLEY Director April 30, 2003
-----------------------------------
Christopher Paisley
/S/ THOMAS P. SHANAHAN Director April 30, 2003
-----------------------------------
Thomas P. Shanahan
/S/ SANJAY VASWANI Director April 30, 2003
-----------------------------------
Sanjay Vaswani
II-5
PERSISTENCE SOFTWARE, INC.
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
4.2* Common Stock Warrant, Warrant No. W-CS-1, dated June 28, 2001,
issued to RCG Capital Markets Group, Inc.
4.3 Common Stock Warrant, Warrant No. W-CS-2, dated October 18,
2002, issued to RTX Securities Corporation.
5.1 Opinion of Venture Law Group, A Professional Corporation.
10.12* Registration Rights Agreement dated as of June 28, 2001
between Persistence and RCG Capital Markets Group, Inc.
10.19** Common Stock Purchase Agreement dated as of November 26, 2002
by and between Persistence Software, Inc. and Needham Capital
Partners III, L.P., Needham Capital Partners IIIA, L.P. and
Needham Capital Partners III (Bermuda), L.P.
10.20** Registration Rights Agreement dated as of November 26, 2002 by
and between Persistence Software, Inc. and Needham Capital
Partners III, L.P., Needham Capital Partners IIIA, L.P. and
Needham Capital Partners III (Bermuda), L.P.
10.21** Voting Agreement dated as of November 26, 2002 by and between
Persistence Software, Inc., Christopher T. Keene and Needham
Capital Partners III, L.P., Needham Capital Partners IIIA,
L.P. and Needham Capital Partners III (Bermuda), L.P.
10.22** Form of Common Stock Warrant dated as of November 26, 2002
issued Needham Capital Partners III, L.P., Needham Capital
Partners IIIA, L.P. and Needham Capital Partners III
(Bermuda), L.P.
10.23 Registration Rights Agreement dated as of October 18, 2002
between Persistence and RTX Securities Corporation.
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
- ------------------------
* Filed as an exhibit to our Registration Statement on Form 10-Q
for the quarter ended June 30, 2001, filed with the SEC on
August 14, 2001 and incorporated herein by reference.
** Filed as an exhibit to our Current Report on Form 8-K filed
with the SEC on November 27, 2002 and incorporated herein by
reference.