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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
FROM THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 000-25857
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, CALIFORNIA 94402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 372-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $7.9 million as of February 29, 2004 based upon the
closing sale price on the Nasdaq National Market reported for such date of $4.10
per share. Shares of Common Stock held by each officer and director and by each
person who owns 10% of more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 2,713,918 shares of the registrant's Common Stock issued and
outstanding as of February 29, 2004.
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EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K (the
"Annual Report") of Persistence Software, Inc. (the "Company" or "Persistence")
filed on March 30, 2004 with the Securities and Exchange Commission (the "SEC")
is filed solely for the purposes of including information that was to be
incorporated by reference from the Registrant's definitive proxy statement
pursuant to Regulation 14A of the Securities and Exchange Act of 1934. The
Company will not file its proxy statement within 120 days of its fiscal year
ended December 31, 2003 and is therefore amending and restating in their
entirety Item 10,11,12,13 and 14 of Part III of the Annual Report. In addition,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, we are
including with this Amendment No. 1 certain currently dated certifications.
Except as described above, no other amendments are being made to the Annual
Report. This Form 10-K/A does not reflect events occurring after the March 30,
2004 filing of our Annual Report or modify or update the disclosure contained in
the Annual Report in any way other than as required to reflect the amendments
discussed above and reflected below.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The information required by this item with respect to the Company's
executive officers is included in "Item 1. Business -- Executive Officers of the
Registrant" in the Form 10-K for the year ended December 31, 2003 originally
filed on March 30, 2004, and is incorporated herein by reference.
DIRECTORS
The name, age and position of the Company's Directors are as follows:
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE CLASS
- ---- --- ------------------------- -------------- -----
Lawrence Owen Brown (2, 3)........ 62 Director Jan. 2003 I
Christopher T. Keene.............. 43 Chief Executive Officer, Secretary June 1991 III
and Director
Thomas P. Shanahan (1, 2, 3)...... 57 Director Nov. 2002 III
James F. Sutter (1)............... 67 Director Apr. 2003 II
Sanjay Vaswani (1)................ 43 Director Oct. 2000 II
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
LAWRENCE OWEN BROWN has served as a director since January 2003. Since 1989,
Mr. Brown has served as a management consultant with his own firm, Owen Brown
Enterprises, Ltd. and as Chairman of Migration Software Systems, Ltd., a
software engineering services company, where he also served as Chief Executive
Officer from 1989 to 1997. From 1995 to 2001, Mr. Brown served as a managing
partner at Technology Strategies and Alliances, an investment banking firm. Mr.
Brown's additional experience includes: President and Chief Executive Officer of
Synthesis Software Solutions, Inc., a software company, from 1988 to 1989; Vice
President of Xerox Corporation, a business equipment company, from 1986 to 1988;
President and Chief Executive Officer of Parallel Computers, Inc., a
minicomputer hardware company, from 1984 to 1985, and President and Chief
Operating Officer of Sun Microsystems, a networking hardware and software
company, during its start-up phase from 1983 to 1984. Mr. Brown holds a B.S.M.E.
degree from Auburn University and an M.B.A. degree from the University of
Chicago.
CHRISTOPHER KEENE co-founded the Company and has served as Chief Executive
Officer and a director since June 1991. From June 1991 to April 1999, Mr. Keene
also served as President. Before founding the Company, Mr. Keene was a Manager
at McKinsey & Company, a management consulting firm, from July 1987 to June
1991. Mr. Keene holds a B.S. degree in Mathematical Sciences with honors from
Stanford University and an M.B.A. degree from The Wharton School at the
University of Pennsylvania.
2
THOMAS P. SHANAHAN has served as a director since November 2002. Since 2002,
Mr. Shanahan has served as a General Partner for Needham Capital Partners in
Menlo Park, California. Prior to Needham Capital Partners, Mr. Shanahan served
as Co-founder, Chief Financial Officer and Director for Agile Software
Corporation, a provider of supply chain management software, from 1997 to 2001.
From 1992 to 1997, he served as Chief Financial Officer for several companies
including Digital Generation Systems, Inc, a digital distribution services
company, and Sherpa Corporation, a product data management software company. Mr.
Shanahan holds an M.B.A. from Harvard University and a B.A. from Stanford
University. He currently is a member of the boards of directors for two
privately held enterprise software companies: Kanisa, Inc. and diCarta, Inc.
JAMES F. SUTTER has served as a director since April 2003. Since 1997, Mr.
Sutter has served as a management consultant with Peer Consulting Group,
specializing in information technology, where he has acted as a Chief
Information Officer advisor to The Dow Chemical Company, a chemical company, and
E&J Gallo Winery, a producer of wines and distilled spirits, and has also
consulted for various companies, including Hughes Electronics Corporation, a
telecommunications company, Intellisys Group, a developer of integrated
audio-visual media systems (acquired by MCSi), and Teradyne, a manufacturer of
automatic test equipment and interconnection systems. From 1983 to 1997, Mr.
Sutter served as Vice President, Chief Information Officer and General Manager
for Rockwell International, an aerospace and electronics manufacturer. Mr.
Sutter holds an M.B.A. from Marquette University and a B.Sc. from the University
of Notre Dame. He currently is a member of the boards of directors for two
privately held companies: Entcomm, Inc., an enterprise software company, and
Trinus Corporation, an information technology consulting company.
SANJAY VASWANI has served as a director since October 2000. Since 1990, Mr.
Vaswani has been a partner at Center For Corporate Innovation (CCI), where he
co-leads CCI's Chief Executive Officer summits. From 1987 to 1990, Mr. Vaswani
was an associate at McKinsey & Company, a management consulting firm. From 1981
to 1985, Mr. Vaswani was employed by Intel Corporation, a semiconductor
manufacturer, where he concentrated on finance and strategic planning. Mr.
Vaswani holds an M.B.A. from the Wharton School of Business at the University of
Pennsylvania, and a B.B.A., summa cum laude, from the University of Texas at
Austin.
There are no family relationships among any of the directors or executive
officers of the Company.
The Board has determined that Mr. Shanahan qualifies as an "audit committee
financial expert" as defined by the rules of the Securities and Exchange
Commission.
DIRECTOR NOMINATION
CRITERIA FOR BOARD MEMBERSHIP. In selecting candidates for appointment or
re-election to the Board, the nominating committee (the "Nominating Committee")
considers the appropriate balance of experience, skills and characteristics
required of the Board of Directors, and seeks to insure that at least a majority
of the directors are independent under the rules of the Nasdaq Stock Market,
that members of the Company's audit committee meet the financial literacy and
sophistication requirements under the rules of the Nasdaq Stock Market and at
least one of them qualifies as an "audit committee financial expert" under the
rules of the Securities and Exchange Commission. Nominees for director are
selected on the basis of their depth and breadth of experience, integrity,
ability to make independent analytical inquiries, understanding of the Company's
business environment, and willingness to devote adequate time to Board duties.
STOCKHOLDER NOMINEES. The Nominating Committee will consider written
proposals from stockholders for nominees for director. Any such nominations
should be submitted to the Nominating Committee c/o the Secretary of the Company
and should include the following information: (a) all information relating to
such nominee that is required to be disclosed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) the names and addresses of the stockholders making the nomination
and the number of shares of the Company's Common Stock which are owned
beneficially and of record by such stockholders; and (c) appropriate
biographical information and a statement as to the qualification of the nominee,
and should be submitted in the time frame described in the Bylaws of the
Company.
PROCESS FOR IDENTIFYING AND EVALUATING NOMINEES. The Nominating Committee
believes the Company is well-served by its current directors. In the ordinary
course, absent special circumstances or a material change in the criteria for
3
Board membership, the Nominating Committee will renominate incumbent directors
who continue to be qualified for Board service and are willing to continue as
directors. If an incumbent director is not standing for re-election, or if a
vacancy on the Board occurs between annual stockholder meetings, the Nominating
Committee will seek out potential candidates for Board appointment who meet the
criteria for selection as a nominee and have the specific qualities or skills
being sought. Director candidates will be selected based on input from members
of the Board, senior management of the Company and, if the Nominating Committee
deems appropriate, a third-party search firm. The Nominating Committee will
evaluate each candidate's qualifications and check relevant references; in
addition, such candidates will be interviewed by at least one member of the
Nominating Committee. Candidates meriting serious consideration will meet with
all members of the Board. Based on this input, the Nominating Committee will
evaluate which of the prospective candidates is qualified to serve as a director
and whether the committee should recommend to the Board that this candidate be
appointed to fill a current vacancy on the Board, or presented for the approval
of the stockholders, as appropriate.
The Company has never received a proposal from a stockholder to nominate a
director. Although the Nominating Committee has not adopted a formal policy with
respect to stockholder nominees, the committee expects that the evaluation
process for a stockholder nominee would be similar to the process outlined
above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission initial reports of ownership and changes in ownership of the
Company's Common Stock. Reporting Persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on its review of the copies of such reports
received or written representations from certain Reporting Persons that no
reports were required, the Company believes that during the year ended December
31, 2003 all Reporting Persons complied with all applicable filing requirements.
CODE OF ETHICS
Persistence has adopted a code of ethics that applies to all officers and
employees, including its principal executive officer, principal financial
officer and controller. This code of ethics is included as Exhibit 14.1 to the
Annual Report and available upon request to Persistence Software, Inc., 1720
South Amphlett Boulevard, Third Floor, San Mateo, California, 94402, attention:
Secretary, telephone number (650) 372-3600.
4
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation for the last three years
earned for services rendered to the Company by (i) the Chief Executive Officer,
(ii) the Company's next three most highly compensated executive officers serving
as of December 31, 2003 whose salary plus bonus exceeded $100,000 in 2003 and
(iii) two former executive officers who were among the most highly compensated
in 2003, but resigned prior to December 31, 2004 (the "NAMED EXECUTIVE
OFFICERS").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
FISCAL SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) (1) ($) OPTIONS (#)
--------------------------- ----------- ------- ----------- --------------
Christopher T. Keene ............ 2003 $225,000 $0 20,000
Chairman of the Board 2002 243,750(2) 14,400 10,000
and Chief Executive Officer 2001 211,519(3) 25,000 --
Christine Russell ............... 2003 141,796 -- 5,000
Former Chief Financial Officer 2002 165,750 10,560 5,000
2001 166,077 -- 14,000(4)
Derek Henninger ................. 2003 193,554 -- 10,000
Vice President of Worldwide 2002 165,750 10,800 5,000
Field Operations 2001 166,077 -- 5,000
Vivek Singhal.................... 2003 153,000 -- 10,000
Vice President Engineering 2002 165,750 10,320 5,000
2001 150,500 -- 45,202(5)
Ed Murrer........................ 2003 144,912 -- 5,000
Former Vice President of 2002 226,904 40,980 5,000
Marketing 2001 105,269 20,000 20,000
----------------
(1) Includes income deferred under Company 401(k) plan.
(2) Effective January 1, 2002, Mr. Keene's base salary was increased back to
$250,000 on an annualized basis. On September 30, 2002, in connection
with a Company-wide reduction in salaries, Mr. Keene's base salary was
decreased by 10% to $225,000 on an annualized basis. As a result of the
foregoing, Mr. Keene's base salary on an annualized basis for the year
ended December 31, 2002 was $243,750.
(3) On July 2, 2001, Mr. Keene's base salary was increased from $187,000 to
$250,000, which represented a 33.7% increase. As of October 1, 2001, Mr.
Keene's base salary was decreased by 10% to $225,000 on an annualized
basis. As a result of this decrease, Mr. Keene's base salary on an
annualized basis for the year ended December 31, 2001 was $211,519.
(4) Includes options to purchase 3,500 shares of Common Stock which were
cancelled in 2001 in connection with the Company's repricing of certain
options outstanding under the 1997 Stock Plan.
(5) This total includes 26,702 shares of Common Stock options that had been
issued on December 10, 2001 in connection with an option cancellation and
tender offering in June 2001.
5
OPTION GRANTS IN 2003
The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the year ended December 31,
2003. In addition, as required by Securities and Exchange Commission rules, the
table sets forth the hypothetical gains that would exist for the options based
on assumed rates of annual compound stock price appreciation during the option
term. No stock appreciation rights were granted by the Company.
INDIVIDUAL GRANTS
-------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATES OF STOCK
UNDERLYING TO EMPLOYEES EXERCISE PRICE APPRECIATION
OPTIONS IN FISCAL PRICE EXPIRATION FOR OPTION TERM(1)
NAME GRANTED (#) YEAR (%)(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ---- ----------- ------------ --------- ----------- ----------- ----------
Christopher Keene.......... 10,000 (4) 4% $2.4000 04/01/2013 $15,093 $20,948
10,000 (5) 4% 4.1100 12/18/2013 25,848 35,874
Christine Russell.......... 5,000 (4) 2% 2.4000 04/01/2003 7,547 10,474
Derek Henninger............ 5,000 (4) 2% 2.4000 04/01/2013 7,547 10,474
5,000 (5) 2% 4.1100 12/18/2013 12,924 17,937
Vivek Singhal.............. 5,000 (4) 2% 2.4000 04/01/2013 7,547 10,474
5,000 (5) 2% 4.1100 12/18/2013 12,924 17,937
Edward Murrer.............. 5,000 (4) 2% 2.4000 04/01/2013 7,547 10,474
- -------------------
(1) The potential realizable value illustrates a value that might be realized
upon exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of the
market price per share from the date of grant to the end of the option
term, less the exercise price. Actual gains, if any, on stock option
exercise are dependent upon a number of factors, including the future
performance of the Common Stock and the timing of option exercises, as
well as the optionees' continued employment throughout the vesting period.
There can be no assurance that the amounts reflected in this table will be
achieved.
(2) The Company granted stock options representing 241,100 shares to employees
in 2003. All grants were made under the 1997 Stock Plan.
(3) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares.
(4) This option vests at the rate of 1/4th of the total number of shares on
the first anniversary of April 1, 2004, the vesting commencement date, and
1/48th of the total shares on each monthly anniversary of the vesting
commencement date thereafter.
(5) This option vests at the rate of 1/2 of the total number of shares on the
first anniversary of December 18, 2004, the vesting commencement date, and
1/24th of the total shares on each monthly anniversary of the vesting
commencement date thereafter.
(6) This option vests at the rate of 1/4th of the total number of shares on
the first anniversary of December 18, 2004, the vesting commencement date,
and 1/48th of the total shares on each monthly anniversary of the vesting
commencement date thereafter.
6
AGGREGATED OPTION EXERCISES IN 2003 AND VALUE OF UNEXERCISED OPTIONS HELD AS OF
DECEMBER 31, 2003
The following table sets forth the number of shares covered by stock options
held by Named Executive Officers as of December 31, 2003, and the value of
"in-the-money" stock options, which represents the difference between the
exercise price of a stock option and the market price of the shares subject to
such option on December 31, 2003. No stock appreciation rights were outstanding
during the year ended December 31, 2003, and no stock options were exercised by
Named Executive Officers during the year ended December 31, 2003.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END (#) AT FISCAL YEAR END ($)(1)
------------------------------------ ------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE
---- ----------- ------------- --------------- -------------
Christopher Keene....... 3,541 6,459 0 0
0 10,000 0 16,500
Derek Henninger......... 2,500 2,500 0 0
1,770 3,230 0 0
0 5,000 0 8,250
0 5,000 0 0
Vivek Singhal........... 600 0 1,050 0
1,300 0 0 0
250 0 0 0
21,237 5,465 0 0
1,770 3,320 0 0
0 5,000 0 8,250
0 5,000 0 0
1,250 1,250 0 0
1,567 533 0 0
- -------------------
(1) Value is based on the closing price of the Company's Common Stock on the
Nasdaq SmallCap Market on December 31, 2003 of $4.05 per share, less the
aggregate exercise price of the options.
(2) Does not include options that had an exercise price greater than the per
share closing price of $4.05 on December 31, 2003 as reported on the Nasdaq
SmallCap Market.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require it to indemnify its
officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, other than liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them.
COMPENSATION OF DIRECTORS
Directors do not currently receive cash compensation for their services as
members of the Board except for periodic reimbursement of travel expenses.
Employee directors are eligible to participate in the 1997 Stock Plan and the
ESPP. Non-employee directors are eligible to participate in the 1997 Stock Plan
and the Directors Plan.
The Directors Plan currently provides that each non-employee director who
joined the Board prior to June 24, 1999, the date of the Company's initial
public offering (a "Preexisting Outside Director") is automatically granted an
7
option to purchase 1,000 shares of Common Stock on the first day of each fiscal
year, starting on January 1, 2002. In addition, the Directors Plan currently
provides that each non-employee director who joins the Board after June 24, 1999
(a "New Outside Director") is automatically granted: (i) an option to purchase
2,000 shares of Common Stock (the "First Option") on the date of his or her
election or appointment to the Board of Directors, (ii) an additional option to
purchase 2,000 shares of Common Stock (the "Second Option") on the one year
anniversary of his or her election or appointment as a director, and (iii) an
additional option (each, a "Subsequent Option") to purchase 1,000 shares of
Common Stock on the first day of each fiscal year after the date of grant of the
Second Option. All such options granted to Preexisting Outside Directors and New
Outside Directors are fully vested at the date of the grant, have an exercise
price per share equal to the fair market value of the Common Stock on the date
of grant and have a term of 10 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is an officer or employee
of the Company, nor has any member formerly served as an officer of the Company.
No executive officer of the Company serves as a member of a board of directors
or compensation committee of any entity that has one or more executive officers
serving on the Company's Board or Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of February 29, 2004 for (i) each person who is known by the Company to
own beneficially five percent or more of the outstanding shares of Common Stock,
(ii) each director of the Company, (iii) each of the Named Executive Officers,
and (iv) all directors and executive officers of the Company as a group. The
applicable percentage of ownership for each stockholder is based on 2,713,918
shares of Common Stock outstanding as of February 29, 2004, in each case
together with applicable options for that stockholder. Shares of Common Stock
issuable upon exercise of options and other rights beneficially owned that are
exercisable on or before April 29, 2004 are deemed outstanding for the purpose
of computing the percentage ownership of the person holding those options and
other rights but are not deemed outstanding for computing the percentage
ownership of any other person.
Except as otherwise noted, the address of each person listed in the table is
c/o Persistence Software, Inc., 1720 South Amphlett Boulevard, Third Floor, San
Mateo, California, 94402. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and is based on the
individual's ability to exercise voting and investment power with respect to
shares. To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED OWNERSHIP
---------------- ------------------ ---------
Needham Capital Partners (1)................................ 501,380 17.69%
445 Park Avenue
New York, NY 10022
Thomas P. Shanahan (2)...................................... 496,380 17.51
c/o Needham Capital Partners
445 Park Avenue
New York, NY 10022
Christopher T. Keene (3).................................... 283,990 10.44
Roy Rogers (4).............................................. 202,950 7.46
27927 Briones Way
Los Altos Hills, CA 94022
8
Eastbourne Capital Management, L.L.C. (5)(6)................ 146,530 5.40
1101 Fifth Avenue, Suite 160,
San Rafael, CA 94901
Derek Henninger (7)......................................... 128,905 4.74
Vivek Singhal (8)........................................... 32,844 1.20
Christine Russell (9) 26,000 *
Sanjay Vaswani (10)......................................... 16,050 *
Lawrence Owen Brown (11).................................... 6,500 *
James F. Sutter (12)........................................ 5,333 *
All directors and executive officers as a group
(7 persons) (13)........................................ 778,556 33.39
- ---------------------
* Less than 1%.
(1) Includes 289,176 shares held by Needham Capital Partners III, L.P., 29,694
shares held by Needham Capital Partners IIIA, L.P., immediately
exercisable warrants to purchase 92,717 shares held by Needham Capital
Partners III, L.P. and immediately exercisable warrants to purchase 9,520
shares held by Needham Capital Partners IIIA, L.P. Needham Capital
Management, L.L.C. is the general partner of each of the above private
limited partnerships. Also includes 56,998 shares held by Needham Capital
Partners III (Bermuda), L.P. and immediately exercisable warrants to
purchase 18,275 shares held by Needham Capital Partners III (Bermuda),
L.P. Needham Capital Management (Bermuda), L.L.C. is the general partner
of such entity. Thomas P. Shanahan, a director of the Company, George A.
Needham, John C. Michaelson and John J. Prior are each managing members of
Needham Capital Management, L.L.C. and Needham Capital Management
(Bermuda), L.L.C., and share voting and dispositive power with respect to
the shares held by such entities. Also includes 5,000 shares held by
Needham Contrarian Fund, L.P. Mr. George A. Needham is the Managing
General Partner of Needham Management Partners, L.P., the general partner
of such entity. Each managing partner or member disclaims beneficial
ownership of these shares except to the extent of its or his respective
pecuniary interests.
(2) See Note 1. Excludes 5,000 shares held by Needham Contrarian Fund, L.P.
(3) Includes 258,215 shares held in the name of "Christopher Keene and Yvonne
Keene Community Property," and shares held by the following trusts: 9,200
shares held by The Alexander Allan Keene Trust and 9,200 shares held by
The Austen Foster Keene Trust. Mr. Keene disclaims beneficial ownership of
all shares held by such trusts except to the extent of his pecuniary
interest. Includes 6,875 shares issuable upon exercise of options that are
exercisable on or before April 29, 2004.
(4) Total number of shares beneficially owned is based solely on a review of
Schedule 13G filings made with the Securities and Exchange Commission.
Such filings set forth beneficial ownership as of December 31, 2003, and
includes 138,350 shares held in the name of "Rogers Family Trust, UTD
01-21-81" and 64,600 shares held in the name of "Roy and Ruth Rogers Unit
Trust, UTD 09-28-89". Pursuant to the Registration on Form S-3 filed by
the Company with the Securities and Exchange Commission on January 15,
2004 (File No. 333-111433), 6,600 shares are issuable upon the exercise of
warrants that are exercisable on or before April 29, 2004.
(5) Beneficial ownership calculation is based solely on a review of Schedule
13G filings made with the Securities and Exchange Commission. Such filings
set forth beneficial ownership as of December 31, 2003.
(6) Per Schedule 13G filing made with the Securities and Exchange Commission,
Richard Jon Berry is the controlling member of Eastbourne Capital
Management, L.L.C.
(7) Includes 6,353 shares issuable upon exercise of options that are
exercisable on or before April 29, 2004. Also includes shares held by the
following trusts, of which Mr. Henninger and Elizabeth W. Henninger share
voting and dispositive power as trustees: 105,388 shares held by The
Henninger Family Trust, 8,390 shares held by The Henninger Family
Irrevocable Trust fbo Grant Larson Henninger U/A/D 04/03/2000 and 8,390
shares held by The Henninger Family Irrevocable Trust fbo Webb Ryan
Henninger U/A/D 04/03/2000. Mr. and Mrs. Henninger each disclaim
beneficial ownership of the shares held by such trusts except to the
extent of their respective pecuniary interests.
(8) Includes 29,873 shares issuable upon exercise of options that are
exercisable on or before April 29, 2004.
(9) Ms. Russell resigned as an employee of the Company as of October 17, 2003.
9
(10) Includes 16,000 shares issuable upon exercise of options that are
exercisable on or before April 29, 2004.
(11) Consists of 6,500 shares issuable upon exercise of options that are
exercisable on or before April 29, 2004.
(12) Consists of 5,333 shares issuable upon exercise of options that are
exercisable on or before April 29, 2004.
(13) Also includes an aggregate of 191,446 shares issuable upon exercise of
options and warrants held by all directors and executive officers that are
exercisable on or before April 29, 2004.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Company's Common Stock
that may be issued upon the exercise of options, warrants and rights under all
of the Company's existing equity compensation plans as of December 31, 2003,
including the 1994 Stock Purchase Plan, 1997 Stock Plan, the Directors Plan and
the ESPP.
NUMBER OF SECURITIES
REMAINING
AVAILABLE FOR
NUMBER OF SECURITIES WEIGHTED FUTURE ISSUANCE UNDER
TO BE ISSUED UPON AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE PLANS (EXCLUDING
OUTSTANDING OPTIONS, OF OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMNS (a))
(a) (b) (c)
- ------------------------------------- ------------------------ ------------------------ --------------------------
Equity compensation plans
approved by stockholders 373,980 (1) $ 7.94 (1) 482,476 (1)
14,000 (2) 18.51 (2) 36,000 (2)
-- -- 103,484 (3)
Equity compensation plans
not approved by stockholders 43,000 (4) 4.97 (4) --
TOTAL 430,980 621,960
- -------------------
(1) Comprises outstanding options, weighted average exercise price and
securities available for issuance under the 1997 Stock Plan as of December
31, 2003, not including a maximum of 3,864 additional shares that may be
transferred from the 1994 Stock Purchase Plan. The 1997 Stock Plan includes
an "evergreen" feature, which provides for an automatic annual increase in
the number of shares available under the plan on the first day of each
fiscal year through 2005, equal to the lesser of 98,500 shares or 4.94% of
the Company's outstanding Common Stock on the last day of the immediately
preceding fiscal year.
(2) Comprises outstanding options, weighted average exercise price and
securities available for issuance under the Directors Plan as of December
31, 2003.
(3) Available for issuance under the ESPP as of December 31, 2003. The ESPP,
designed to comply with Internal Revenue Code Section 423, includes an
"evergreen" feature, which provides for an automatic annual increase in the
number of shares available under the plan on the first day of each fiscal
year through 2004, equal to the lesser of 25,000 shares or 1% of the
Company's outstanding Common Stock on the last day of the immediately
preceding fiscal year.
(4) Comprises warrants issued to non-employees for consulting services. In
2003, the Company issued warrants to purchase up to 30,000 shares of Common
Stock to a trust controlled by Brian Swift, an affiliate of Securities
Research Associates, Inc., as partial compensation for services as
placement agent in connection with a private placement of the Company's
Securities. During 2002, the Company issued warrants to purchase up to
5,000 shares of Common Stock to RTX Securities Corporation at an exercise
price of $3.80 in partial consideration for consulting services. Such
warrants are fully vested as of the date of grant. In addition, during 2001
the Company issued warrants to purchase up to 8,000 shares of Common Stock
to RCG Capital Markets at an exercise price of $5.70 in partial
consideration for consulting services. Such warrants vest over a period of
four years.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
10
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the
"Deloitte Entities") for professional services rendered for the audit of the
Company's annual financial statements for the fiscal years ended December 31,
2002 and 2003 and for the reviews of the financial statements included in the
Company's Annual Reports on Form 10-K for the fiscal years ended December 31,
2002 and 2003 were:
2003 2002
---- ----
Audit Fees(1) $154,000 $137,000
Audit-Related Fees(2) 64,825 11,100
Tax Fees n/a n/a
All Other Fees n/a n/a
--------- ---------
Total $218,825 $148,600
--------- ---------
- ---------------------
(1) Audit fees represent fees for professional services provided in
connection with the audit of the Company's financial statements and
review of the Company's quarterly financial statement and audit services
provided in connection with other statutory or regulatory filings.
(2) Audit-related fees consisted primarily of work performed in conjunction
with registration statement filings and accounting consultations.
Applicable law and regulations provide an exemption that permits certain
services to be provided by the Company's outside auditors even if they are not
pre-approved. The Company has not relied on this exemption at any time since the
Sarbanes-Oxley Act was enacted.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this annual report:
(1) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT (pages F-1
through F-18):
Audited Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 2003 and 2002
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Loss for the years ended December 31, 2003, 2002
and 2001
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE (pages S-1 through S-3)
Audited Consolidated Financial Statement Schedule:
Independent Auditors' Report
Schedule II -- Consolidated Schedule of Valuation and Qualifying
Accounts for the years ended December 31, 2003, 2002 and 2001
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
(3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
(b) Reports on Form 8-K. Two reports on Form 8-K were filed on October 17, 2003
and December 9, 2003 during the quarter ended December 31, 2003 reporting
matters under Item 5 (Other Events), and Item 7 (Financial Statements Pro
Forma Financial Information and Exhibits).
11
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.2(1) Amended and Restated Certificate of Incorporation of
Persistence.
3.4(7) Amended and Restated Bylaws of Persistence, as amended on
February 12, 2003.
4.1(1) Specimen Stock Certificate.
4.2(2) Common Stock Warrant, Warrant No. W-CS1, dated June 28, 2001,
issued to RCG Capital Markets Group, Inc.
4.3(8) Common Stock Warrant, Warrant No W-CS-2, dated October 18, 2002,
issued to RTX Securities Corporation.
10.1(1) Form of Common Stock Purchase Agreement between Persistence and
each of Christopher T. Keene and Derek P. Henninger.
10.2(1) Fifth Amended and Restated Investor Rights Agreement dated
February 19, 1999 among Persistence and certain investors.
10.5(1) 1994 Stock Purchase Plan (as amended) and Form of Common Stock
Purchase Agreement.
10.6(7) 1997 Stock Plan (as amended) and Forms of Stock Option Agreement
and Common Stock Purchase Agreement.
10.7(7) 1999 Employee Stock Purchase Plan and Form of Subscription
Agreement.
10.8(7) 1999 Directors' Stock Option Plan and Form of Option Agreement.
10.9(1) Lease dated June 12, 1991 between Persistence and Great American
Bank (as amended).
10.10(1)+ Settlement and License Agreement dated March 23, 1998 between
Persistence and Sun Microsystems, Inc.
10.11(1) Form of Indemnification Agreement between Persistence and
officers and directors.
10.12(2) Registration Rights Agreement dated as of June 28, 2001 between
Persistence and RCG Capital Markets Group, Inc.
10.13(3) Amended and Restated Loan Agreement between Persistence and
Comerica Bank dated March 6, 2002.
10.14(3) Lease Amendment dated February 5, 2002 between Persistence and
Cornerstone Properties I, LLC.
10.15(3) Form of Change of Control Agreement between Persistence and each
of Keith Zaky and Ed Murrer.
10.16(4) First Amendment to Loan and Security Agreement between
Persistence and Comerica Bank dated May 6, 2002.
10.17(5) Second Amendment to the Restated Loan and Security Agreement
between Persistence and Comerica Bank dated July 3, 2002.
10.18(5) Third Amendment to the Restated Loan and Security Agreement
between Persistence and Comerica Bank dated July 17, 2002.
10.19(6) 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(6) 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(6) 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(6) Form of Common Stock Warrant dated as of November 26, 2002
issued to Needham Capital Partners III, L.P., Needham Capital
Partners IIIA, L.P. and Needham Capital Partners III (Bermuda),
L.P.
10.23(7) Fourth Amendment to the Restated Loan and Security Agreement
between Persistence and Comerica Bank dated November 15, 2002.
10.23a(8) Registration Rights Agreement dated as of October 18, 2002
between Persistence and RTX Securities Corporation.
12
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.24(7) Amended and Restated Loan Agreement between Persistence and
Comerica Bank dated March 20, 2003.
10.25(9) Amendment No. 1 to Amended and Restated Loan and Security
Agreement between Persistence Software, Inc. and Comerica Bank.
10.26(10) Common Stock Purchase Agreement dated as of November 25, 2003 by
and among Persistence Software, Inc. and certain investors.
10.27(10) Registration Rights Agreement dated as of December 1, 2003 by
and among Persistence Software, Inc. and certain investors.
10.28(10) Form of Common Stock Warrant dated as of December 1, 2003 issued
to certain investors.
10.29(10) Form of Common Stock Warrant dated as of December 1, 2003 issued
to Security Research Associates, Inc.
10.30** Amendment No. 2 to Amended and Restated Loan and Security
Agreement between Persistence Software, Inc. and Comerica Bank.
14.1* Code of Ethics.
21.1(1) List of Subsidiaries.
23.1** Independent Auditors' Consent.
24.1** Power of Attorney (see page 37).
31.1* Certificate of Chief Executive Officer, pursuant to Rule
13a-14(a).
31.2* Certificate of Chief Financial Officer, pursuant to Rule
13a-14(a).
32.1* Certificate of Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350.
32.2* Certificate of Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350.
- ----------
(1) Incorporated herein by reference to our Registration Statement on Form
S-1 (Commission File No. 333-76867).
(2) Incorporated herein by reference to our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001.
(3) Incorporated herein by reference to our Annual Report on Form 10-K for
the year ended December 31, 2001.
(4) Incorporated herein by reference to our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002.
(5) Incorporated herein by reference to our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002.
(6) Incorporated herein by reference to our Current Report on Form 8-K
filed on November 27, 2002.
(7) Incorporated herein by reference to our Annual Report on Form 10-K for
the year ended December 31, 2002.
(8) Incorporated herein by reference to our Registration Statement on Form
S-3 (Commission File No. 333-104878).
(9) Incorporated herein by reference to our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2003.
(10) Incorporated herein by reference to our Current Report on Form 8-K
filed with the SEC on December 9, 2003.
+ Certain information in this Exhibit has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been granted with respect to the omitted portions.
* Filed herewith.
** Previously filed.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K/A for the fiscal year ended December 31, 2003 to be signed on its behalf by
the undersigned, thereunto duly authorized.
PERSISTENCE SOFTWARE, INC.
By: /s/ CHRISTOPHER T. KEENE
--------------------------------------------
Christopher T. Keene
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
By: /s/ BRIAN TOBIN
--------------------------------------------
Brian Tobin
ACTING CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
Date: April 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTOPHER T. KEENE Chairman of the Board and Chief Executive April 29, 2004
- ---------------------------- Officer (Principal Executive Officer)
Christopher T. Keene
/s/ BRIAN TOBIN Acting Chief Financial Officer (Principal April 29, 2004
- ---------------------------- Financial and Accounting Officer)
Brian Tobin
* Director April 29, 2004
- ----------------------------
Lawrence Owen Brown
* Director April 29, 2004
- ----------------------------
Thomas Shanahan
* Director April 29, 2004
- ----------------------------
Sanjay Vaswani
*/s/ BRIAN TOBIN
- -----------------------------
Brian Tobin, Attorney-in-fact
14