<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PEERLESS SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 5008 95-3732595
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION CLASSIFICATION IDENTIFICATION
OR ORGANIZATION) CODE NUMBER) NUMBER)
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2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
(310) 536-0908
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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EDWARD A. GAVALDON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
(310) 536-0908
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
GREGORY C. SMITH, ESQ. LAIRD H. SIMONS, III, ESQ.
BRETT D. WHITE, ESQ. EILEEN DUFFY ROBINETT, ESQ.
COOLEY GODWARD CASTRO JEFFERY L. DONOVAN, ESQ.
HUDDLESON & TATUM FENWICK & WEST LLP
FIVE PALO ALTO SQUARE TWO PALO ALTO SQUARE
3000 EL CAMINO REAL PALO ALTO, CA 94306
PALO ALTO, CA 94306-2155 (415) 494-0600
(415) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
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, check the following box. [_]
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. [_]
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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
registration statement number of the earlier effective registration for the
same offering. [_]
-----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 4,312,500 $13.00 $56,062,500 $19,333
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</TABLE>
(1) Includes 562,500 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act
of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT 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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 1, 1996
PROSPECTUS
3,750,000 SHARES
LOGO
COMMON STOCK
Of the 3,750,000 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by the Company and 1,250,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Company's Common
Stock on the Nasdaq National Market under the symbol PRLS.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
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Total(3)................. $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) Certain Selling Stockholders have granted the Underwriters a 30-day option
to purchase up to an additional 562,500 shares of Common Stock solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Stockholders will be $ , $ and $ ,
respectively.
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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for the shares will be available
for delivery on or about , 1996 at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST
PRUDENTIAL SECURITIES INCORPORATED
WESSELS, ARNOLD & HENDERSON
, 1996
<PAGE>
[Description: The image will depict the layered structure of Peerless'
embedded imaging system, with ASICs and electronics at the bottom hardware
layer, on top of which resides the imaging operating system and upon which
resides imaging applications such as networking, multifunction and color (with
an indication that the latter is under development). The image will also
depict the networking, multifunction and color digital document product
sectors addressed by the Company's embedded imaging solution.]
Peerless' products provide a complete, standardized embedded imaging system
for a variety of digital document products in the office environment. The
emergence of multifunction products, which offer a combination of print, copy,
fax and scan functions, has eroded the boundaries between these previously
distinct digital document product market sectors and created a need for a
common embedded imaging system solution. The Company's solution consists of
the real-time 32-bit PeerlessPage Imaging Operating System, which is supported
by Company-designed imaging co-processors and electronics and which can be
customized by applications modules that provide networking support,
multifunction features and page description languages. The Company is shipping
solutions for networked monochrome printers and multifunction products and is
developing solutions for color printers.
[Description: The image will depict an electronic document displayed on a
computer screen, identifying the photographic, text and line art elements
within the document. These elements will be represented in a display list,
operated on by the PeerlessPage Imaging Operating System and a Peerless
QuickPrint co-processor. In the final stage, the printed document will emerge
from a printer.]
Peerless has developed a proprietary approach to the embedded imaging task.
Rather than recognizing a page image as a collection of pixels, the Peerless
object-based image processing technology recognizes basic imaging elements in
the document, differentiating between text, line art and photographs, much as
the human eye does. Peerless' software then creates a display list of image
objects as an intermediate representation of the document to be printed. This
display list is a more concise means of representing the imaging information
of the document, enabling complex imaging data to be processed more quickly
and with less memory, typically without resorting to compression techniques
that degrade the image. For high-performance applications, the display list
can be processed in real-time with assistance from a Peerless-designed
graphics co-processor embedded in the digital document product. Because
Peerless technology can enable the page image to be processed in real-time,
concurrent with the transmission of the document print file, memory
requirements can be reduced and performance can be enhanced. The Company was
recently issued two patents covering certain aspects of its object-based image
processing approach.
Customer Benefits:
. Higher quality output
. Reduced memory and processor requirements
. Faster document production
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Peerless logo is a trademark of the Company. The Company has applied for
registration of the PeerlessPage, PeerlessPrint, PSIO, QuickPrint and
WinEXPRESS trademarks. This Prospectus also includes trade names and
trademarks of companies other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
THE COMPANY
Peerless Systems Corporation ("Peerless" or the "Company") is a leading
provider of software-based embedded imaging systems to original equipment
manufacturers ("OEMs") of digital document products. Digital document products
include printers, copiers, fax machines, scanners and emerging color products,
as well as multifunction products ("MFPs") that perform a combination of these
imaging functions. In order to process digital text and graphics, digital
document products rely on a core set of imaging software and supporting
electronics, collectively known as an embedded imaging system. The Peerless
family of products and engineering services provides advanced embedded imaging
technologies that enable the Company's OEM customers to develop digital
printers, copiers and MFPs quickly and cost effectively. The Company markets
its solutions directly to customers such as Adobe, Canon, Digital Equipment
Corporation, IBM and Xerox.
To date, the majority of embedded imaging systems have been designed
internally by OEMs. However, rapid changes in technology and end-user
requirements have created increased challenges for OEMs, particularly in the
area of embedded imaging systems. These changes include increased technical
complexity, the increased role of networking, the emergence of MFPs and the
demand for color imaging. As a result, OEMs increasingly are relying on outside
embedded imaging systems suppliers to provide their embedded imaging system
solutions.
The Company's embedded imaging system solution is based on its proprietary
object-based image processing technology that enables its OEMs to increase
print quality and speed while reducing cost. The Company has designed its real-
time, 32-bit PeerlessPage Imaging Operating System and supporting technology to
accelerate image processing and to enhance resolution. The multitasking
operating system also enables the Company to manage concurrent processing of
digital document product tasks for the MFP marketplace. The Company also has
designed its embedded imaging technology with a modular architecture that
addresses a broad spectrum of digital document product technologies and that
may be tailored to individual OEM requirements. Peerless offers its OEMs the
flexibility to add functionality, such as networking support, languages or
multifunction features and, in the future, color, to their digital document
products as their needs dictate. Peerless' scalable technology enables the
Company to serve both the low-cost and high-performance sectors of the market.
Peerless also offers engineering services to allow OEMs to outsource the
development of the entire embedded imaging system for a digital document
product. As a result, the Company provides OEMs with the ability to offer a
broadened array of digital document products, further leveraging their core
investment in the Company's imaging solution.
The Company's goal is to establish certain basic components of its embedded
imaging system solution, notably its imaging operating system and its Peerless
Standard Input/Output-interface, as de facto standards for the digital document
product industry. The Company believes it can achieve reduced costs for its OEM
customers through multivendor acceptance of its standardized solutions.
The Company was incorporated in California on April 28, 1982, and will
reincorporate in Delaware prior to the closing of this offering. The Company's
principal offices are located at 2381 Rosecrans Avenue, El Segundo, California
90245, and the Company's telephone number is (310) 536-0908.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,500,000 shares
Common Stock offered by the Selling
Stockholders................................... 1,250,000 shares
Common Stock to be outstanding after the
offering....................................... 10,202,618 shares (1)
Use of proceeds................................. Repayment of indebtedness and
equipment lease lines, working
capital and other general corporate
purposes
Proposed Nasdaq National Market symbol.......... PRLS
</TABLE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
YEARS ENDED DECEMBER 31,
------------------------------------------- MARCH 31, APRIL 30,
1991 1992 1993 1994 1995 1995 (2) 1996 (2)
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues......... $ 4,988 $ 4,934 $ 5,241 $ 9,336 $10,413 $2,370 $3,331
Cost of revenues....... 2,175 3,351 5,436 5,675 5,254 1,190 1,648
Operating expenses..... 3,938 5,327 4,470 4,645 5,523 1,299 1,519
Income (loss) from
operations............ (1,125) (3,744) (4,665) (984) (364) (119) 164
Net income (loss)...... $(1,163) $(3,851) $(4,824) $(1,226) $ (639) $ (168) $ 75
Pro forma net income
(loss) per
share (3)............. $ (0.08) $ 0.02
Shares used in pro
forma per share
calculation (3)....... 7,090 7,762
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (4)(5)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 627 $ 627 $26,699
Working capital (deficit)....................... (2,452) (2,452) 24,359
Total assets.................................... 4,533 4,533 30,605
Long-term obligations........................... 4,576 1,506 1,259
Redeemable Preferred Stock...................... 5,938 -- --
Total stockholders' equity (deficit)............ (11,798) (2,790) 24,268
</TABLE>
- --------------------
(1) Based on shares outstanding on July 31, 1996. Excludes (i) 1,488,291 shares
of Common Stock issuable upon exercise of options outstanding as of July
31, 1996 at a weighted average exercise price of $2.26 per share and (ii)
1,138,855 additional shares of Common Stock presently reserved for future
issuance under the Company's stock option and purchase plans. See
"Management--Employee Benefit Plans" and Note 9 of Notes to Financial
Statements.
(2) The Company changed its fiscal year-end to January 31 commencing February
1, 1996. No data is provided for the month ended January 31, 1996.
(3) See Note 1 of Notes to Financial Statements for a description of the
computation of the pro forma net income (loss) per share and the number of
shares used in the pro forma per share calculation.
(4) As adjusted to give effect to the conversion of all outstanding Preferred
Stock and Debentures into Common Stock, the exercise of all outstanding
warrants to purchase Common Stock on a cashless basis and the change in par
value of the Company's capital stock.
(5) As adjusted to give effect to the exercise of options to purchase 14,452
shares of Common Stock to be sold in the offering by the Selling
Stockholders and the sale of the 2,500,000 shares of Common Stock offered
by the Company hereby after deducting the estimated underwriting discount
and offering expenses and the application of the net proceeds therefrom.
See "Use of Proceeds."
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and assumes (i) the
occurrence of a two-for-three reverse stock split, (ii) the reincorporation of
the Company into Delaware, (iii) an increase in the authorized number of shares
of Common Stock to 30,000,000 and a decrease in the authorized number of shares
of Preferred Stock to 5,000,000, (iv) the conversion of all outstanding
Preferred Stock into Common Stock at approximately a one-for-one ratio, (v) the
exercise of warrants to purchase 1,133,351 shares of Common Stock at a weighted
average exercise price of $1.46 per share on a cashless basis at an assumed
initial public offering price of $12.00 per share, resulting in the issuance of
955,671 shares of Common Stock (vi) the conversion of all outstanding
Debentures into 1,169,522 shares of Common Stock and (vii) the exercise of
options to purchase 14,452 Shares of Common Stock at a weighted average
exercise price of $0.53 per share.
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby. Except for the historical information contained herein,
the discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below and
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as those discussed elsewhere in
this Prospectus.
History of Operating Losses; Accumulated Deficit. The Company recognized net
losses of approximately $1.2 million and $639,000 for the fiscal years ended
December 31, 1994 and 1995, respectively. The Company's historical losses have
resulted in an accumulated deficit of approximately $13.2 million as of
April 30, 1996. Although the Company reported a net profit of approximately
$75,000 for the three months ended April 30, 1996, there can be no assurance
that the Company will maintain profitability on a quarterly basis or achieve
profitability on an annual basis in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Potential Fluctuations in Quarterly Results; Seasonality; Revenue Reporting.
The Company in the past has experienced, and in the future may experience,
significant fluctuations in quarterly operating results that have been and may
be caused by many factors including: initiation or termination of arrangements
between the Company and its existing and potential OEM customers; the timing
of introductions of new products or product enhancements by the Company, its
OEMs and their competitors; the phase-out or early termination of OEM products
incorporating the Company's technology; the size and timing of engineering
services contracts, one-time software licensing transactions and recurring
licensing fees; the size and timing of and fluctuations in end-user demand for
the OEM products incorporating the Company's technology; inventories of
digital document products carried by the OEMs' distributors that exceeds
current or projected end-user demand; performance by the Company and its OEM
customers pursuant to their plans and agreements; seasonal trends; the mix of
services provided or products sold and the gross margins attributable to such
services or products; competition and pricing; customer order deferrals in
anticipation of new products or product enhancements; industry and technology
developments; changes in the Company's operating expenses; software bugs,
product delays or other product quality problems; currency fluctuations; and
general economic conditions. For example, in recent quarters the Company's
quarterly revenues have been significantly affected by the timing of one-time
licensing transactions and by decreases in recurring product licensing
revenues resulting from the phase-out by the Company's OEMs of products
incorporating the Company's technology. The Company expects that its operating
results will continue to fluctuate significantly in the future as a result of
these and other factors. A substantial portion of the Company's costs and
expenses is related to costs of engineering services and maintenance, other
personnel costs, product development, facilities and marketing programs. The
level of spending for such costs and expenses cannot be adjusted quickly and
is based, in significant part, on the Company's expectations of future
revenues and anticipated OEM commitments. If such commitments do not
materialize or are terminated or, in any event, if revenues are below
expectations, the Company's quarterly and annual operating results will be
adversely affected, which could have a material adverse effect on the price of
the Company's Common Stock. For these and other reasons, it is likely that in
future quarters the Company's operating results from time to time may be below
the expectations of public market analysts and investors, which also could
have a material adverse effect on the price of the Company's Common Stock.
The Company believes that its business may be subject to seasonal trends. In
the digital document product industry, it is not unusual for vendors to
experience an increase in demand in the fourth calendar quarter followed by a
significant decrease in the following quarter. As a result, the Company's
product licensing revenues associated with unit shipments by its OEMs may be
subject to similar fluctuations. No assurance can be given as to the
probability that the Company's OEMs will experience such fluctuations or as
5
<PAGE>
to the effect of such fluctuations, if any, on the Company's revenues. In
addition, because one or more key OEM transactions, milestones or OEM product
shipments that are scheduled to be realized by the Company or its OEMs at the
end of a quarter may be delayed until the beginning of the next quarter,
quarterly revenues are subject to significant fluctuations.
The recurring product licensing revenues reported by the Company are
dependent on the timing and accuracy of product sales reports received from
the Company's OEM customers. These reports are provided only on a calendar
quarter basis and, in any event, are subject to delay and potential revision
by the OEM. Therefore, the Company is required to estimate all of the
recurring product licensing revenues for the last month of each quarter and to
further estimate all of its quarterly revenues from an OEM when the report
from such OEM is not received in a timely manner. As a result, the Company may
be unable to estimate such revenues accurately prior to public announcement of
the Company's quarterly results. In such event, the Company subsequently may
be required to restate its recognized revenues or adjust revenues for
subsequent periods, which could have a material adverse effect on the
Company's operating results and the price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Market Success of Third Parties. Substantially all of the
Company's customers are OEMs. The Company's revenues are dependent upon, among
other things, the ability and willingness of these OEMs to timely develop and
promote digital document products that incorporate the Company's technology.
The ability and willingness of these OEMs to do so is based upon a number of
factors, such as: the timely development by the Company and the OEMs of new
products with new functionality, increased speed and enhanced performance at
acceptable prices to end users; development costs of the OEMs; licensing and
engineering fees of the Company; compatibility with emerging industry
standards; technological advances; patent and other intellectual property
issues; competition generally; and overall economic conditions. Many of these
factors are beyond the control of the Company and, to a lesser extent, also
may be beyond the control of any of the OEMs. Many of these OEMs are
concurrently developing and promoting products that do not incorporate the
Company's technology. In such cases, the OEMs may have profitability or other
incentives to promote internal solutions or competing products in lieu of
products incorporating the Company's technology. No assurance can be given as
to the ability or willingness of the Company's OEMs to continue developing,
marketing and selling products incorporating the Company's technology. Since
the Company's business is entirely dependent on its relationships with its
OEMs, the inability or unwillingness of any of the Company's significant OEMs
to continue its relationship with the Company and to develop and promote
products incorporating the Company's technology would have a material adverse
effect on the Company's operating results.
Concentration of OEM Customers. Revenues from the Company's four largest OEM
customers accounted for approximately 74% and 67% of the Company's total
revenues for the year ended December 31, 1995 and the three months ended April
30, 1996, respectively, and the Company anticipates that its revenues in the
future will be similarly concentrated with a limited number of OEM customers.
The Company's largest OEM customers vary to some extent from year to year as
product cycles end, contractual relationships expire and new products and
customers emerge. Many of the engineering services and licensing arrangements
with the Company's OEMs are provided on a project-by-project basis, are
terminable with limited or no notice, and, in certain instances, are not
governed by long-term agreements. There presently are only a limited number of
OEMs in the digital document product market to which the Company markets its
technology and services. Therefore, the ability of the Company to replace a
lost customer or offset a significant decrease in the revenues from a customer
may be significantly limited. In addition, the Company's larger OEMs at times
have required that the Company offer new technology directly to them prior to
offering it to other OEMs and have attempted to restrict the Company from
licensing the technology utilized by these OEMs to OEMs developing potentially
competing products. The Company also is subject to a credit risk associated
with the concentration of its accounts receivable from these OEMs. No
assurance can be given as to the ability or willingness of any of the
Company's OEMs to continue utilizing the Company's services and technology
consistent with past practice or at all, or as to the ability of the Company
in the future to sell its services and technology consistent with past
practice or at all to its existing or new OEMs. Any significant decrease in
sales
6
<PAGE>
of products by, or a reduction in licensing or engineering services to, the
Company's larger OEMs, any failure of the Company to replace its existing OEMs
or to enter into relationships with new OEM customers in accordance with the
Company's expectations, or any delay in or failure to make the payments due to
the Company from such OEMs could have a material adverse effect on the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Risks Associated with Technological Change; Dependence on the Digital
Document Product Market. The market for the Company's products and services is
characterized by rapidly changing technology, evolving industry standards and
needs, and frequent new product introductions. The Company currently derives
substantially all of its revenues from the licensing of technology and the
sale of related engineering services that enable the printing and imaging of
digital documents, and the Company anticipates that these sources of revenue
will continue to account for substantially all of the Company's revenues for
the foreseeable future. The Company and its OEMs are required to develop and
release in a regular and timely manner new digital document products with
increased speed, enhanced resolution, reduced memory requirements,
multifunction capability, network compatibility and color imaging. The
acceptable amount of time to develop these products is continuing to decrease,
which increases the complexity for and costs to the Company and its OEMs. In
addition, the Company, its OEMs and their competitors from time to time may
announce new products, capabilities or technologies that may replace or
shorten the life cycles of the OEM products incorporating the Company's
technology. The Company's success will depend on, among other things: market
acceptance of the Company's technology and the digital document products of
the Company's OEM customers; the ability of the Company and its OEM customers
to meet industry changes and market demands in a timely manner; achievement of
new design wins by the Company followed by the OEMs' development of associated
new digital document products; and the regular and continued introduction of
new and enhanced technology and services by the Company and its OEMs on a
timely and cost-effective basis. There can be no assurance that the products
and technology of competitors of the Company or its OEMs will not render the
Company's technology or its OEMs' products noncompetitive or obsolete. Any
failure by the Company or its OEMs to anticipate or respond adequately to the
rapidly changing technology and evolving industry standards and needs, or any
significant delay in development or introduction of new and enhanced products
and services, could result in a loss of competitiveness or revenues, which
could have a material adverse effect on the Company's operating results.
Risks Associated with Product Development; Product Delays. The Company in
the past has experienced delays in product development, and the Company may
experience similar delays in the future. Prior delays have resulted from
numerous factors such as changing OEM product specifications, difficulties in
hiring and retaining necessary personnel, difficulties in reallocating
engineering resources and other resource limitations, difficulties with
independent contractors, changing market or competitive product requirements
and unanticipated engineering complexity. In addition, the Company's software
and hardware have in the past and may in the future contain undetected errors
or failures that become evident upon product introduction or as product
production volumes increase. There can be no assurance, despite testing by the
Company and its OEMs, that errors will not be found, that the Company will not
experience development challenges resulting in unanticipated problems or
delays in the acceptance of products by the Company's OEMs or shipment of the
OEMs' products, or that the Company's new products and technology will meet
performance specifications under all conditions or for all anticipated
applications. Given the short product life cycles in the digital document
products market, any delay or unanticipated difficulty associated with new
product introductions or product enhancements could have a material adverse
effect on the Company's operating results.
Risks Associated with Developing Markets. A substantial portion of the
Company's recent development efforts has been directed at the development of
new embedded imaging technologies, particularly for MFP and color products.
The market for these products is new and rapidly evolving. The Company's OEMs
currently are selling monochrome network printers and MFPs incorporating the
Company's technology. The Company is currently developing its color technology
for incorporation into a printer but has not yet shipped any color products.
The Company's future success will be dependent to a significant degree upon
broad
7
<PAGE>
market acceptance of the technology under development, particularly its MFP
and color technology. This success will be dependent in part on the ability of
the Company's OEMs to develop new products that provide the functionality,
performance, speed and network connectivity demanded by the market at
acceptable prices, and to convince end users to adopt MFP, color printing and
other products for office and desktop use. There can be no assurance that: the
market for MFP, color printing and other products proposed by the Company will
develop; the Company will be able to offer in a timely manner, if at all, its
new technology; the Company's OEM customers will choose the Company's
technology for use in their MFPs, color printers or other products; the
Company's OEM customers will be successful in developing such MFPs, color
printers and other products; or such products will gain market acceptance. The
failure of any of these events to occur would have a material adverse effect
on the Company's operating results.
Competition. The market for embedded imaging systems for digital document
products is highly competitive and characterized by continuous pressure to
enhance performance, to introduce new features and to accelerate the release
of new products. The Company competes on the basis of technology expertise,
product functionality, development time and price. The Company's technology
and services primarily compete with solutions developed internally by OEMs.
Virtually all of the Company's OEMs have significant investments in their
existing solutions and have the substantial resources necessary to enhance
existing products and to develop future products. These OEMs have or may
develop competing embedded imaging systems technologies and may implement
these systems into their products, thereby replacing the Company's current or
proposed technologies, eliminating a need for the Company's services and
products and limiting future opportunities for the Company. The Company
therefore is required to persuade these OEMs to outsource the development of
their embedded imaging systems and to provide products and solutions to these
OEMs that cost-effectively compete with their internally developed products.
The Company also competes with software and engineering services provided in
the digital document product marketplace by other systems suppliers to OEMs.
In this regard, the Company competes with, among others, Xionics Document
Technologies with respect to MFP embedded systems and Electronics for Imaging
with respect to color technologies.
As the industry continues to develop, the Company expects that competition
and pricing pressures will increase from OEMs, existing competitors and other
companies that may enter the Company's existing or future markets with similar
or substitute solutions that may be less costly or provide better performance
or functionality. The Company anticipates increasing competition for its color
products under development, particularly as new competitors develop and enter
products in this market. Some of the Company's existing competitors, many of
its potential competitors and virtually all of the Company's OEMs have
substantially greater financial, technical, marketing and sales resources than
the Company. In the event that price competition increases, competitive
pressures could cause the Company to reduce the amount of royalties received
on new licenses and to reduce the cost of its engineering services in order to
maintain existing business and generate additional product licensing revenues,
which could reduce profit margins and result in losses and a decrease in
market share. No assurance can be given as to the ability of the Company to
compete favorably with the internal development capabilities of its current
and prospective OEM customers or with other third-party embedded imaging
system suppliers, and the inability to do so would have a material adverse
effect on the Company's operating results.
Dependence on Adobe Relationships. The Company has a set of relationships
with Adobe that address many critical aspects of the Company's OEM customers'
needs. The Company has licensed (for internal development purposes) from Adobe
the right to use Adobe's PostScript(R) Software to enable the Company's
products to be used with Adobe's PostScript Software, has licensed to Adobe
several of the Company's technologies and has developed technologies for Adobe
for which the Company receives royalties and engineering services fees, and is
currently seeking to license color matching technology from Adobe. A number of
the agreements governing relationships with Adobe are in the process of being
finalized, and no assurances can be given that such agreements will be
finalized in accordance with the parties' current intent or at all. The
Company derives significant competitive and cost advantages from its
relationship with Adobe.
8
<PAGE>
Therefore, the termination or limitation of the Company's relationships with
Adobe would have a material adverse effect on the Company's operating results.
Dependence on Sole Source Providers. The Company is dependent on two
independent parties, Motorola and Intel, each of which provides unique
application specific integrated circuits ("ASICs") incorporating the Company's
imaging technology to certain of the Company's OEMs. In addition, the Company
is dependent upon Emulex to provide network interface cards incorporating the
Company's technology to the Company's OEMs. These sole source providers are
subject to materials shortages, excess demand, reduction in capacity and/or
other factors that may disrupt the flow of goods to the Company's customers
and thereby adversely affect the Company's customer relationships. Any such
disruption could limit or delay production or shipment of the products
incorporating the Company's technology, which could have a material adverse
effect on the Company's operating results.
Dependence on Intellectual Property Rights; Risk of Infringement; Trademark
Disputes. The Company's success is heavily dependent upon its proprietary
technology. To protect its proprietary rights, the Company relies on a
combination of patent, copyright, trade secret and trademark laws,
nondisclosure and other contractual restrictions. The Company holds two
patents issued in the United States, one of which is also issued in France,
Germany and Great Britain. The issued patents relate to techniques developed
by the Company for generating output for continuous synchronous raster output
devices such as laser printers using a smaller amount of memory than would be
required without using the Company's technology. One of the two U.S. patents
was issued on March 26, 1996 and the other patent was issued on April 16,
1996. The patent term of the U.S. patents is 17 years from the issue date,
subject to the payment of required maintenance fees. The patents granted in
Great Britain, France and Germany were issued on February 14, 1996. The term
of the European patents is 20 years from the filing date of August 2, 1991,
subject to an opposition period that will expire on November 14, 1996 and
payment of required renewal fees. The Company has one patent application
pending in Japan and six patent applications pending in the United States.
There can be no assurance that patents held by the Company will not be
challenged or invalidated, that patents will issue from any of the Company's
pending applications or that any claims allowed from existing or pending
patents will be of sufficient scope or strength (or issue in the countries
where products incorporating the Company's technology may be sold) to provide
meaningful protection or any commercial advantage to the Company. In any
event, effective protection of intellectual property rights may be unavailable
or limited in certain countries. The status of United States patent protection
in the software industry is not well defined and will evolve as the United
States Patent and Trademark Office grants additional patents. Patents have
been granted, and patents may be issued, to third parties that relate to
fundamental technologies related to the Company's technology.
As part of its confidentiality procedures, the Company generally enters into
nondisclosure agreements with its employees, consultants, OEMs and strategic
partners and limits access to and distribution of its software and other
proprietary information. Despite these efforts, the Company may be unable to
effectively protect its proprietary rights and, in any event, enforcement of
the Company's proprietary rights may be expensive. The Company's source code
also is protected as a trade secret. However, the Company from time to time
licenses its source code to OEMs, which subjects the Company to the risk of
unauthorized use or misappropriation despite the contractual terms restricting
disclosure. In addition, it may be possible for unauthorized third parties to
copy the Company's products or to reverse engineer or obtain and use the
Company's proprietary information.
As the number of patents, copyrights, trademarks and other intellectual
property rights in the Company's industry increases, products based on its
technology increasingly may become the subject of infringement claims. There
can be no assurance that third parties will not assert infringement claims
against the Company in the future. Any such claims, regardless of merit, could
be time consuming, result in costly litigation, cause product shipment delays
or require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse
affect on the Company's operating results. In addition, the Company may
9
<PAGE>
initiate claims or litigation against third parties for infringement of the
Company's proprietary rights or to establish the validity of the Company's
proprietary rights. Litigation to determine the validity of any claims,
whether or not such litigation is determined in favor of the Company, could
result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from productive tasks. In
addition, the Company may lack sufficient resources to initiate a meritorious
claim. In the event of an adverse ruling in any litigation regarding
intellectual property, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to
infringing or substituted technology. The failure of the Company to develop,
or license on acceptable terms, a substitute technology if required could have
a material adverse affect on the Company's operating results.
The Company is aware of an unrelated corporation that is using the name
"Peerless Systems Corporation," and the Company is in discussions with this
corporation regarding the rights of both entities to use the name. Although
the Company believes that it has prior right to the name, the other
corporation has disputed the Company's position. No assurance can be given as
to the ability of the Company to continue to use the name nor can any
assurance be given as to the ability of the Company to acquire a license to or
an assignment of the name from the corporation on reasonable terms or at all.
The inability of the Company to do so could have a material adverse effect on
the Company's operating results. In any event, the prosecution of claims or
other litigation relating to the dispute could result in substantial costs to
the Company, which also could have a material adverse effect on the Company's
operating results.
Dependence on Key Personnel. The Company is largely dependent upon the
skills and efforts of its senior management and other officers and key
employees, some of whom only recently have joined the Company. The Company
does not maintain any key person life insurance policies. The Company believes
that its future success will depend in large part upon its ability to attract
and retain highly skilled managerial, engineering, sales, marketing and
operations personnel, many of whom are in great demand. Competition for such
personnel recently has increased significantly. The loss of key personnel or
the inability to hire or retain qualified personnel could have a material
adverse effect on the Company's operating results.
International Activities. Revenues from sales to the Company's customers
outside the United States accounted for 26%, 41% and 33% of the Company's
total revenues for the fiscal years ended December 31, 1994 and December 31,
1995 and the three months ended April 30, 1996, respectively. Therefore, the
Company is substantially dependent on its international business activities.
Further, the Company expects that sales to customers located outside the
United States may increase in absolute dollars in the future. The
international market for products incorporating the Company's technology is
highly competitive, and the Company expects to face substantial competition in
this market from established and emerging companies and technologies developed
internally by its OEM customers. Risks inherent in the Company's international
business activities also include currency fluctuations, the imposition of
government controls, tailoring of products to local requirements, trade
restrictions, changes in tariffs and taxes, and the burdens of complying with
a wide variety of foreign laws and regulations, any of which could have a
material adverse effect on the Company's operating results.
No Prior Public Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Prior to this offering, there was no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop or be sustained upon completion of this offering. The
initial public offering price will be determined by negotiation among the
Company, the Selling Stockholders and the representatives of the Underwriters
based on a number of factors, including market valuations of other companies
engaged in activities similar to those of the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors
deemed relevant. The initial public offering price may not be indicative of
the market price of the Common Stock following completion of this offering.
The trading price of the Common Stock could also be subject to significant
fluctuations in response to variations in quarterly results of operations,
announcements of new products by the Company or its competitors, developments
or disputes with respect to proprietary rights, general trends in the
industry, overall market conditions and other factors. In addition, the stock
market historically has experienced extreme price and volume fluctuations,
which have particularly affected the
10
<PAGE>
market price of securities of many high technology companies and which at
times have been unrelated or disproportionate to the operating performance of
such companies. These market fluctuations may adversely affect the market
price of the Common Stock. See "Underwriting."
Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely
affect the market price of the Company's Common Stock. Upon completion of this
offering, the Company will have outstanding an aggregate of 10,202,618 shares
of Common Stock, assuming (i) the exercise of warrants to purchase 1,133,351
shares of Common Stock on a cashless basis, resulting in the issuance of
995,671 shares of Common Stock, (ii) no exercise of the Underwriters' over-
allotment option and (iii) no exercise of options to purchase 1,488,291 shares
of Common Stock outstanding as of July 31, 1996. Of these shares, all of the
shares of Common Stock sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless such shares are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act ("Affiliates"). The remaining 6,452,618 shares of Common Stock
held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act. As a result of contractual restrictions
and the provisions of Rules 144 and 701, additional shares will be available
for sale to the public as follows: (i) approximately 31,867 Restricted Shares
will be eligible for immediate sale on the date of this Prospectus; (ii)
approximately 83,633 Restricted Shares will be eligible for sale beginning 90
days after the date of this Prospectus; (iii) approximately 5,291,393
Restricted Shares (plus approximately 603,531 shares of Common Stock issuable
to employees and consultants pursuant to stock options that are then vested)
will be eligible for sale upon expiration of the lock-up agreements 180 days
after the date of this Prospectus; and (iv) the remaining 1,045,721 Restricted
Shares will be eligible for sale beginning October 1997 upon expiration of
their two-year holding period. Any shares subject to the lock-up agreements
may be released at any time without notice by Hambrecht & Quist LLC. The
Company intends to register all of the shares of Common Stock issuable under
its stock option plans. In addition, the holders of approximately 5,539,494
shares of Common Stock will have certain rights to registration of these
shares under the Securities Act. See "Description of Capital Stock--
Registration Rights" and "Shares Eligible For Future Sale."
Unspecified Use of Proceeds. The Company expects to use approximately
$500,000 of the net proceeds from this offering for the repayment of
indebtedness under its revolving line of credit, and approximately $500,000 to
repay certain equipment lease lines. The Company plans to use the remaining
proceeds of this offering for working capital and other general corporate
purposes. The Company may also use a portion of the net proceeds from the
offering to acquire or invest in complementary businesses, products or
technologies, although the Company has no present plans or commitments and is
not currently engaged in any negotiations with respect to such transactions.
Consequently, the Company will have significant discretion as to the use of
virtually all of the net proceeds to the Company from this offering. Pending
such uses, the Company intends to invest the net proceeds to the Company from
this offering in interest-bearing deposit accounts, certificates of deposit or
similar short-term, investment-grade financial instruments. See "Use of
Proceeds."
Control by Existing Stockholders. Upon the completion of this offering, the
current officers, directors and their affiliates and five percent stockholders
will beneficially own approximately 37.6% of the outstanding shares of the
Common Stock of the Company. Accordingly, such persons, if they act together,
likely will have effective control over the Company through their ability to
control the election of directors and all other matters that require action by
the Company's stockholders, irrespective of how other stockholders may vote.
Such persons could prevent or delay a change in control of the Company, which
may be favored by a majority of the remaining stockholders. The ability to
prevent or delay a change in control of the Company also may have an adverse
effect on the market price of the Common Stock. See "Management--Executive
Officers and Directors," "Principal and Selling Stockholders" and "Description
of Capital Stock."
Effect of Anti-takeover Provisions. Certain provisions of the Company's
Certificate of Incorporation (the "Charter") and Bylaws (the "Bylaws") and
certain provisions of Delaware law following the offering could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from
11
<PAGE>
attempting to acquire, control of the Company. Such provisions could limit the
price that investors might be willing to pay in the future for the Company's
Common Stock. These provisions will permit the issuance of "blank check"
preferred stock by the Board of Directors without stockholder approval,
require super-majority approval to amend certain provisions in the Charter and
Bylaws, require that all stockholder actions be taken at duly called annual or
special meetings and not by written consent, and impose various procedural and
other requirements that could make it more difficult for stockholders to
effect certain corporate actions. Furthermore, the Company will be subject to
the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person first becomes an
"interested stockholder," unless the business combination is approved in a
prescribed manner. The application of Section 203 could also have the effect
of delaying or preventing a change of control of the Company. See "Description
of Capital Stock."
Immediate and Substantial Dilution. Purchasers of Common Stock in the
offering will experience immediate and substantial dilution. To the extent
outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public of
$12.00 per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company, are estimated to be approximately
$27.1 million. The Company will not receive any proceeds from the sale of the
shares being sold by the Selling Stockholders.
The Company expects to use approximately $500,000 of the net proceeds for
the repayment of indebtedness under its revolving line of credit, which bears
interest at the bank's prime interest rate plus 2% and is due in May 1997, and
approximately $500,000 to repay certain equipment lease lines with effective
interest rates ranging between 16% and 27% and with expiration dates through
1999. The Company plans to use the remaining net proceeds of this offering for
working capital and other general corporate purposes. The Company also may use
a portion of the net proceeds from the offering to acquire or invest in
complementary businesses, products or technologies, although the Company has
no present plans or commitments and is not currently engaged in any
negotiations with respect to such transactions. Pending such uses, the Company
intends to invest the net proceeds in interest-bearing deposit accounts,
certificates of deposit or similar short-term, investment grade financial
instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, to
fund the development and growth of its business and does not anticipate paying
any cash dividends on its Common Stock in the foreseeable future. Under the
terms of the Company's revolving line of credit, the Company currently is
prohibited from paying dividends on its Common Stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of April 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization assuming the
conversion of all outstanding Preferred Stock and Debentures into Common
Stock, the exercise of all outstanding warrants to purchase shares of Common
Stock on a cashless basis and a change in the par value of the Company's
capital stock and (iii) the pro forma capitalization as adjusted to give
effect to the sale of the 2,500,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per share
(after deducting the estimated underwriting discount and offering expenses)
and application of the net proceeds therefrom and the exercise of options to
purchase 14,452 shares of Common Stock at a weighted average of $0.53 per
share to be sold in the offering by the Selling Stockholders. This table
should be read in conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1996
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Debentures (1)................................. $ 3,070 $ -- $ --
Redeemable Preferred Stock (2)................. 5,938 -- --
Stockholders' equity (deficit):
Preferred Stock, no par value actual, $.001
par value pro forma; actual outstanding as
set forth above; 5,000,000 shares
authorized pro forma, no shares issued or
outstanding, pro forma and
pro forma as adjusted....................... -- -- --
Common Stock, no par value actual, $.001 par
value pro forma;
30,000,000 shares authorized pro forma;
2,839,331 shares issued and outstanding
actual; 7,697,373 shares issued and
outstanding pro forma; 10,211,825 shares
issued and outstanding pro forma as adjusted
(3)......................................... 508 8 10
Additional paid-in capital................... 889 10,397 37,453
Accumulated deficit.......................... (13,195) (13,195) (13,195)
-------- -------- --------
Total stockholders' equity (deficit)....... (11,798) (2,790) 24,268
-------- -------- --------
Total capitalization..................... $ (2,790) $ (2,790) $ 24,268
======== ======== ========
</TABLE>
- ---------------------
(1) See Note 5 of Notes to Financial Statements for a description of the
Debentures.
(2) See Note 8 of Notes to Financial Statements for a description of the
Redeemable Preferred Stock.
(3) Excludes, except as set forth above, 1,007,989 shares of Common Stock
issuable upon the exercise of options outstanding as of April 30, 1996 at
a weighted average exercise price of $1.29 per share and 103,708 shares of
Common Stock reserved for future issuance under the Company's stock option
and purchase plans. See "Management--Employee Benefit Plans" and Note 9 of
Notes to Financial Statements.
14
<PAGE>
DILUTION
As of April 30, 1996, the Company had a pro forma net tangible book value of
approximately $(2,790,000), or $(0.36) per share. Pro forma net tangible book
value per share is equal to the Company's total tangible assets less its total
liabilities, divided by the number of pro forma shares of Common Stock
outstanding. Without taking into account any further adjustment in net
tangible book value after April 30, 1996, other than to give effect to the
2,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $12.00 per share (after deducting the
estimated underwriting discount and offering expenses), the pro forma net
tangible book value as of April 30, 1996 would have been $24,268,000 or $2.38
per share. This represents an immediate increase in net tangible book value of
$2.74 per share to existing stockholders and an immediate dilution of $9.62
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $12.00
Pro forma net tangible book value per share before the
offering................................................... $(0.36)
Increase per share attributable to new investors............ 2.74
------
Pro forma net tangible book value per share after the
offering..................................................... 2.38
------
Dilution per share to new investors........................ $ 9.62
======
</TABLE>
The following table summarizes, on a pro forma basis as of April 30, 1996,
the differences between the existing stockholders and the new investors with
respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)...... 7,711,825 75.5% $ 9,576,553 24.2% $1.24
New investors (1).............. 2,500,000 24.5 30,000,000 75.8 12.00
---------- ----- ----------- ----- =====
Total...................... 10,211,825 100.0% $39,576,553 100.0%
========== ===== =========== =====
</TABLE>
- ---------------------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 6,461,825 shares or
approximately 63.3% (5,937,705 shares or approximately 57.9% if the
Underwriters' over-allotment option is exercised in full) of the total
shares of Common Stock outstanding after this offering and will increase
the number of shares held by new investors to 3,750,000 shares or
approximately 36.7% (4,312,500 shares or approximately 42.1% if the
Underwriters' over-allotment option is exercised in full) of the total
shares of Common Stock outstanding after this offering. See "Principal and
Selling Stockholders."
The above computations assume (i) the exercise of warrants to purchase
1,133,351 shares of Common Stock at a weighted average of $1.46 per share on a
cashless basis at the assumed initial public offering price of $12.00 per
share, resulting in the issuance of 995,671 shares of Common Stock, (ii) the
conversion of all outstanding Debentures into 1,169,522 shares of Common Stock
and (iii) the exercise of options to purchase 14,452 shares of Common Stock by
the Selling Stockholders at a weighted average exercise price of $0.53 per
share (52,832 shares at a weighted average exercise price of $1.39 per share
if the Underwriter's over-allotment option is exercised in full). The above
computations assume no exercise of options to purchase 1,488,291 shares of
Common Stock outstanding as of July 31, 1996 at a weighted average exercise
price of $2.26 per share, except as otherwise noted. To the extent such
options are exercised, there will be further dilution to investors.
15
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1993, 1994
and 1995 and the month ended January 31, 1996 and the balance sheets at
December 31, 1994 and 1995 and January 31, 1996 are derived from, and should
be read in conjunction with, the audited Financial Statements and Notes
thereto included elsewhere in this Prospectus. The statement of operations
data for the years ended December 31, 1991 and 1992 and the balance sheets at
December 31, 1991, 1992 and 1993 are derived from the audited financial
statements not included in this Prospectus. The statement of operations data
for the three months ended March 31, 1995 and April 30, 1996 and the balance
sheets at April 30, 1996 are derived from unaudited financial statements that
have been prepared on the same basis as the audited financial statements and,
in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and operating results for such periods. Operating
results for interim periods are not necessarily indicative of results to be
expected for the full years. The Company changed its fiscal year end to
January 31 commencing February 1, 1996. The data set forth below are qualified
in their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------ MONTH ENDED ------------------
JANUARY 31, MARCH 31, APRIL 30,
1991 1992 1993 1994 1995 1996 (1) 1995 (1) 1996 (1)
------- ------- ------- ------- ------ ----------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product licensing..... $ 1,969 $ 1,457 $ 1,586 $ 4,394 $4,774 $ 329 $1,224 $1,013
Engineering services
and maintenance...... 3,019 3,477 3,655 4,942 5,639 396 1,146 2,318
------- ------- ------- ------- ------ ----- ------ ------
Total revenues....... 4,988 4,934 5,241 9,336 10,413 725 2,370 3,331
------- ------- ------- ------- ------ ----- ------ ------
Cost of revenues:
Product licensing..... 4 122 341 218 143 5 43 33
Engineering services
and maintenance...... 2,171 3,229 5,095 5,457 5,111 564 1,147 1,615
------- ------- ------- ------- ------ ----- ------ ------
Total cost of
revenues............ 2,175 3,351 5,436 5,675 5,254 569 1,190 1,648
------- ------- ------- ------- ------ ----- ------ ------
Gross margin........ 2,813 1,583 (195) 3,661 5,159 156 1,180 1,683
------- ------- ------- ------- ------ ----- ------ ------
Operating expenses:
Research and
development.......... 1,699 2,388 1,766 1,767 2,088 127 512 422
Sales and marketing... 1,667 1,904 1,656 1,878 2,142 156 483 597
General and
administrative....... 572 1,035 1,048 1,000 1,293 119 304 500
------- ------- ------- ------- ------ ----- ------ ------
Total operating
expenses............ 3,938 5,327 4,470 4,645 5,523 402 1,299 1,519
------- ------- ------- ------- ------ ----- ------ ------
Income (loss) from
operations............ (1,125) (3,744) (4,665) (984) (364) (246) (119) 164
Interest expense, net.. 3 49 96 118 176 17 35 71
------- ------- ------- ------- ------ ----- ------ ------
Income (loss) before
provision for income
taxes................. (1,128) (3,793) (4,761) (1,102) (540) (263) (154) 93
Provision for income
taxes................. 35 58 63 124 99 7 14 18
------- ------- ------- ------- ------ ----- ------ ------
Net income (loss)...... $(1,163) $(3,851) $(4,824) $(1,226) $ (639) $(270) $ (168) $ 75
======= ======= ======= ======= ====== ===== ====== ======
Pro forma net income
(loss) per share (2).. $(0.08) $ 0.02
====== ======
Shares used in pro
forma per share
calculation (2)....... 7,090 7,762
====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JANUARY 31, APRIL 30,
1991 1992 1993 1994 1995 1996 1996
------- ------- -------- -------- -------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 931 $ 540 $ 771 $ 393 $ 1,184 $ 722 $ 627
Working capital
(deficit)............. 790 (1,734) (2,447) (3,192) (2,307) (2,608) (2,452)
Total assets........... 2,812 2,404 3,221 3,541 4,185 4,041 4,533
Long-term obligations.. 156 1,628 2,296 2,594 4,299 4,286 4,576
Redeemable Preferred
Stock................. 2,589 2,789 6,422 6,645 5,931 5,932 5,938
Total stockholders'
equity (deficit)...... (1,435) (5,486) (10,528) (11,941) (11,596) (11,867) (11,798)
</TABLE>
- -------------
(1) The Company changed its fiscal year-end to January 31, beginning February
1, 1996.
(2) See Note 1 of Notes to Financial Statements for a description of the
computation of the pro forma net income (loss) per share and the number of
shares used in the pro forma per share calculation.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the discussions in
this Prospectus contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and in the section
entitled "Risk Factors" as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
The Company, founded in April 1982, is a leading provider of embedded
imaging systems to the digital document products market. The Peerless family
of products and engineering services provides advanced embedded imaging
technologies that enable the Company's OEM customers to develop digital
printers, copiers and MFPs quickly and cost effectively.
As of April 30, 1996, the Company had an accumulated deficit of
approximately $13.2 million. The Company changed its fiscal year-end from
December 31 to January 31, commencing February 1, 1996, in order to better
align the timing of the Company's financial reporting with the timing of
receipt of royalty information by the Company from its OEMs. No analysis is
provided for the month ended January 31, 1996. Information for the three
months ended April 30, 1996 is compared with the information for the three
months ended March 31, 1995 in accordance with the Company's historical
accounting presentation. See "Risk Factors--History of Operating Losses;
Accumulated Deficit" and "--International Activities."
The Company's revenues are comprised of product licensing fees and
engineering services and maintenance fees related to the Company's embedded
imaging software and supporting electronics technologies provided to OEMs
located primarily in the United States and Japan. The Company's major
customers currently include, among others, Adobe and OEM customers Canon, IBM
and Xerox. A significant portion of the Company's revenues in recent years has
been concentrated with a limited number of OEM customers, and the Company
anticipates that its revenues in the future will be similarly concentrated. In
1995 and the three months ended April 30, 1996, the Company's top four
customers accounted for approximately 74% and 67% of total revenues,
respectively. See "Risk Factors--Concentration of OEM Customers."
The Company's product licensing revenues are comprised of both recurring
licensing revenues and one-time licensing fees. Recurring licensing revenues
are derived from per unit fees paid quarterly by the Company's OEMs upon
shipment or manufacture of products incorporating the Company's technology.
Recurring licensing revenues are derived to a lesser extent from arrangements
in which the Company enables its products to be used with third-party
technology such as certain arrangements with Adobe. The Company's one-time
licensing fees are paid by OEMs for access to the Company's software, which in
turn generates recurring licensing revenues if the software is incorporated
into OEM products that are subsequently developed and shipped.
The Company's engineering services revenues primarily are derived from
adapting the Company's software and supporting electronics to specific OEM
requirements. The Company provides its engineering services to OEMs seeking an
embedded imaging solution for their digital document products. The Company's
maintenance revenues are derived from software maintenance agreements.
Maintenance revenues constitute a very small portion of engineering services
and maintenance revenues.
The Company recognizes its recurring product licensing revenues on a royalty
basis generally when the Company's OEM customers ship products that
incorporate the Company's technology. The Company recognizes its one-time
licensing revenues for software licenses upon shipment and acceptance by the
Company's OEMs. The Company recognizes engineering services revenues over the
course of the development work on a percentage-of-completion basis.
Maintenance revenues are recognized ratably over the term of the maintenance
contract, which generally is twelve months. Licensing revenues are recognized
in accordance with Statement of Position 91-1 "Software Revenue Recognition."
The recurring product
17
<PAGE>
licensing revenues reported by the Company are dependent on the timing and
accuracy of product sales reports received from the Company's OEM customers.
These reports are provided only on a calendar quarter basis and, in any event,
are subject to delay and potential revision by the OEM. Therefore, the Company
is required to estimate all of the recurring product licensing revenues for
the last month of each quarter and to further estimate all of its quarterly
revenues from an OEM when the report from such OEM is not received in a timely
manner. As a result, the Company may be unable to estimate such revenues
accurately prior to public announcement of the Company's quarterly results. In
such event, the Company subsequently may be required to restate its recognized
revenues or adjust revenues for subsequent periods, which could have a
material adverse effect on the Company's operating results and the price of
the Company's Common Stock. See "Risk Factors--Potential Fluctuations in
Quarterly Results; Seasonality; Revenue Reporting."
The Company frequently receives payments from its OEMs in advance of
recognition of the associated revenues, and, in many cases, the Company
receives guaranteed minimum payments in advance of per unit licensing
royalties. These amounts are recorded as deferred revenue. Deferred revenue
consists of prepayments of product licensing revenues and payments received in
advance for engineering services and maintenance to be performed.
Revenues from sales to the Company's customers outside the United States
accounted for 26%, 41% and 33% of the Company's revenue for the fiscal years
ended December 31, 1994 and December 31, 1995 and the three months ended April
30, 1996, respectively. Therefore, the Company is substantially dependent on
its international business activities. See "Risk Factors--International
Activities."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statements of operations to
total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-------------------------------------------
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
--------------------- -------------------
MARCH 31, APRIL 30,
1993 1994 1995 1995 1996
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product licensing................ 30.3% 47.1% 45.8% 51.6% 30.4%
Engineering services and mainte-
nance........................... 69.7 52.9 54.2 48.4 69.6
----- ----- ----- ----- -----
Total revenues................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Product licensing................ 6.5 2.3 1.4 1.8 1.0
Engineering services and
maintenance..................... 97.2 58.5 49.1 48.4 48.5
----- ----- ----- ----- -----
Total cost of revenues........... 103.7 60.8 50.5 50.2 49.5
----- ----- ----- ----- -----
Gross margin..................... (3.7) 39.2 49.5 49.8 50.5
----- ----- ----- ----- -----
Operating expenses:
Research and development......... 33.7 18.9 20.1 21.6 12.7
Sales and marketing.............. 31.6 20.1 20.6 20.4 17.9
General and administrative....... 20.0 10.7 12.4 12.8 15.0
----- ----- ----- ----- -----
Total operating expenses......... 85.3 49.8 53.0 54.8 45.6
----- ----- ----- ----- -----
Income (loss) from operations..... (89.0) (10.5) (3.5) (5.0) 4.9
Interest expense, net............. 1.8 1.3 1.7 1.5 2.1
----- ----- ----- ----- -----
Income (loss) before provision for
income taxes..................... (90.8) (11.8) (5.2) (6.5) 2.8
Provision for income taxes........ 1.2 1.3 1.0 0.6 0.5
----- ----- ----- ----- -----
Net income (loss)................. (92.0)% (13.1)% (6.1)% (7.1)% 2.3%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1995 and April 30, 1996
The Company's total revenues were $3.3 million in the three months ended
April 30, 1996 and $2.4 million in the three months ended March 31, 1995. The
Company's product licensing revenues for the three months ended April 30, 1996
decreased 17% to $1.0 million from $1.2 million in the three months
18
<PAGE>
ended March 31, 1995, primarily due to OEM product life cycles. The Company's
engineering services and maintenance revenues for the three months ended April
30, 1996 increased 102% to $2.3 million from $1.1 million in the three months
ended March 31, 1995, primarily due to an increase in the number of monochrome
and color design projects under development.
The Company's cost of revenues includes product licensing costs as well as
engineering services and maintenance costs. Cost of engineering services and
maintenance is comprised primarily of salaries and benefits for engineering
personnel and materials, an allocation of corporate facilities overhead and an
allocation of engineering management and administrative staff expenses. Gross
margin as a percentage of total revenues was approximately 49% for the three
months ended April 30, 1996 and three months ended March 31, 1995. The gross
margin percentage remained consistent despite a change in the mix of revenues
to include a greater proportion of engineering services revenues (which have
lower gross margins than product licensing revenues), as the margins
associated with the engineering services revenues increased between such
periods. Maintenance costs constitute a very small portion of the engineering
services and maintenance costs.
The Company's research and development expenses are comprised primarily of
employee salaries and benefits, an allocation of engineering management and
administrative staff expenses and an allocation of the corporate facilities
overhead. Research and development expenses for the three months ended April
30, 1996 decreased 18% to $422,000 from $512,000 in the three months ended
March 31, 1995. This decrease resulted primarily from a reallocation of the
Company's quality assurance function from a research and development expense
to a cost of revenues. The Company anticipates that its research and
development expenses may increase in absolute dollars as the Company devotes
increased efforts to its color products, MFP technology, PC-based driver
software and new page description languages.
The Company's sales and marketing expenses are comprised primarily of
employee salaries and benefits, commissions and bonuses, advertising and
promotional expenses, the cost of operating the Japan sales office and an
allocation of the corporate facilities overhead. Sales and marketing expenses
for the three months ended April 30, 1996 increased 24% to $597,000 from
$483,000 in the three months ended March 31, 1995, primarily due to hiring of
additional sales and marketing personnel and added promotional activities. The
Company anticipates that its sales and marketing expenses may increase in
absolute dollars as additional sales and marketing personnel are hired to
allow the Company to address new market opportunities.
The Company's general and administrative expenses are comprised primarily of
salaries, benefits and bonuses paid to its executive and administrative staff,
fees paid to the Company's external auditors, counsel and other corporate
consultants, and an allocation of the corporate facilities overhead. General
and administrative expenses for the three months ended April 30, 1996
increased 64% to $500,000 from $304,000 in the three months ended March 31,
1995, primarily due to the hiring of additional management and administrative
personnel and the enhancement of information systems. The Company anticipates
that its general and administrative expenses may increase in absolute dollars
to the extent its business grows and as a result of becoming a public company.
The Company anticipates the recognition of deferred compensation expense of
$452,000 for the difference between the exercise price and the deemed fair
value of the underlying Common Stock for options to purchase 752,650 shares of
Common Stock granted during the three months ended July 31, 1996. Of the total
expense, the Company anticipates that $27,000 will be recognized as a
compensation expense during the three months ended July 31, 1996. The
remaining deferred compensation expense generally will be amortized over the
ensuing two to 60 month periods of the options. See Note 13 of Notes to
Financial Statements.
The Company anticipates that the sale of the Common Stock in this offering
will constitute a "change in ownership" as described in Section 382 of the
Internal Revenue Code, which will limit the utilization of net operating
losses and tax credit carry-forwards in future periods.
19
<PAGE>
Years Ended December 31, 1993, 1994 and 1995
The Company's total revenues were $10.4 million in 1995, $9.3 million in
1994 and $5.2 million in 1993. The Company's product licensing revenues
increased to $4.8 million in 1995 from $4.4 million in 1994 and $1.6 million
in 1993. The increase from 1993 to 1994 was primarily due to an increase in
recurring licensing fees as a result of a significant increase in the quantity
of products incorporating the Company's technology shipped by the Company's
OEM customers. The increase from 1994 to 1995 was primarily due to a number of
one-time software licenses that were entered into during the period. The
Company's engineering services and maintenance revenues increased to $5.6
million in 1995 from $4.9 million in 1994 and $3.7 million in 1993. The
increase from 1993 to 1994 and from 1994 to 1995 was primarily due to
additional custom design projects.
The Company's gross margin as a percentage of total revenues increased to
50% in 1995 from 39% in 1994, which had increased from (4)% in 1993. These
increases were due primarily to a greater percentage of the revenues being
derived from product licensing fees. In addition, cost of revenues has
decreased as products on which the Company paid a per unit royalty were
phased-out, and as engineering services costs were leveraged over a larger
number of design projects. Maintenance costs constituted a very small portion
of engineering services and maintenance costs.
The Company's research and development expenses increased to $2.1 million in
1995 from $1.8 million in 1994 and $1.8 million in 1993. The increase from
1994 to 1995 was primarily due to the initiation of the color technology
development effort.
The Company's sales and marketing expenses increased to $2.1 million in 1995
from $1.9 million in 1994 and $1.7 million in 1993. The increase from 1993 to
1994 was primarily due to the growth of the Japan sales activity as OEM
accounts in Japan were added. The increase from 1994 to 1995 was primarily due
to the hiring of additional sales staff and added trade show and promotional
activity as the Company's color technology was announced.
The Company's general and administrative expenses increased to $1.3 million
in 1995 from $1.0 million in 1994 and $1.0 million in 1993. The increase from
1994 to 1995 was primarily due to hiring of additional management personnel.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents the unaudited quarterly statements of
operations for the Company both in absolute dollars and as a percentage of
total revenues. These statements have been prepared by the Company on a basis
consistent with the Company's audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation of the information for the periods
presented. The operating results for any quarter should not be relied upon as
indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED (1)
--------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, APRIL 30,
1995 1995 1995 1995 1996
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product licensing........ $1,224 $1,196 $ 804 $1,550 $1,013
Engineering services and
maintenance............. 1,146 1,166 1,489 1,838 2,318
------ ------ ------ ------ ------
Total revenues.......... 2,370 2,362 2,293 3,388 3,331
------ ------ ------ ------ ------
Cost of revenues:
Product licensing........ 43 31 29 41 33
Engineering services and
maintenance............. 1,147 1,211 1,341 1,411 1,615
------ ------ ------ ------ ------
Total cost of revenues.. 1,190 1,242 1,370 1,452 1,648
------ ------ ------ ------ ------
Gross margin............... 1,180 1,120 923 1,936 1,683
------ ------ ------ ------ ------
Operating expenses:
Research and development. 512 565 601 410 422
Sales and marketing...... 483 597 516 546 597
General and
administrative.......... 304 309 331 346 500
------ ------ ------ ------ ------
Total operating
expenses............... 1,299 1,471 1,448 1,302 1,519
------ ------ ------ ------ ------
Income (loss) from
operations................ (119) (351) (525) 634 164
Interest expense, net...... 35 30 47 66 71
------ ------ ------ ------ ------
Income (loss) before
provision for income
taxes..................... (154) (381) (572) 568 93
Provision for income taxes. 14 48 21 16 18
------ ------ ------ ------ ------
Net income (loss).......... $ (168) $ (429) $ (593) $ 552 $ 75
====== ====== ====== ====== ======
PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Product licensing........ 51.6% 50.6% 35.1% 45.7% 30.4%
Engineering services and
maintenance............. 48.4 49.4 64.9 54.3 69.6
------ ------ ------ ------ ------
Total revenues.......... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Cost of revenues:
Product licensing........ 1.8 1.3 1.3 1.2 1.0
Engineering services and
maintenance............. 48.4 51.3 58.4 41.7 48.5
------ ------ ------ ------ ------
Total cost of revenues.. 50.2 52.6 59.7 42.9 49.5
------ ------ ------ ------ ------
Gross margin............... 49.8 47.4 40.3 57.1 50.5
------ ------ ------ ------ ------
Operating expenses:
Research and development. 21.6 23.9 26.2 12.1 12.7
Sales and marketing...... 20.4 25.3 22.5 16.1 17.9
General and
administrative.......... 12.8 13.1 14.4 10.2 15.0
------ ------ ------ ------ ------
Total operating
expenses............... 54.8 62.3 63.1 38.4 45.6
------ ------ ------ ------ ------
Income (loss) from
operations................ (5.0) (14.9) (22.9) 18.7 4.9
Interest expense, net...... 1.5 1.3 2.0 1.9 2.1
------ ------ ------ ------ ------
Income (loss) before
provision for income
taxes..................... (6.5) (16.1) (24.9) 16.8 2.8
Provision for income taxes. 0.6 2.0 0.9 0.5 0.5
------ ------ ------ ------ ------
Net income (loss).......... (7.1)% (18.2)% (25.9)% 16.3% 2.3%
====== ====== ====== ====== ======
</TABLE>
- ---------------------
(1) The Company changed its fiscal year-end to January 31 commencing February
1, 1996. No information is included for the month ended January 31, 1996.
21
<PAGE>
Product licensing fees decreased in the quarters ended June 30 and September
30 due to the phase-out of a product by one of the Company's primary OEMs. The
increase in the quarter ended December 31 included a one-time license fee of
approximately $400,000. The decrease in the quarter ended April 30 reflects
the non-recurrence of such license fees.
The Company's sales and marketing expenses increased in the quarter ended
June 30, 1995 due to heightened public relations activities and increased
travel expenses.
The Company in the past has experienced, and in the future may experience,
significant fluctuations in quarterly operating results that have been and may
be caused by many factors including: initiation or termination of arrangements
between the Company and its existing and potential OEM customers; the timing
of introductions of new products or product enhancements by the Company, its
OEMs, and their competitors; the phase-out or early termination of OEM
products incorporating the Company's technology; the size and timing of
engineering services orders, one-time software licensing transactions and
recurring licensing fees; the size and timing of and fluctuations in end-user
demand for the OEM products incorporating the Company's technology; inventory
of digital document products carried by the OEM customers' distributors that
exceeds current or projected end-user demand; performance by the Company and
its OEM customers pursuant to their plans and agreements; seasonal trends; the
mix of services provided or products sold and the gross margins attributable
to such services or products; competition and pricing; customer order
deferrals in anticipation of new products or product enhancements; industry
and technology developments; changes in the Company's operating expenses;
software bugs, product delays or other product quality problems; currency
fluctuations and general economic conditions. For example, in recent quarters
the Company's quarterly revenues have been significantly affected by the
timing of one-time licensing transactions and by decreases in recurring
product licensing revenues resulting from the phase-out by OEMs of products
incorporating the Company's technology. The Company expects that its operating
results will continue to fluctuate significantly in the future as a result of
these and other factors. A substantial portion of the Company's costs and
expenses is related to costs of engineering services and maintenance, other
personnel costs, product development, facilities and marketing programs. The
level of spending for such costs and expenses cannot be adjusted quickly and
is based, in significant part, on the Company's expectations of future
revenues and anticipated OEM commitments. If such commitments do not
materialize or are terminated or, in any event, if revenues are below
expectations, the Company's quarterly and annual operating results will be
adversely affected, which could have a material adverse effect on the price of
the Company's Common Stock. See "Risk Factors--Potential Fluctuations in
Quarterly Results; Seasonality; Revenue Reporting."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations and investments in
equipment through cash flow from operations (including deferred revenue), the
private sale of Preferred Stock totaling approximately $6.0 million,
convertible debt financing totaling approximately $3.1 million, equipment
leases of approximately $2.1 million, cash advances from a development partner
and bank borrowing. Since inception, the Company has received approximately
$2.0 million from the development partner, and as of April 30, 1996, the
Company had utilized, through royalty and other arrangements, approximately
$941,000 of the $2.0 million advance. The Company has a revolving line of
credit, collateralized by all of the Company's assets other than those subject
to lease financing and other loan agreements. The maximum amount available
under the line of credit is the lesser of $1.5 million or a percentage of the
Company's outstanding accounts receivable and current royalty receivables. The
interest rate on this line of credit is the bank's prime rate plus 2%.
In fiscal 1993, 1994, 1995 and the three months ended April 30, 1996, the
Company's net cash used by operating activities was $1.5 million, $571,000,
$1.3 million and $517,000, respectively.
In fiscal 1993, 1994, 1995 and the three months ended April 30, 1996, the
Company's investing activities have consisted primarily of purchases of
property and equipment. Property and equipment expenditures,
22
<PAGE>
including those under operating and capital leases, totaled $313,000,
$566,000, $413,000 and $269,000 for such periods, respectively. The Company's
principal commitments, as of April 30, 1996, were $3.0 million on the lease on
its premises in El Segundo, $500,000 of outstanding principal on its revolving
line of credit and $720,000 on its capital and operating leases.
At April 30, 1996, the Company had $627,000 in cash and cash equivalents,
$935,000 available under its revolving line of credit and $578,000 available
under its equipment lease line. The Company's working capital deficit as of
April 30, 1996 was $2.5 million, principally due to the Company's $3.7 million
of deferred revenue. The Company intends to repay its line of credit and
certain equipment lease lines with a portion of the net proceeds from this
offering. The Company currently believes that the net proceeds from the sale
of the Common Stock offered by the Company hereby together with funds from
current and anticipated operations will be sufficient to meet the Company's
working capital and capital expenditure requirements for at least the next 18
months.
23
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of software-based embedded imaging systems
to OEMs of digital document products. Digital document products include
printers, copiers, fax machines, scanners and emerging color products, as well
as MFPs that perform a combination of these imaging functions. In order to
process digital text and graphics, digital document products rely on a core
set of imaging software and supporting electronics, collectively known as an
embedded imaging system. The Peerless family of products and engineering
services provides advanced embedded imaging technologies that enable the
Company's OEM customers to develop digital printers, copiers and MFPs quickly
and cost effectively. The Company markets its solutions directly to customers
such as Adobe, Canon, Digital Equipment Corporation, IBM and Xerox.
INDUSTRY BACKGROUND
Embedded Imaging Systems
Today's office environment is increasingly dependent on a variety of
electronic imaging products such as printers, copiers, fax machines and
scanners, collectively known as digital document products. These products also
are becoming common in the home environment. Historically, most electronic
imaging products in the office environment have been standalone, monochrome
(black-and-white) machines, based on analog technology and dedicated to a
single print, copy, fax or scan function. However, with the proliferation of
personal computers, desktop publishing software and network computing,
documents increasingly are being created, stored and transmitted digitally,
thereby creating the need for digital document production.
Digital documents are becoming increasingly complex and may include digital
text, line art or photographic images. In order to process and render these
documents, digital document products rely upon a core set of imaging software
and supporting electronics collectively known as an embedded imaging system.
With advances in digital imaging engines such as laser printing engines in the
mid-1980s, a common imaging technology foundation for multiple market sectors
is emerging. To date, a majority of embedded imaging systems have been
developed and produced internally by digital document product manufacturers
such as Hewlett-Packard ("HP"), Xerox and Canon. The market for embedded
imaging systems represents a small portion of the worldwide market for digital
document products which the Company estimates, based in part upon data and
projections provided by International Data Corporation ("IDC"), to have been
approximately $24 billion in 1995.
Developments in the Digital Document Products Market
Rapid changes in technology and end-user requirements have created increased
challenges for digital document product manufacturers, particularly in the
area of embedded imaging systems. These changes include increased technical
complexity, the increased role of networking, the emergence of MFPs and the
demand for color imaging. As a result, OEMs increasingly are relying on
outside embedded imaging systems suppliers to provide their embedded imaging
system solutions.
Increased Technical Complexity. Initially, the software written for embedded
imaging systems supported only monochrome, single-function, low-resolution
capabilities. This software was relatively simple and resided on a low-end 8-
bit microprocessor platform. However, as technology and end-user requirements
have evolved, the embedded imaging task has become significantly more complex.
Today, digital imaging engines operate at resolutions of 600 dots per inch or
more, require the support of a variety of document handling options, operate
at increased speeds and are beginning to offer high-quality color output. In
addition, computers and applications software create increasingly
sophisticated documents that incorporate complex graphical content. The data
files for these digital documents can be very large and, if left in raw form,
can overwhelm the memory and processing power of the digital document product.
In response, embedded imaging systems have
24
<PAGE>
evolved from 8-bit to 32-bit platforms that often must employ special
techniques to manage large data files and minimize memory costs. Most embedded
imaging systems use compression techniques to reduce the size of data files,
which can result in reduced image quality. The increased complexity of digital
document products, the rapid pace of technological change and the increased
memory requirements have created increased challenges for digital document
product manufacturers, particularly in the core areas of image processing and
operating system architecture.
Increased Role of Networking. Within the office environment, digital
document products increasingly are deployed in a networked configuration.
According to projections by IDC, 62% of laser printers sold in the United
States in 1995 were connected to enterprise networks, and this percentage is
expected to increase to 78% by 1999. Because multiple local area network
protocols and network operating systems are deployed in the corporate network
environment, networked digital document products must support a broad array of
networking technologies to maximize accessibility by various user groups. The
network environment is also changing rapidly and becoming increasingly
complex, with a growing requirement for remote network management that extends
across both local area networks and wide area networks. In addition, because
the majority of office digital document products are networked, the image
processing intelligence may be partitioned and located anywhere within the
network: at the site of document or image origination; at a server; or, as is
typically the case today, inside the digital document product itself. In some
instances, such as printing to a remote location, it can be advantageous to
perform image pre-processing and compression at the document origination site,
prior to transmission over usage-sensitive facilities. In order to accommodate
the emerging needs of the networked office environment, an optimal embedded
imaging system must employ a modular architecture capable of serving and
managing distributed corporate resources.
Emergence of Multifunction Products. The advent of MFPs has eroded the
boundaries between the previously distinct printer, copier, fax and scanner
market sectors. MFPs, ranging from small home products to large office
devices, offer several of these functions for significantly less cost than
would otherwise be incurred by purchasing these products separately. Each of
the dominant vendors in the printer, copier and fax markets now has introduced
MFPs, which have required each of them to broaden its imaging expertise. At
the same time, the need for concurrent processing of multiple digital document
product functions has created the need for real-time, multitasking operating
system support.
Demand for Color Imaging. Although many office computers have color
displays, and the graphical content available to office users via the World
Wide Web makes heavy use of color, most digital document products found in
today's office environment generate monochrome output. In the 1990s, color
laser printers have been introduced into the office marketplace. Many of these
have been limited by unit costs in excess of $7,500, printing speeds measured
in minutes per page for complex images, and output that does not support
photoquality requirements. In the small office/home office market, most inkjet
printers now support color but are typically limited by output speeds of one
or less pages per minute. Although digital document engine manufacturers have
developed contone (photoquality) hardware technology that is now capable of
supporting high speed photoquality color printing, the output produced by
today's digital document products, in many cases, continues to be limited by
existing embedded imaging systems. Today's embedded imaging systems are
challenged by the transition from monochrome to contone color output because
the simultaneous implementation of four planes of color coupled with up to
eight bits per pixel increases the digital document data stream by a factor of
up to thirty-two. As a result, there is need for embedded imaging systems that
can support the accelerated performance requirements of color output.
Increased Reliance on Outsourcing. In addition to the engineering challenges
generated by changing technology, digital document product manufacturers
increasingly are subject to a variety of market pressures. Competition in the
marketplace, coupled with end-user demand for greater performance at reduced
cost and shortening product life cycles, has created a growing need to reduce
time-to-market and engineering costs. Digital document product manufacturers
increasingly are electing to outsource imaging software and supporting
electronics design to embedded imaging systems suppliers in order to include
new imaging technologies and minimize development time and cost. The increased
role of networking, the emergence of
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MFPs, the demand for color imaging and the increased technical complexity
associated with products meeting these market changes have accelerated this
trend towards outsourcing. As digital document product manufacturers move to
incorporate imaging technologies from outside suppliers, their internal
resources are freed to focus on their core competencies in product
differentiation, marketing and distribution. Additionally, there has been no
established comprehensive embedded imaging system standard for the digital
document product industry to date. However, as the digital document product
market sectors converge and as the complexity of imaging technology
intensifies, the Company believes digital document product manufacturers will
realize a significant competitive advantage by utilizing a single open
embedded imaging system standard across all digital document product market
sectors.
THE PEERLESS SOLUTION
Peerless is a leading provider of embedded imaging systems for the digital
document product market. The Company's family of products and engineering
services provides advanced embedded imaging technologies that enable the
Company's OEM customers to develop digital printers, copiers and MFPs quickly
and cost effectively.
The Company's embedded imaging system solution is based on its proprietary
object-based image processing technology, which can reduce the size of digital
document product imaging files with virtually no noticeable loss of visual
quality. This proprietary technology enables the Company's OEM customers to
reduce memory cost and increase print quality and speed while eliminating or
reducing the need for the use of a compression technology. When optimized,
this component of the embedded imaging system can provide significant cost
savings and performance differentiation to digital document product
manufacturers.
The Company has designed its embedded imaging technology with a modular
architecture that addresses a broad spectrum of digital document product
technologies and that may be tailored to an individual OEM's requirements.
Peerless offers its OEMs the flexibility to add functionality, such as
networking support, languages or multifunction features and, in the future,
color, to their digital document products as their needs dictate. Peerless
also offers engineering services to allow OEMs to outsource the development of
the entire embedded imaging system for a digital document product. As a
result, the Company provides OEMs with the ability to offer a broadened array
of digital document products, further leveraging their core investment in the
Peerless imaging solution. The Company's imaging solutions include the
following technologies and services:
Real-time, Scalable, Multitasking and Distributed Operating System. The
Company has designed its real-time, 32-bit PeerlessPage Imaging Operating
System and supporting technology to accelerate image processing and to enhance
resolution. The scalable nature of the Company's technology enables it to
serve both the low-cost and high-performance sectors of the market. As a
result, the Company's solution has been licensed for a wide range of
applications, from personal printers to shared high speed digital document
products. The multitasking operating system employed in the Peerless imaging
solution also enables the Company to manage concurrent processing of digital
document product tasks for the MFP marketplace. Furthermore, the Peerless
imaging solution may be implemented to operate in a distributed fashion,
allowing for portions of the imaging processing task to take place in the
originating host computer, in the digital document product, or elsewhere in
the network. As a result, Peerless technology provides OEMs with the
flexibility to offer a range of performance and configuration options.
Standards-Based Language Offerings. The Company provides its OEMs with page
description languages ("PDLs") that conform to the most widely used standards
today, Adobe's PostScript Software and Hewlett-Packard's Printer Control
Language ("PCL"). The Company offers PeerlessPrint technology, which emulates
Hewlett-Packard's PCL. The Company also cooperates with Adobe to deliver
Adobe's PostScript Software. As a result, the Company's OEMs are able to
obtain a complete imaging solution, including PDLs, from a single source. In
addition, Peerless is developing a PC-based printing language, WinEXPRESS.
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<PAGE>
ASIC Solutions. The Company designs application specific integrated circuit
("ASIC") solutions for the digital document product marketplace that provide a
silicon-based implementation of key components of its imaging software. The
Company has designed an integrated processor combining its basic digital
document product functionality with an industry-standard 32-bit
microprocessor. For the high-performance sector of the market, the Company
offers specialized co-processors that accelerate the Peerless imaging software
and incorporate controller functionality and imaging features to provide both
cost savings and performance enhancements.
Networking Solutions. The Company has designed a standardized networking
interface, the Peerless Standard Input/Output ("PSIO") interface, to enable
its digital document product OEMs to reduce custom development costs for their
networking solutions. In addition, Peerless supports a broad array of
networking protocols, allowing its OEM customers to address the majority of
end-user networking requirements. To accommodate the need for remote network
management of digital document products over LANs and across wide area
networks, including intranets, the Company supplies management information
block ("MIB") tables that may be utilized by open industry-standard network
management systems.
Engineering Services. For those OEMs that wish to outsource the development
of some or all of the embedded imaging system for a digital document product,
the Company offers engineering services to design a comprehensive solution.
This can include controller design and custom engineering for vendor-specific
features that complement the Company's standard imaging solutions.
PEERLESS STRATEGY
The Company's objective is to become the leading supplier of embedded
imaging systems technology for digital document products. Key elements of the
Company's strategy to accomplish this objective are as follows:
Maintain and Enhance Market Leadership Position. The Company's standardized
embedded imaging system has been adopted by major digital document product
vendors such as Canon, Digital Equipment Corporation, IBM and Xerox. The
Company believes that OEMs increasingly are demanding broad expertise and a
common embedded imaging systems foundation from embedded systems suppliers in
order to accelerate time-to-market and to allow them to focus on their core
competencies. The Company believes that its expertise and technology meet
these demands and intends to expand its customer base and assist its new and
existing OEMs in extending their product lines into new market sectors,
thereby achieving wider market penetration of the Company's family of imaging
solutions. The Company believes that its imaging technology can be extended to
additional markets other than digital document products and may pursue such
markets as they evolve.
Extend Technology Leadership. The Company's strategy is to continue to
introduce embedded imaging technology innovations designed to increase
performance, reduce cost and address a broader range of emerging digital
document product requirements, including MFP and color applications.
Furthermore, the Company's goal is to establish certain basic components of
its embedded imaging system solution, notably its imaging operating system and
its PSIO interface, as de facto standards for the digital document product
industry. The Company believes it can achieve reduced costs for its OEM
customers through multivendor acceptance of its standardized solutions.
Develop and Enhance Strategic Relationships. The Company intends to develop
and enhance its relationships with key participants in the digital document
product market. For example, the Company is a licensed third-party co-
developer of Adobe. The Company provides a high-performance, integrated Adobe
PostScript solution which permits its OEM customers to benefit from the entire
family of the Company's imaging products in a multiple language printing
environment. Adobe, as the sole limited partner of Adobe Ventures, L.P.,
currently has a significant equity position in the Company. See "Principal and
Selling Stockholders."
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Extend Product Line. The Company targets both the high-performance and the
low-cost sectors of the digital document product market. For the high-
performance sector, the Company focuses on direct OEM relationships with
digital document product vendors by offering its high-performance family of
imaging products complemented by semi-customized and/or turnkey solutions. The
Company is also extending its high-performance products into the MFP and, in
the future, color markets. For the low-cost sector, the Company has designed
ASICs that contain a standardized, basic set of document imaging software
coupled with a microprocessor core provided by a semiconductor manufacturer.
These ASICs are manufactured by companies such as Motorola, which market these
semiconductor solutions directly to OEMs addressing the low-cost sector of the
digital document product market.
Leverage Engineering Services. The Company provides engineering services to
its OEMs, when requested, to provide comprehensive solutions or to customize
the Company's technology in accordance with specific needs. In doing so, the
Company distinguishes itself from those third-party systems providers that do
not have the ability to provide comprehensive solutions and must limit their
sales to licensing of existing, generic technology. By providing engineering
services, the Company enhances its embedded imaging systems expertise which it
can then use to improve the technology for its standard products.
Implementation of the Company's strategy is subject to numerous risks and
uncertainties. See "Risk Factors--Dependence on Market Success of Third
Parties," "--Risks Associated with Technological Change; Dependence on the
Digital Document Product Market," "--Risks Associated with Product
Development; Product Delays," "--Risks Associated with Developing Markets" and
"--Competition."
TECHNOLOGY
The Company strives to develop for the embedded imaging systems marketplace
unique technologies that provide meaningful improvements in performance and
cost for Peerless' OEMs. The Company incorporates complementary technologies,
or makes its technologies compatible with third-party technologies, in order
to provide its customers with a more comprehensive imaging solution.
Object-Based Image Processing. Most embedded imaging systems utilize similar
methods of processing document imaging information. They convert a file that
represents a document page into a bitmap and then process all page elements as
a collection of pixels. Because bitmaps generate large files, the image
processing task can become time-consuming, requiring subsequent document pages
to be stored in memory while previous pages are being processed. To
accommodate memory limitations, file compression technologies are often
utilized. These compression technologies frequently result in a loss of
clarity and detail in the printed document and require significant processing
power.
Peerless has developed a proprietary approach to the embedded imaging task.
Rather than recognizing a page image as a collection of pixels, the Peerless
object-based image processing technology recognizes basic imaging elements in
the document, differentiating between text, line art and photographs much as
the human eye does. Peerless' software then creates a display list of image
objects as an intermediate representation of the document to be printed. This
display list is a more concise means of representing the imaging information
of the document, enabling complex imaging data to be processed more quickly
and with less memory, typically without resorting to compression techniques
that degrade the image. For high-performance applications, the display list
can be processed in real-time with assistance from a Peerless-designed
graphics co-processor embedded in the digital document product. Because
Peerless technology can enable the page image to be processed in real-time,
concurrent with the transmission of the document print file, memory
requirements can be reduced and performance can be enhanced. Furthermore, the
image quality or resolution can be reduced to accommodate limitations in the
digital document product's memory, or progressively enhanced by installation
of additional digital document product memory. The Company's object-based
image processing technology provides more significant benefits as the image
processing workload increases, which occurs with increased resolution or a
transition from monochrome to color. The Company was recently issued two
patents covering certain aspects of its object-based imaging approach.
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Systems Architecture. Many embedded imaging systems in use today were custom
designed for a specific range of digital document product imaging requirements
in dedicated applications. In contrast, the Company's imaging solution
implements a general-purpose imaging architecture. The Company has developed
standardized interfaces for the Company's family of solutions that enable the
Peerless imaging solution to be ported to a variety of platforms, languages
and applications. For example, the standardized PeerlessPage interface
provides the ability to support multiple printing languages, and the
PeerlessPage Imaging Operating System is both platform- and device-independent
and able to accommodate a variety of print engines and controller
architectures. The Company has also developed an applications interface that
enables the support of features such as spooling, stored macros, stored forms,
electronic collation and stapling.
The Company's architecture employs a modular and layered structure to
accommodate segmentation of the Peerless imaging solution. The Company
believes that this modular architecture will become increasingly important to
its competitive position as the imaging industry evolves. For example, the
ability to partition portions of the Peerless embedded imaging solution into
separate modules that can reside in independent locations on the network
allows the Company to address emerging applications such as host-based
printing.
Technology Partners. As part of its technology strategy, the Company has
established relationships that permit it to offer to its customers
complementary technologies through technology partners. For example, Peerless
has licensed (for internal development purposes) the right to use Adobe's
PostScript Software to enable the Company's products to be used with Adobe's
PostScript Software, and the Company's relationship with Adobe permits the
Company to offer a convenient and optimized Adobe PostScript-enabled solution.
Furthermore, the Company has a relationship with Emulex which enables the
Company to support network printing under a wide range of networking
technologies. In addition, the Company incorporates font rasterizers into its
imaging solution to enable its OEMs to license font technology from providers
such as Agfa and Bitstream.
For a discussion of certain risks relating to the Company's technology, see
"Risk Factors--Dependence on Adobe Relationships," "Dependence on Sole Source
Providers" and "--Dependence on Intellectual Property Rights; Risk of
Infringement; Trademark Disputes."
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CUSTOMERS AND MARKETS
Customers
Peerless markets its imaging products to OEMs manufacturing digital document
products for the high-performance sector of the office market and to
semiconductor OEMs in the low-cost sector of the office and personal use
market. In recent years, the Company has derived substantially all of its
revenues from direct sales to digital document product OEMs. OEM customers and
their digital document products incorporating the Company's technologies
include:
<TABLE>
<CAPTION>
SELECTED PEERLESS OEM CUSTOMERS
- ---------------------------------------------------------------------------------
OEM
CUSTOMER OEM PRODUCTS DESCRIPTION PEERLESS PRODUCTS INCLUDED
- ---------------------------------------------------------------------------------
<C> <C> <C> <S>
Canon GP-55F, GP-30F 30ppm MFP PeerlessPage,
Multi-PDL-A1 PeerlessPrint5E, Adobe
PostScript Integration
---------------------------------------------------------------------
LBP-1260 Plus 12ppm Laser Printer PeerlessPage,
PeerlessPrint5E, Adobe
PostScript Integration,
QuickPrint 1600, PSIO
---------------------------------------------------------------------
Laser Shot 8ppm Kanji Laser PeerlessPage, Adobe
LBP-730 Printer PostScript Integration,
QuickPrint 1700, PSIO
- ---------------------------------------------------------------------------------
Digital 5100 8ppm Laser Printer PeerlessPage,
Equipment PeerlessPrint5E, Adobe
PostScript Integration, PSIO
---------------------------------------------------------------------
Corporation LN17 17ppm Laser Printer PeerlessPage,
PeerlessPrint5E, Adobe
PostScript Integration, PSIO
- ---------------------------------------------------------------------------------
IBM Network Printer 12, 17, 24ppm Laser PeerlessPage,
12, 17, 24 Printers PeerlessPrint5E, Adobe
PostScript Integration,
QuickPrint 1700, PSIO,
Peerless Printer MIB
- ---------------------------------------------------------------------------------
Xerox 4505, 4510, 4520 5, 10, 20 ppm Laser PeerlessPage,
Printers PeerlessPrint5E, Adobe
PostScript Integration, PSIO
---------------------------------------------------------------------
DocuPrint 4517 17ppm Laser Printer PeerlessPage,
PeerlessPrint5E, Adobe
PostScript Integration, PSIO
</TABLE>
For a discussion of certain risks relating to the Company's reliance on its
OEM customers, see "Risk Factors--Dependence on Market Success of Third
Parties" and "--Concentration of OEM Customers."
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Markets
High-Performance Digital Document Product Market. The high-performance
sector of the digital document product market is characterized by digital
document products ranging in price from approximately $1,000 to in excess of
$20,000 each. These products typically offer high performance differentiated
by customized features. In many cases, digital document product manufacturers
demand turnkey, customized embedded imaging solutions that include imaging
software, controller design and network interface card design. As a result of
these unique requirements, Peerless typically addresses the high-performance
sector of the digital document product market via direct OEM relationships
with individual digital document product manufacturers. The Company's major
digital document product manufacturer customers, based on percentage of total
revenues, in the calendar year 1995 and the three months ended April 30, 1996,
included: Xerox, with 25% and 19%, respectively; Canon, with 22% and 11%,
respectively; and IBM, with 15% and 18%, respectively. Many of the services
and licensing arrangements with the Company's OEMs are provided on a project-
by-project basis, are terminable with limited or no notice, and, in certain
instances, are not governed by long-term agreements.
Small Office/Home Office Market. The low-cost sector of the digital document
product market, sometimes called the Small Office/Home Office ("SOHO") market,
is characterized by digital document products with prices under $1,000 that
typically emphasize price/performance over customized features. In most
instances, it is not cost effective for digital document product manufacturers
to invest in a customized embedded imaging solution in addressing this market.
For the SOHO market, Peerless has designed a family of ASICs that embed basic
components of the Company's imaging software into semiconductor firmware.
Peerless has licensed these designs to semiconductor manufacturers, such as
Motorola, that have the rights to manufacture and sell these ASICs directly to
digital document product manufacturers. Motorola sells a Peerless-based
printing ASIC, the 68322, and pays Peerless a royalty on each ASIC sold. See
"Risk Factors--Dependence on Sole Source Providers."
For a discussion of certain risks relating to the Company's customers and
markets, see "Risk Factors--Dependence on Market Success of Third Parties" and
"--Concentration of OEM Customers."
PEERLESS PRODUCTS AND SOLUTIONS
Peerless provides comprehensive solutions for embedded imaging system
applications. The Company delivers its products to its OEM customers in two
ways: licensing of the Company's standard imaging products for the OEM
customer's internal product development; and turnkey product development
whereby the Company provides the additional engineering services necessary to
integrate the appropriate standard products into a complete embedded imaging
system solution optimized to the OEM's specific requirements.
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Products
The following table describes the Company's products and products under
development and their applicable solutions.
<TABLE>
<CAPTION>
PEERLESS PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
- --------------------------------------------------------------------------------------
APPLICABLE SOLUTIONS
- --------------------------------------------------------------------------------------
MONO-
PRODUCT DESCRIPTION CHROME MFP COLOR
Operating System
<C> <S> <C> <C> <C>
PeerlessPage Imaging Operating System X X
--------------------------------------------------------------------
MFP Extensions *
--------------------------------------------------------------------
Contone Color Extensions *
<CAPTION>
Page Description Languages
<C> <S> <C> <C> <C>
HP PCL 5e Compatible Language
PeerlessPrint5E Interpreter X X
- --------------------------------------------------------------------------------------
PeerlessPrint5C HP PCL 5C Compatible Color Language
Interpreter *
- --------------------------------------------------------------------------------------
HP PCL 6 Compatible Language
PeerlessPrint6 Interpreter * *
- --------------------------------------------------------------------------------------
Adobe PostScript High Performance Integration of
Integration Adobe PostScript into PeerlessPage X X *
- --------------------------------------------------------------------------------------
WinEXPRESS Windows-based Printer Language * *
- --------------------------------------------------------------------------------------
Color WinEXPRESS Windows-based Color Printer Language * *
<CAPTION>
PC Software
<C> <S> <C> <C> <C>
PeerlessPrint Windows 95 / Windows 3.1 Printer
Drivers Drivers * * *
<CAPTION>
ASICs and Integrated Processors
<C> <S> <C> <C> <C>
QuickPrint 1600 Imaging ASIC/Coprocessor X
- --------------------------------------------------------------------------------------
QuickPrint 1700 Enhanced Imaging ASIC/Coprocessor X * *
- --------------------------------------------------------------------------------------
QuickPrint Color
1800 Contone Imaging ASIC/Coprocessor * * *
- --------------------------------------------------------------------------------------
MC 68322 Integrated Printing Processor X X
<CAPTION>
Networking Technology
<C> <S> <C> <C> <C>
Peerless Standard
I/O Interface
(PSIO) Networking Card Interface X * *
- --------------------------------------------------------------------------------------
Peerless Printer Intranet Printer Management/Status
MIBs Reporting X * *
</TABLE>
X=Shipping
*=Under development
Development and commercialization of the Company's products and technology
is subject to numerous risks and uncertainties, including risks associated
with technological change, product development delays and difficulties,
developing markets and dependence on the Company's OEMs, strategic
relationships and the digital document product market. No assurance can be
given that such products incorporating the Company's technology will be
developed and shipped in a timely manner or at all. See "Risk Factors."
Operating System. PeerlessPage is a complete imaging operating system
including a high-performance real-time operating system kernel, printing
engine driver, object-based image processing model, graphics library, font
management, hard disk management, print job management and user control panel
interface. Color extensions to PeerlessPage are currently under development to
support the unique requirements of
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<PAGE>
contone color printers, including contone image processing and industry
standard color matching support. Extensions to support MFPs are under
development to provide scanner management, electronic collation, and print,
copy and fax multitasking capability.
Page Description Languages. The Company provides a complete range of
printing language products including PeerlessPrint5E, which provides
compatibility with HP's PCL 5e language utilized in their LaserJet 4, 5P, 5L
and 5Si line of laser printer products, as well as enhancements to support
higher resolutions and added paper handling options. PeerlessPrint5C,
currently under development, is being designed to provide compatibility with
HP's PCL 5C utilized in their Color LaserJet color laser and high-end Inkjet
products. Also under development is PeerlessPrint6, which will provide
compatibility with HP's latest PCL 6 language utilized in their LaserJet 5
laser printer. As a third-party co-developer, the Company provides an
optimized, high-performance integration of Adobe PostScript language into the
PeerlessPage system for customers that separately license PostScript from
Adobe. The Company's WinEXPRESS and Color WinEXPRESS languages, also under
development, are being designed to provide an intelligent windows-based
printing solution for low-cost monochrome and color printers and MFPs. See
"Risk Factors--Dependence on Adobe Relationships."
PC Software. The Company is currently developing PeerlessPrint drivers that
are being designed to optimize the network printing process under Windows 95
and Windows 3.1 environments.
ASICs and Integrated Processors. The Company's QuickPrint line of imaging
ASIC co-processors integrates basic components of the Company's imaging system
into a silicon solution to reduce product costs and enhance performance. The
QuickPrint 1700 incorporates the latest object-based imaging technology and
supports non-contone color printing solutions. The Company currently is
developing the QuickPrint Color 1800, which is being designed to incorporate
the Company's contone imaging model, significantly reduce the memory and
processing power required for contone color laser printers and enhance
printing of grey scale images on monochrome printers. The MC68322 integrated
processor was developed in conjunction with Motorola to provide a single
silicon solution for low-cost laser printers and MFPs.
Networking Technology. The Company's Peerless Standard I/O Interface
("PSIO") provides a high speed multi-protocol networking interface for printer
network interface cards. Peerless Printer MIB tables have been developed to
utilize the open Simple Network Management Protocol ("SNMP") industry standard
to enable management of printers over LANs and Intranets.
Solutions
The Company's products can be integrated to provide a wide range of scalable
solutions:
Monochrome Solution. The Company's monochrome solution targets low-cost
networkable office laser printers with printing speeds from 1 to 40 pages per
minute and printing resolutions from 600 to 1200 dots per inch. The Company's
contone imaging technology, currently under development, will be utilized to
provide photographic quality image printing on future monochrome products.
Multifunction Solution. The Company's MFP imaging solutions target OEM
requirements from lower cost networkable inkjet and laser-based MFP products
to high speed copier-based MFP products. These solutions combine the Company's
networkable imaging products with MFP-specific extensions to facilitate
printing, copying, faxing and scanning by the same digital document product.
The Company's solutions provide multifunction capability, but the Company does
not provide stand-alone fax or copier solutions. Solutions support printing
speeds from 1 to 40 pages per minute.
Color Solution. The Company's color imaging solutions, currently under
development, target OEM requirements for networkable color laser printers.
These solutions are being designed to support color printing speeds from 1 to
10 pages per minute, 600 to 1200 dots per inch resolution and photographic
contone color
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<PAGE>
quality. The Company's proprietary object-based image processing technology is
expected to reduce memory requirements for printing contone pages while
simultaneously accelerating the document production process.
SALES AND MARKETING
The Company markets its products directly to the leading OEMs that sell
digital document products into the worldwide market. The Company directs most
of its sales efforts through a sales office in Japan and its headquarters in
California. Sales to European digital document products manufacturers are
conducted out of the Company's California headquarters.
The Company markets directly to OEMs and through focused public relations
and branding programs. Direct OEM marketing consists of development of sales
collateral, mailers, trade show attendance and sales support. The Company
focuses its public relations effort on media read by OEM customers. The
Company directs its branding programs at building the Company's brand
awareness. These programs consist of public relations and Peerless product
branding on its silicon and software products.
PRODUCT DEVELOPMENT AND ENGINEERING SERVICES
The Company's product development activities are located at the Company's
headquarters in El Segundo, California. As of June 25, 1996, the Company
employed approximately 60 software and hardware design engineers, project
managers and support staff. The primary activities of these employees are new
product development, enhancement of existing products, product testing and
technical documentation development. Accordingly, the Company's engineering
personnel are divided into two primary development areas: research and
development, which focuses on development and enhancement of the Company's
core technologies; and engineering services, which focuses on customized
design activities.
The Company's research and development efforts focus on ongoing development
of the Company's product family, including MFP and advanced color imaging
technologies. Other research and development personnel are engaged in future
technology development in such areas as corporate intranet applications. In
addition, as applications evolve and become standardized, the research and
development efforts harness the expertise acquired from the performance of
engineering services to add standard application modules to the Company's
product family. See "Risk Factors--Risks Associated with Developing Markets."
The Company believes that its engineering services efforts provide the
Company with a competitive advantage for its core product development by
defining needs for new products, guiding future enhancements and testing new
implementations. The engineering services personnel work closely with OEMs
that desire a turnkey solution, developing customized interfaces and
applications specific to individual OEMs. The Company typically receives a fee
for such engineering services. As part of its corporate strategy, the Company
leverages its engineering services capability to penetrate emerging market
sectors where applications and interfaces have not fully evolved. As market
sectors mature and applications become standardized, the engineering services
requirement typically diminishes.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary technology.
To protect its proprietary rights, the Company relies on a combination of
patent, copyright, trade secret and trademark laws, nondisclosure and other
contractual restrictions. The Company holds two patents issued in the United
States, one of which is also issued in France, Germany and Great Britain. The
issued patents relate to techniques developed by the Company for generating
output for continuous synchronous raster output devices such as laser printers
using a smaller amount of memory than would be required without using the
Company's technology. One of the two U.S. patents was issued on March 26, 1996
and the other patent was issued on April 16, 1996. The patent term of the U.S.
patents is 17 years from the issue date subject to the payment of required
maintenance fees. The patents granted in Great Britain, France and Germany
were issued on February 14, 1996. The term of the European patents is 20 years
from the filing date of August 2, 1991,
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<PAGE>
subject to an opposition period that will expire November 14, 1996 and payment
of required renewal fees. The Company has one patent application pending in
Japan and six patent applications pending in the United States. There can be
no assurance that patents held by the Company will not be challenged or
invalidated, that patents will issue from any of the Company's pending
applications or that any claims allowed from existing or pending patents will
be of sufficient scope or strength (or issue in the countries where products
incorporating the Company's technology may be sold) to provide meaningful
protection or any commercial advantage to the Company. In any event, effective
protection of intellectual property rights may be unavailable or limited in
certain countries. The status of United States patent protection in the
software industry is not well defined and will evolve as the United States
Patent and Trademark Office grants additional patents. Patents have been
granted to fundamental technologies in software after the development of an
industry around such technologies, and patents may be issued, to third parties
that relate to fundamental technologies related to the Company's technology.
As part of its confidentiality procedures, the Company generally enters into
nondisclosure agreements with its employees, consultants, OEMs and strategic
partners and limits access to and distribution of its software and other
proprietary information. Despite these efforts, the Company may be unable to
effectively protect its proprietary rights and, in any event, enforcement of
the Company's proprietary rights may be expensive. The Company's source code
also is protected as a trade secret. However, the Company from time to time
licenses its source code to OEMs, which subjects the Company to the risk of
unauthorized use or misappropriation despite the contractual terms restricting
disclosure. In addition, it may be possible for unauthorized third parties to
copy the Company's products or to reverse engineer or obtain and use the
Company's proprietary information.
As the number of patents, copyrights, trademarks and other intellectual
property rights in the Company's industry increases, products based on its
technology increasingly may become the subject of infringement claims. There
can be no assurance that third parties will not assert infringement claims
against the Company in the future. Any such claims, regardless of merit, could
be time consuming, result in costly litigation, cause product shipment delays
or require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse
affect on the Company's operating results. In addition, the Company may
initiate claims or litigation against third parties for infringement of the
Company's proprietary rights or to establish the validity of the Company's
proprietary rights. Litigation to determine the validity of any claims,
whether or not such litigation is determined in favor of the Company, could
result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from productive tasks. In
addition, the Company may lack sufficient resources to initiate a meritorious
claim. In the event of an adverse ruling in any litigation regarding
intellectual property, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to
infringing or substituted technology. The failure of the Company to develop,
or license on acceptable terms, a substitute technology if required could have
a material adverse affect on the Company's operating results.
The Company is aware of an unrelated corporation that is using the name
"Peerless Systems Corporation," and the Company is in discussions with this
corporation regarding the rights of both entities to use the name. Although
the Company believes that it has prior right to the name, the other
corporation has disputed the Company's position. No assurance can be given as
to the ability of the Company to continue to use the name nor can any
assurance be given as to the ability of the Company to acquire a license to or
an assignment of the name from the corporation on reasonable terms or at all.
The inability of the Company to do so could have a material adverse effect on
the Company's operating results. In any event, the prosecution of claims or
other litigation relating to the dispute could result in substantial costs to
the Company, which also could have a material adverse effect on the Company's
operating results.
COMPETITION
The market for embedded imaging systems for digital document products is
highly competitive and characterized by continuous pressure to enhance
performance, to introduce new features and to accelerate
35
<PAGE>
the release of new products. The Company competes on the basis of technology
expertise, product functionality, development time and price. The Company's
technology and services primarily compete with solutions developed internally
by OEMs. Virtually all of the Company's OEMs have significant investments in
their existing solutions and have the substantial resources necessary to
enhance existing products and to develop future products. These OEMs have or
may develop competing embedded imaging systems technologies and may implement
these systems into their products, thereby replacing the Company's current or
proposed technologies, eliminating a need for the Company's services and
products and limiting future opportunities for the Company. The Company
therefore is required to persuade these OEMs to outsource the development of
their embedded imaging systems and to provide products and solutions to these
OEMs that cost-effectively compete favorably with their internally developed
products. The Company also competes with software and engineering services
provided in the digital document product marketplace by other systems
suppliers to OEMs. In this regard, the Company competes with, among others,
Xionics Document Technologies with respect to MFP embedded systems and
Electronics for Imaging with respect to color technologies.
As the industry continues to develop, the Company expects that competition
and pricing pressures will increase from OEMs, existing competitors and other
companies that may enter the Company's existing or future markets with similar
or substitute solutions that may be less costly or provide better performance
or functionality. The Company anticipates increasing competition for its color
products under development, particularly as new competitors develop and enter
products in this market. Some of the Company's existing competitors, many of
its potential competitors and virtually all of the Company's OEMs have
substantially greater financial, technical, marketing and sales resources than
the Company. In the event that price competition increases, competitive
pressures could cause the Company to reduce the amount of royalties received
on new licenses and to reduce the cost of its engineering services in order to
maintain existing business and generate additional product licensing revenues,
which could reduce profit margins and result in losses and a decrease in
market share. No assurance can be given as to the ability of the Company to
compete favorably with the internal development capabilities of its current
and prospective OEM customers or with other third-party embedded imaging
system suppliers, and the inability to do so would have a material adverse
effect on the Company's operating results.
EMPLOYEES
As of June 25, 1996, the Company had a total of approximately 85 employees
and 12 independent contractors. Of the Company's employees, approximately 60
were in engineering, 15 were in finance and administration, and 10 were in
sales and marketing. None of the Company's employees is represented by a labor
union, and the Company has never experienced any work stoppage. The Company
considers its relations with its employees to be good. For a description of
certain risks associated with the Company's employees, see "Risk Factors--
Dependence on Key Personnel."
PROPERTIES
The Company leases its principal facilities, totalling approximately 30,000
square feet, in El Segundo, California. The lease expires in March 2001. The
Company also has office space in Japan. The Company believes that suitable
additional facilities or alternative space will be available in the future on
commercially reasonable terms as needed.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of July
31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Edward A. Gavaldon............. 51 President, Chief Executive Officer and
Chairman of the Board
Hoshi Printer.................. 54 Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Reginald Cardin................ 49 Vice President and Chief Technology
Officer
David R. Fournier.............. 43 Vice President, Sales and Field
Operations
Thomas B. Ruffolo.............. 43 Vice President, Marketing
Stephen R. Butterfield......... 44 Vice President, Advanced Development
Robert G. Barrett (1)(2)....... 51 Director
Robert L. North (1)(2)......... 60 Director
Lauren L. Shaw................. 52 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Edward A. Gavaldon has served the Company as President, Chief Executive
Officer and a director since January 1995 and as Chairman of the Board since
July 1996. Prior to joining the Company, Mr. Gavaldon worked at Xerox
Corporation for 23 years in various positions including: Manager, Strategy and
Programs for Printing Products; Chief Engineer, High Speed Laser Printers;
Vice President, Worldwide Marketing, Laser Printers; and most recently as Vice
President/General Manager in the Desktop Laser Printer Business Unit. Mr.
Gavaldon received an M.B.A. degree from the University of Southern California
and a B.A. degree in economics from the University of California at Los
Angeles.
Hoshi Printer has served the Company as Vice President, Finance and
Administration, Chief Financial Officer and Secretary since June 1996. Prior
to joining the Company, Mr. Printer was Chief Financial Officer of: Neuron
Data, a software tool company, from July 1995 to May 1996; Soane Technologies,
a polymer technology company, from July 1994 to June 1995; and Catalytica, an
environmental technology company, from January 1990 to June 1994. Mr. Printer
also worked at Xerox Corporation for 17 years in various positions including 6
years as Vice President of Finance. Mr. Printer received an M.B.A. degree from
Stanford University.
Reginald Cardin has served the Company as Vice President and Chief
Technology Officer since August 1995. Prior to joining the Company, Mr. Cardin
worked at IBM for over 20 years in various positions including Manager,
Presentation Integration and Programming Center Manager, Printing Systems. Mr.
Cardin received a B.A. degree in biology and English from Tufts University.
David R. Fournier has served the Company as Vice President, Sales and Field
Operations since November 1991. Prior to joining the Company, Mr. Fournier
held various sales management positions at Hamilton/Avnet, a semiconductor and
computer systems distribution company, and Wyle Lab, a semiconductor and
computer systems distribution company.
Thomas B. Ruffolo has served the Company as Vice President, Marketing since
August 1994 and as Director of Marketing from August 1991 to August 1994.
Prior to joining the Company, Mr. Ruffolo was Director of Marketing at NewGen
Systems, a page printer manufacturer, which he co-founded in 1988. Mr. Ruffolo
received a B.S. degree in computer science from Colorado State University and
an M.B.A. degree from Pepperdine University.
37
<PAGE>
Stephen R. Butterfield, a co-founder of the Company, has served as the
Company's Vice President, Advanced Development since April 1982 and as the
Company's Secretary from April 1982 until July 1996. Prior to founding the
Company, Mr. Butterfield held various technical and management positions at AM
Jacquard, an office automation and minicomputer manufacturer, including
Director of Engineering.
Robert G. Barrett has served the Company as a director since March 1991. He
is a founder and a Managing Partner of Battery Ventures, a venture capital
fund specializing in communication and software investment. Mr. Barrett serves
as a director of Brooktrout Technology, Inc., Marcam Corporation and several
privately held high technology companies. Mr. Barrett received a B.A. degree
in history and an M.B.A. degree from Harvard University.
Robert L. North has served the Company as a director since July 1996. Mr.
North has been Chief Executive Officer and a Director of HNC Software Inc., a
neural network technology company, since June 1987. For 21 years prior to that
time he was employed by TRW, Inc. Electronic Systems Group, most recently as
Vice President and General Manager. Prior to that time, he was a member of the
technical staff for the Satellite Central Office of Aerospace Corporation. Mr.
North received B.S. and M.S. degrees in electrical engineering from Stanford
University.
Lauren L. Shaw, a co-founder of the Company, has served as a director of the
Company since 1982 and as an executive officer and Chairman of the Board of
Directors from 1982 to 1996. From the Company's inception until 1995, Mr.
Shaw also served as the Company's President and Chief Executive Officer. Mr.
Shaw also co-founded AM Jacquard, an office automation and minicomputer
manufacturer, where he served in various capacities, including as Vice
President of Software Development and Vice President and Assistant General
Manager. Mr. Shaw received a B.S. degree in mathematics from Milliken
University.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected or until their earlier resignation or
removal. Officers are appointed to serve, subject to the discretion of the
Board of Directors, until their successors are appointed. There are no family
relationships among the current directors and officers of the Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors was formed in 1991 to review
the internal accounting procedures of the Company and to consult with and
review the services provided by the Company's independent public accountants.
The Compensation Committee of the Board of Directors was formed in 1991 to
review and recommend to the Board of Directors the compensation and benefits
of employees of the Company. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's stock plans.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their services as member of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board of
Directors and Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of Robert G. Barrett and
Robert L. North, who were not at any time during the fiscal year ended
December 31, 1995, or at any other time, officers or employees of the Company.
Mr. Shaw served on the Compensation Committee until 1996 and during such
time also served as Chairman of the Board and an executive officer. The
Company intends to enter into an agreement with Mr. Shaw in connection with
his resignation as an executive officer of the Company. Barbara Renshaw,
formerly an executive officer and director of the Company, is Mr. Shaw's wife.
See "Certain Transactions."
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's other four most highly compensated
executive officers whose salary and bonus for the year ended December 31, 1995
were in excess of $100,000 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
NAME AND PRINCIPAL POSITION COMPENSATION COMPENSATION
--------------------------- ---------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING
SALARY BONUS OPTIONS
-------- ------- ------------
<S> <C> <C> <C> <C>
Edward A. Gavaldon....................... 1995 $153,211 $18,125 354,293
President, Chief Executive Officer and
Chairman of the Board
Lauren L. Shaw (1)....................... 1995 156,600 21,750 --
Former Chairman of the Board and
Executive Officer
David R. Fournier........................ 1995 110,000 32,170(2) --
Vice President, Sales and Field
Operations
Stephen R. Butterfield................... 1995 98,280 21,924 --
Vice President, Advanced Development and
Former Secretary
Barbara R. Renshaw (1)................... 1995 98,280 21,924 --
Former Vice President, Software
Development and Treasurer
</TABLE>
- ---------------------
(1) Mr. Shaw resigned as an executive officer and Chairman of the Board, and
Ms. Renshaw resigned as an executive officer, subsequent to December 31,
1995. See "Certain Transactions" for a discussion of certain arrangements
with Mr. Shaw.
(2)Includes sales commissions.
EMPLOYEE BENEFIT PLANS
1992 Stock Option Plan. The Company's 1992 Stock Option Plan (the "1992
Plan") was adopted by the Board of Directors in September 1992, and was
subsequently amended in June 1993, October 1994 and April 1995. The Board has
authorized and reserved an aggregate of 1,055,000 shares of Common Stock for
issuance under the 1992 Plan.
The 1992 Plan provides for the grant of incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), to employees and
nonstatutory stock options to employees, directors and consultants of the
Company and its affiliates. The 1992 Plan provides that it will be
administered by the Board of Directors, or a committee appointed by the Board,
which determines recipients and types of options to be granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof. Currently, the 1992 Plan is administered by the Compensation
Committee of the Board of Directors.
The terms of stock options granted under the 1992 Plan generally may not
exceed ten years. The exercise price of options granted under the 1992 Plan is
determined by the Board of Directors, provided that (i) the exercise price for
a nonstatutory stock option cannot be less than 85% of the fair market value
of the Common Stock on the date of the option grant and (ii) the exercise
price for an incentive stock option cannot be less than 100% of the fair
market value of the Common Stock on the date of the option grant.
Options granted under the 1992 Plan vest at the rate specified in the option
agreement. No stock option may be transferred by the optionee other than by
will or the laws of descent or distribution or, for a nonstatutory stock
option, pursuant to a qualified domestic relations order. An optionee whose
relationship with the Company or any affiliate ceases for any reason (other
than by death or permanent and total disability) may exercise options in the
period following such cessation as may be determined by the Board of Directors
39
<PAGE>
(not to exceed 3 months for an incentive stock option). Options may be
exercised for up to twelve months after an optionee's relationship with the
Company and any affiliate ceases due to death or disability.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the
option does not exceed five years from the date of grant. The aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which incentive stock options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
options under the 1992 Plan.
Upon certain changes in control of the Company, all outstanding options
under the 1992 Plan shall either be assumed or substituted by the surviving
entity or shall continue in full force and effect. If the surviving entity
determines not to assume, continue or substitute such options, the options
shall terminate if not exercised prior to such change in control. Options
shall terminate if not exercised prior to a dissolution or liquidation of the
Company.
As of July 31, 1996, the Company had granted options to purchase 1,094,136
shares of Common Stock under the 1992 Plan and an additional 126,266 shares
remained available for future grant. Of the options granted, options to
purchase 893,882 shares of Common Stock were outstanding, options to purchase
165,402 shares had been canceled or had lapsed without being exercised and
options to purchase 34,852 shares had been exercised. The 1992 Plan will
terminate in September 2002 unless sooner terminated by the Board of
Directors.
1996 Equity Incentive Plan. In May 1996, the Board adopted the Company's
1996 Stock Option Plan (the "1996 Plan"). The Company's 1996 Equity Incentive
Plan (the "Incentive Plan") was adopted by the Board of Directors in July 1996
as an amendment and restatement of the Company's 1996 Plan. The Board has
authorized and reserved an aggregate of 1,266,666 shares of Common Stock for
issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options to
employees and nonstatutory stock options, restricted stock purchase awards and
stock bonuses to employees, directors and consultants. The Incentive Plan
provides that it will be administered by the Board of Directors or a committee
appointed by the Board, which determines recipients and types of awards to be
granted, including the exercise price, number of shares subject to the award
and the exercisability thereof.
The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
for an incentive stock option cannot be less than 100% of the fair market
value of the Common Stock on the date of the option grant and the exercise
price for a nonstatutory stock option cannot be less than 85% of the fair
market value of the Common Stock on the date of the option grant. Options
granted under the Incentive Plan vest at the rate specified in the option
agreement.
No incentive stock option may be transferred by the optionee other than by
will or the laws of descent or distribution, provided that the Board of
Directors may grant a nonstatutory stock option that is transferable and an
optionee may designate a beneficiary who may exercise the option following the
optionee's death. An optionee whose relationship with the Company or any
affiliate ceases for any reason (other than by death or permanent and total
disability) may exercise options in the three-month period following such
cessation (unless such options terminate or expire sooner or later by their
terms). Options may be exercised for up to twelve months after an optionee's
relationship with the Company and its affiliates ceases due to death or
disability (unless such options expire sooner by their terms).
40
<PAGE>
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the
option does not exceed five years from the date of grant. The aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which incentive stock options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full (or vested in the case of restricted
stock awards) shall again become available for future grant of awards under
the Incentive Plan. The Board of Directors has the authority to reprice
outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and a price determined by the Board of Directors.
Restricted stock purchases must be at a price equal to at least 85% of the
stock's fair market value on the award date, but stock bonuses may be awarded
in consideration of past services without a purchase payment. Rights under a
stock bonus or restricted stock bonus agreement may not be transferred other
than by will, the laws of descent and distribution or a domestic relations
order while the stock awarded pursuant to such an agreement remains subject to
the agreement.
Upon certain changes in control of the Company, all outstanding awards under
the Incentive Plan shall either be assumed or substituted by the surviving
entity or shall continue in full force and effect. If the surviving entity
determines not to assume, continue or substitute such awards, with respect to
person then performing services as employees, directors or consultants, the
time during which such awards may be exercised shall be accelerated and the
awards terminated if not exercised prior to such change in control.
As of July 31, 1996, the Company had granted options to purchase 556,243
shares of Common Stock under the Incentive Plan and an additional 712,589
shares remained available for future grant. Of the options granted, options to
purchase 554,077 shares of Common Stock were outstanding, options to purchase
2,166 shares had been canceled or had lapsed without being exercised and no
options had been exercised. The Incentive Plan will terminate in July 2006
unless sooner terminated by the Board of Directors. As of July 31, 1996, no
stock bonuses or restricted stock had been granted under the Incentive Plan.
The Board of Directors has adopted resolutions providing for the automatic
grant, under the 1996 Plan, of: (i) an option to purchase 13,333 shares of
Common Stock to each non-employee director who is first elected to the Board
of Directors upon completion of this offering; and (ii) an option to purchase
3,333 shares of Common Stock on the date of each annual stockholder meeting
beginning in 1997 to each non-employee director who has served continuously as
a non-employee director for at least six months immediately prior to such
annual meeting. The options vest at a rate of 25% on the first anniversary of
the date of grant and 1/48th of the shares subject to the option each month
thereafter for the following three years. The Board approved similar grants to
Messrs. Shaw, North and Barrett in July 1996.
Employee Stock Purchase Plan. In July 1996, the Company's Board of Directors
approved the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 300,000 shares of Common Stock. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423
of the Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors and meet
eligibility standards established by the Board of Directors in accordance with
Code section 423. Employees who participate in an offering can have up to 15%
of their earnings withheld pursuant to the Purchase Plan and applied, on
specified dates determined by the Board of
41
<PAGE>
Directors, to the purchase of shares of Common Stock. The price of Common
Stock purchased under the Purchase Plan will be equal to 85% of the lower of
the fair market value of the Common Stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company
and its affiliates.
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or continue in full force and effect or a similar right
substituted by the successor corporation, or the Board may shorten the
offering period and provide for all sums collected by payroll deductions to be
applied to purchase stock immediately prior to the change in control. The
Purchase Plan will terminate at the Board of Directors' discretion.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES OF TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EMPLOYEES EXERCISE FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED(1) 1995 (%)(2) ($/SH)(3) DATE 5% 10%
---- ---------- -------------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward A. Gavaldon...... 354,293 71.5% $1.43 01/04/05 $ 317,508 $ 804,629
</TABLE>
- ---------------------
(1) The options are incentive stock options with vesting based either on time
or on performance. Time-based vesting generally occurs over 60 months,
with 20% of the shares vesting annually. These options provide for
accelerated vesting of 60% of the shares upon the completion of an initial
public offering with the remaining shares to vest at a rate of 50%
annually over the next two years.
(2) Based on an aggregate of 495,622 options granted to employees of the
Company in 1995, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant, as determined by the Board
of Directors.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated by assuming that
the stock price on the date of grant as determined by the Board of
Directors appreciates at the indicated annual rate compounded annually for
the entire term of the option and the option is exercised and sold on the
last day of its term for the appreciated stock price. The 5% and 10%
assumed rates of appreciation are derived from the rules of the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of the future Common Stock price.
42
<PAGE>
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised options held by the
Named Executive Officers at December 31, 1995. No Named Executive Officer
exercised stock options during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Edward A. Gavaldon...... 0/354,293 $0/$79,716
Lauren L. Shaw.......... 60/0 $65/$0
David R. Fournier....... 41,605/19,378 $25,006/$14,201
Stephen R. Butterfield.. 60/0 $65/$0
Barbara B. Renshaw...... 60/0 $65/$0
</TABLE>
- ---------------------
(1) Value realized and value of unexercised in-the-money options is based on
the fair market value of $1.65 per share of the Company's Common Stock,
minus the exercise price on December 31, 1995, multiplied by the number of
shares underlying the option.
EMPLOYMENT AGREEMENT
The Company intends to enter into an employment agreement with Edward A.
Gavaldon. The agreement will provide that Mr. Gavaldon will serve as Chief
Executive Officer and President. The agreement will provide for payment of a
base salary of $175,000 with a bonus of up to $75,000 annually. The agreement
will also provide that all of Mr. Gavaldon's outstanding options will be
accelerated in the event of the acquisition or change in control of the
Company or a sale of all or substantially all of the Company's assets. In the
event that the Company terminates Mr. Gavaldon without cause, the Company will
be required to pay Mr. Gavaldon his base salary for an additional one year
period and will vest his options for at least an additional six months. See
"Certain Transactions" for a discussion of certain arrangements between the
Company and Lauren L. Shaw.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except (i) for
any breach of the directors' duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derives any improper personal benefit. In
addition, the Company's Bylaws provide that any director or officer who was or
is a party or is threatened to be made a party to any action or proceeding by
reason of his or her services to the Company will be indemnified to the
fullest extent permitted by the Delaware Law.
The Company has entered into indemnification agreements with each of its
directors and executive officers pursuant to which the Company has agreed to
indemnify each of them against expenses and losses incurred for claims brought
against them by reason of their being a director or executive officer of the
Company. In addition, the Company maintains directors' and officers' liability
insurance.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or executive officer.
43
<PAGE>
CERTAIN TRANSACTIONS
In June, July and October 1993, the Company issued an aggregate of 1,501,177
shares of Series B Preferred Stock and warrants to purchase an aggregate of
615,635 shares of Common Stock to a group of accredited investors, including
Lauren L. Shaw, a director and principal stockholder of the Company, who
purchased 27,097 shares of Series B Preferred Stock and warrants to purchase
11,200 shares of Common Stock, Battery Ventures II, L.P. ("Battery Ventures"),
a principal stockholder of the Company, which purchased 263,070 shares of
Series B Preferred Stock and warrants to purchase 106,666 shares of Common
Stock, and Adobe, a principal stockholder of the Company, which purchased
430,108 shares of Series B Preferred Stock and warrants to purchase 177,777
shares of Common Stock, for cash and the cancellation of indebtedness in the
aggregate amount of $3,490,264. Robert G. Barrett, a director of the Company,
is a Managing Partner of ABF Partners II, L.P., the general partner of Battery
Ventures, and Adobe from time to time has designated a representative to serve
on the Company's Board of Directors. Adobe currently holds its equity position
in the Company as the sole limited partner of Adobe Ventures L.P., a principal
stockholder of the Company.
In September 1992 and June 1993, the Company entered into a Third Party
Development and License Agreement (the "Third Party Agreement") and a PCL
Development and License Agreement (the "PCL Agreement"), respectively, each of
which has been subsequently amended, with Adobe, a principal stockholder of
the Company. Under the Third Party Agreement, the Company licenses (for
internal development purposes) Adobe's PostScript Software from Adobe so that
the Company can port and support versions of the Company's products that may
be used in conjunction with Adobe's PostScript Software by Adobe's OEMs. The
Company has paid Adobe a fee for this license and may pay Adobe additional
fees for additional rights that Adobe may grant to the Company. In addition,
Adobe pays royalties to the Company in connection with the distribution by
Adobe's OEMs of products that the Company has enabled to be used with Adobe's
PostScript Software. The Third Party Agreement has a term of five years and is
renewable biannually thereafter. Under the PCL Agreement, the Company develops
versions of the Company's PCL products that can be used with Adobe's
PostScript Software, and Adobe licenses these products for sublicense to its
OEMs. In return for this license, Adobe pays royalties to the Company for each
such product that it causes to be shipped or delivered to end-users. The PCL
Agreement has a term of 20 years and is renewable annually thereafter. During
1993, 1994 and 1995 and the three months ended April 30, 1996, the Company
recognized revenues of $229,000, $629,000, $707,000 and $725,000,
respectively, arising from these license agreements and engineering services
arrangements with Adobe.
In October 1995, the Company issued $3,070,000 in aggregate principal amount
of its convertible debentures (the "Debentures") to private investors
including entities affiliated with Morgan Keegan & Company, Inc., a principal
stockholder of the Company, which purchased $2,000,000 principal amount of
Debentures, and Battery Ventures, which purchased $500,000 principal amount of
Debentures. The Debentures bear interest at 7% annually, mature in 2001 and
will convert into Common Stock at the rate of $2.63 per share upon the closing
of this offering.
In January 1995, the Company entered into an employment agreement with
Lauren L. Shaw, a director and principal stockholder of the Company, and the
Company intends to amend this agreement in connection with Mr. Shaw's
resignation as an executive officer. The employment agreement, as amended,
will provide, among other things, that the Company will pay Mr. Shaw $195,750
in consideration of, among other things, an agreement not to compete for up to
three years.
In July 1996, the Company and Battery Ventures agreed to amend a warrant to
purchase 66,666 shares of Common Stock. The amendment increased the exercise
price, extended the term and included a limited release in favor of the
Company related to the exercise of the warrant.
The Company intends to enter into an employment agreement with Edward A.
Gavaldon. See "Management--Employment Agreement."
The Company has entered into indemnification agreements with its directors
and executive officers.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 31, 1996 and as adjusted to
give effect to the sale of the shares of Common Stock offered hereby, by (i)
each person (or group of affiliated persons) known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, (ii)
each of the Company's directors, (iii) each Named Executive Officer, (iv) each
Selling Stockholder and (v) all of the Company's directors and executive
officers as a group. Unless otherwise specified, the address of all five
percent stockholders is the address of the Company set forth herein.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO THE OFFERING (1) TO BE THE OFFERING(1)(2)
----------------------- SOLD IN -----------------------
NAME AND ADDRESS NUMBER PERCENT THE OFFERING NUMBER PERCENT
- ---------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Battery Ventures II,
L.P. (3)................ 1,617,048 21.0% -- 1,617,048 15.8%
Robert G. Barrett
Battery Ventures
200 Portland Street
Boston, MA 02114
Lauren L. Shaw and
Barbara B. Renshaw
(4)(5).................. 1,518,275 19.7 867,218 651,057 6.4
Entities affiliated with
Morgan Keegan & Company,
Inc. (6) ............... 761,904 9.9 152,381 609,523 6.0
Morgan Keegan Tower
Fifty Front Street
Memphis, TN 38103
Adobe Ventures L.P. (7). 596,840 7.7 -- 596,840 5.8
One Bush Street
San Francisco, CA 94104
Stephen R. Butterfield
(8)..................... 378,826 4.9 37,883 340,943 3.3
Edward A. Gavaldon (9).. 215,608 2.7 -- 215,608 2.1
David R. Fournier (10).. 68,194 * 6,819 61,375 *
Thomas B. Ruffolo (11).. 52,036 * 5,204 46,832 *
Hoshi Printer (12)...... 19,699 * -- 19,699 *
Reginald Cardin (13).... 18,366 * 1,837 16,529 *
All directors and
executive officers as a
group
(9 persons) (14)....... 3,888,052 48.4 918,961 2,969,091 28.2
OTHER SELLING
STOCKHOLDERS
Steven K. Nelson (15)... 230,100 3.0 23,010 207,090 2.0
Robert F. Hossley (16).. 198,005 2.6 19,801 178,204 1.7
William Bailey (17)..... 165,480 2.1 16,548 148,932 1.5
Comdisco, Inc. (18)..... 116,513 1.5 58,257 58,256 *
Silicon Valley Bank
(19)................... 34,665 * 17,333 17,332 *
William S. Wood (20).... 32,502 * 10,666 21,382 *
Bayview Investors,
Ltd. .................. 27,509 * 27,509 -- --
Larry Feldman (21)...... 16,366 * 1,637 14,729 *
Cary Kimmel (22)........ 6,366 * 37 5,721 *
First Portland
Corporation (23) ...... 3,260 * 3,260 -- --
</TABLE>
- ---------------------
*Represents beneficial ownership of less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in
45
<PAGE>
the table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 7,702,618 shares of Common Stock
outstanding as of July 31, 1996 and 10,202,618 shares of Common Stock
outstanding after completion of this offering.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
562,500 shares from the Selling Stockholders is not exercised.
(3) Robert G. Barrett, a director of the Company, is a Managing Partner of
ABF Partners II, L.P., the general partner of Battery Ventures. Mr.
Barrett may be deemed to have voting and investment power over the shares
held by Battery Ventures. He disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(4) Represents (i) 65,000 shares held by Mr. Shaw, a director and former
executive officer and Chairman of the Board of the Company, individually;
(ii) 91,667 shares held by Barbara B. Renshaw, an employee and former
executive officer and director of the Company, individually; (iii)
118,155 shares held by Mr. Shaw and Ms. Renshaw, jointly; (iv) 308,333
shares held in the Lauren L. Shaw 1996 Trust; (v) 308,333 shares held in
the Barbara B. Renshaw 1996 Trust and (vi) 626,667 shares held in the
Renshaw/Shaw Charitable Remainder Trust. Also includes an aggregate of
120 shares issuable pursuant to options exercisable within 60 days of
July 31, 1996, by Mr. Shaw and Ms. Renshaw. Mr. Shaw disclaims beneficial
ownership of shares held by Ms. Renshaw, individually, and the shares
held in the Barbara B. Renshaw 1996 Trust. Ms. Renshaw disclaims
beneficial ownership of shares held by Mr. Shaw, individually, and shares
held in the Lauren L. Shaw 1996 Trust. Mr. Shaw and Ms. Renshaw are
married.
(5) Of the shares held by Mr. Shaw and Ms. Renshaw: 65,000 shares are being
sold by Mr. Shaw, individually; 91,667 shares are being sold by Ms.
Renshaw, individually; 118,155 shares are being sold by Mr. Shaw and Ms.
Renshaw, jointly; and 592,396 shares are being sold by the Renshaw/Shaw
Charitable Remainder Trust.
(6) Represents (i) 573,333 shares of Common Stock held by Morgan Keegan
Merchant Banking Fund II, L.P., of which 114,286 shares are being sold in
this offering, and (ii) 188,571 shares of Common Stock held by Morgan
Keegan Merchant Banking Fund, L.P., of which 38,095 shares are being sold
in this offering.
(7) Adobe is the sole limited partner of Adobe Ventures L.P., and H&Q Adobe
Ventures Management L.P., is the sole general partner of Adobe Ventures
L.P.
(8) Includes 60 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Butterfield is Vice President, Advanced
Development and former Secretary of the Company.
(9) Includes 70,858 shares issuable pursuant to options exercisable within 60
days of July 31, 1996 and 141,717 shares issuable upon completion of this
offering. Mr. Gavaldon is President, Chief Executive Officer and Chairman
of the Board of the Company.
(10) Includes 44,709 shares issuable pursuant to options exercisable within 60
days of July 31, 1996 and 16,666 shares issuable upon completion of this
offering. Mr. Fournier is Vice President, Sales and Field Operations of
the Company.
(11) Includes 16,666 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Ruffolo is Vice President, Marketing of the
Company.
(12) Includes 16,666 shares issuable upon completion of this offering. Mr.
Printer is Vice President, Finance and Administration, Chief Financial
Officer and Secretary of the Company.
(13) Includes 15,333 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Cardin is Vice President and Chief Technology
Officer of the Company.
(14) Includes 147,746 shares issuable pursuant to options exercisable within
60 days of July 31, 1996 and 175,049 shares issuable upon completion of
this offering, respectively.
(15) Includes 260 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Nelson is an employee of the Company.
46
<PAGE>
(16) Includes 200 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Hossley is an employee of the Company.
(17) Includes 260 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Bailey is an employee of the Company.
(18) Reflects beneficial ownership of shares issuable pursuant to warrants
acquired in connection with equipment lease transactions between the
Company and Comdisco.
(19) Reflects beneficial ownership of shares issuable pursuant to warrants
acquired in connection with bank line of credit transactions extended by
Silicon Valley Bank to the Company.
(20) Includes 21,836 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Wood was the former Chief Financial Officer of
the Company.
(21) Includes 13,033 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Feldman is an employee of the Company.
(22) Includes 3,033 shares issuable pursuant to options exercisable within 60
days of July 31, 1996. Mr. Kimmel is an employee of the Company.
(23) Reflects beneficial ownership of share issuable pursuant to warrants
acquired in connection with equipment lease transactions between the
Company and First Portland Corporation.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value.
COMMON STOCK
As of July 31, 1996, there were 7,702,618 shares of Common Stock outstanding
held of record by approximately 104 stockholders. The holders of Common Stock
are entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the
Board of Directors out of funds legally available therefor. In the event of
the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior liquidation rights of Preferred
Stock, if any, then outstanding. The Common Stock has no preemptive,
conversion, subscription or other rights. There are no redemption or sinking
funds provisions applicable to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be outstanding upon completion of this offering will be fully paid and non-
assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon such Preferred Stock,
including dividend rights, conversion rights, terms of redemption, liquidation
preference sinking fund terms and the number of shares constituting any series
or the designation of such series, without any further vote or action by the
stockholders. The Board of Directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. The issuance of Preferred
Stock could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock.
REGISTRATION RIGHTS
The holders (or their permitted transferees) of approximately 5,539,494
shares of Common Stock ("Holders") are entitled to certain rights with respect
to the registration of such shares under the Securities Act of 1933, as
amended (the "Securities Act"). If the Company proposes to register its Common
Stock, subject to certain exceptions, under the Securities Act, the Holders
are entitled to notice of the registration and are entitled to include, at the
Company's expense, such shares therein, provided that the managing underwriter
has the right to limit the number of such shares included in the registration.
These rights will not apply to this offering. In addition, certain of the
Holders may require the Company at its expense on no more than four occasions
to file a registration statement under the Securities Act with respect to
their shares of Common Stock. Such rights may not be exercised until 180 days
after the completion of this offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in control of the Company.
48
<PAGE>
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, any action required or permitted
to be taken by stockholders of the Company must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing. In addition, special meetings of the stockholders of the
Company may be called only by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer of the Company or by any person or persons
holding shares representing at least 10% of the outstanding capital stock. The
Company's Certificate of Incorporation also specifies that the authorized
number of directors may be changed only by resolution of the Board of
Directors. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company.
CALIFORNIA FOREIGN CORPORATION LAW
Pursuant to section 2115 ("Section 2115") of the California General
Corporation Law (the "California GCL"), under certain circumstance certain
provisions of the California GCL may be applied to foreign corporations
qualified to do business in California notwithstanding the law of the
jurisdiction where the corporation is incorporated. Such corporations are
referred to herein as "quasi-California" corporations. Section 2115 is
applicable to foreign corporations which have more than half of their voting
stock held by stockholders residing in California and more than half of their
business deriving from California, measured at the end of the Company's fiscal
year. If the Company were determined to be a quasi-California corporation, it
would have to comply with California law with respect to, among other things,
elections of directors and distributions to stockholders. Under the California
GCL, a corporation is prohibited from paying dividends unless (i) the retained
earnings of the corporation immediately prior to the distribution equals or
exceeds the amount of the proposed distribution; or (ii) (a) the assets of the
corporation (exclusive of certain non-tangible assets) equal or exceed 1 times
its liabilities (exclusive of certain liabilities), and (b) the current assets
of the corporation at least equal its current liabilities, but if the average
pre-tax net earnings of the corporation before interest expense for the two
years preceding the distribution was less than the average interest expense of
the corporation for those years, the current assets of the corporation must
exceed 1 times its current liabilities. Following this offering, the Company
may become exempt from the application of Section 2115 in the event that more
than half of the voting stock is held by stockholders with residences outside
of California.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Norwest
Shareholder Services.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of 10,202,618 shares of Common Stock, assuming (i) the exercise of
warrants to purchase 1,133,351 shares of Common Stock on a cashless basis
resulting in the issuance of 995,671 shares of Common Stock, (ii) no exercise
of the Underwriters' over-allotment option and (iii) no exercise of options to
purchase 1,488,291 shares of Common Stock outstanding as of July 31, 1996. Of
these shares, the 3,750,000 shares of Common Stock sold in this offer will be
freely tradeable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act
("Affiliates"). The remaining 6,452,618 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which rules are summarized below. As a result of the
contractual restrictions described below and the provisions of Rules 144 and
701, additional shares will be available for sale in the public market as
follows: (i) approximately 31,867 Restricted Shares will be eligible for
immediate sale on the date of this Prospectus; (ii) approximately 83,633
Restricted Shares will be eligible for sale beginning 90 days after the date
of the Prospectus; (iii) approximately 5,291,393 Restricted Shares (plus
approximately 603,531 shares of Common Stock issuable to employees and
consultants pursuant to stock options that are then vested) will be eligible
for sale upon expiration of the lock-up agreements 180 days after the date of
this Prospectus; and (iv) the remaining 1,045,721 Restricted Shares will be
eligible for sale beginning October 1997 upon expiration of their two-year
holding period.
Upon completion of this offering, the holders of approximately 5,856,138
shares of Common Stock, or their transferees, will be entitled to certain
rights with respect to the registration of such shares under the Securities
Act. Registration of such shares under the Securities Act would result in such
shares becoming freely tradeable without restriction under the Securities Act
(except for shares purchased by Affiliates) immediately upon the effectiveness
of such registration.
The Company's officers, directors and certain stockholders have agreed that
they will not, without the prior written consent of Hambrecht & Quist LLC,
directly or indirectly offer, sell, contract to sell or otherwise dispose of
approximately 6,239,488 shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock during the 180-day period
commencing on the date of this Prospectus. The Company has agreed that it will
not, without the prior written consent of Hambrecht & Quist LLC, directly or
indirectly offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock during such 180-day period except for the sale of the shares
of Common Stock in this offering, the issuance of options and shares of Common
Stock pursuant to employee benefit plans set forth in this Prospectus, and the
issuance of shares of Common Stock upon exercise of warrants or options
presently outstanding. Any shares subject to the lock-up agreements may by
released at any time without notice by Hambrecht & Quist LLC.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least two years will be entitled to sell in any three-month
period a number of shares that does not exceed greater of (i) one percent of
the then outstanding shares of the Company's Common Stock or (ii) the average
weekly trading volume of the Company's Common Stock in the Nasdaq National
Market during the four calendar weeks immediately preceding the date on which
notice of the sale is filed
50
<PAGE>
with the Securities and Exchange Commission. Sales pursuant to Rule 144 are
subject to certain requirements relating to manner of sale, notice, and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
Affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned Restricted Shares for at least three
years is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 and Rule 144(k) to become eligible for resale in the
public market. This proposal, if adopted, would substantially increase the
number of shares of Common Stock eligible for immediate resale following the
expiration of the lock-up agreements described above. No assurance can be
given concerning whether or when the proposal will be adopted by the
Commission.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
Stock Plans and Purchase Plan. Based on the number of options outstanding and
options and shares reserved for issuance at July 31, 1996, such registration
statement would cover approximately 2,627,146 shares. Such registration
statement is expected to be filed and to become effective as soon as
practicable after the date hereof. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to
Affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock up agreements
described above. See "Management."
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below through their representatives, Hambrecht & Quist LLC,
Prudential Securities Incorporated and Wessels, Arnold & Henderson, L.L.C.,
have severally agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.........................................
Prudential Securities Incorporated............................
Wessels, Arnold & Henderson, L.L.C. ..........................
---------
Total......................................................... 3,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary
authority. After the initial public offering of the shares, the offering price
and other selling terms may be changed by the Representatives of the
Underwriters.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 562,500 additional shares of Common Stock at the initial public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the table above bears to the total number of shares
of Common Stock offered hereby. The Company will be obligated, pursuant to the
option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
52
<PAGE>
The Company's officers and directors and certain stockholders have agreed
that they will not, without the prior written consent of Hambrecht & Quist
LLC, directly or indirectly, offer, sell or otherwise dispose of 6,239,488
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock during the 180-day period commencing on
the date of this Prospectus. The Company has agreed that it will not, without
the prior written consent of Hambrecht & Quist LLC, directly or indirectly,
sell, offer, or otherwise dispose of any shares of Common Stock, or any
securities convertible into, exchangeable or exercisable for shares of Common
Stock during such 180-day period except for the sale of the shares of Common
Stock in this offering, the issuance of options and shares of Common Stock
pursuant to employee benefit plans set forth in this Prospectus, and the
issuance of shares of Common Stock upon exercise of warrants or options
presently outstanding. Hambrecht & Quist LLC in its sole discretion may
release any of the shares subject to the lock-up at any time without notice.
H&Q Peerless Investors, L.P., a fund associated with Hambrecht & Quist LLC,
will beneficially own 178,549 shares, or 1.8%, of the outstanding capital
stock of the Company upon the closing of this offering. H&Q Adobe Ventures
Management L.P., a fund associated with Hambrecht & Quist LLC, will
beneficially own 596,840 shares, or 5.8%, of the outstanding capital stock of
the Company, upon the closing of this offering. Hambrecht & Quist LLC
disclaims beneficial ownership of the shares held by H&Q Adobe Ventures
Management L.P.
Prior to this offering, there has been no public market for the Company's
Common Stock. The initial public offering price for the Common Stock will be
determined by negotiation among the Company, the Selling Stockholders and the
Underwriters. Among the factors considered in determining the initial public
offering price will be the market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward Castro Huddleson & Tatum, Palo Alto, California
("Cooley Godward"). Certain legal matters related to the offering will be
passed upon for the Underwriters by Fenwick & West LLP, Palo Alto, California.
As of the date of this Prospectus, certain members of Cooley Godward
beneficially owned 14,919 shares of Common Stock of the Company.
EXPERTS
The statements of operations for the years ended December 31, 1993, 1994 and
1995 and for the one month period ended January 31, 1996 and the balance
sheets at December 31, 1994 and 1995 and January 31, 1996 included in this
Prospectus and in the Registration Statement of which this Prospectus is a
part have been included herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission, Washington, D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus concerning the
contents of any contract or any other document are necessarily summaries of
such contracts or documents, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such
53
<PAGE>
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement and the exhibits filed as a
part thereof. A copy of the Registration Statement, including exhibits
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission. In addition, the Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the Web site is: http://www.sec.gov.
54
<PAGE>
PEERLESS SYSTEMS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants................. F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Deficit......................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Peerless Systems Corporation
We have audited the accompanying balance sheets of Peerless Systems
Corporation as of December 31, 1994 and 1995 and January 31, 1996, and the
related statements of operations, stockholders' deficit, and cash flows for
each of the three years in the period ended December 31, 1995 and the one
month period ended January 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peerless Systems Corporation
at December 31, 1994 and 1995 and January 31, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and the one month period ended January 31, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Newport Beach, California
July 25, 1996
F-2
<PAGE>
PEERLESS SYSTEMS CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------- JANUARY 31, APRIL 30, APRIL 30,
1994 1995 1996 1996 1996
------ ------ ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 393 $1,184 $ 722 $ 627
Trade accounts receivable..... 2,481 1,746 2,013 2,665
Unbilled receivables.......... 11 211 245
Prepaid expenses and other
current assets............... 166 103 102 73
------ ------ ------ ------
Total current assets........ 3,051 3,244 3,082 3,365
Property and equipment, net..... 299 509 532 709
Other assets.................... 191 432 427 459
------ ------ ------ ------
Total assets................ $3,541 $4,185 $4,041 $4,533
====== ====== ====== ======
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Current liabilities:
Line of credit............. $ 1,095 $ 500 $ 500
Accounts payable........... 512 $ 395 $ 431 340 340
Accrued wages.............. 570 594 623 395 395
Accrued compensated
absences.................. 315 352 310 354 354
Other current liabilities.. 305 74 209 240 240
Obligations under capital
leases, current portion... 154 154 239 239
Deferred rent, current
portion................... 180 76 76 76 76
Deferred revenue, current
portion................... 3,266 3,906 3,887 3,673 3,673
-------- -------- -------- -------- --------
Total current
liabilities............. 6,243 5,551 5,690 5,817 5,817
Convertible notes payable.... 3,070 3,070 3,070
Obligations under capital
leases...................... 141 141 247 247
Deferred rent................ 398 299 291 271 271
Deferred revenue............. 2,196 789 784 988 988
-------- -------- -------- -------- --------
8,837 9,850 9,976 10,393 7,323
-------- -------- -------- -------- --------
Commitments and contingencies
(Note 6)....................
Series A convertible,
redeemable Preferred Stock,
3,472 shares authorized,
1,111 shares issued and
outstanding at December 31,
1994, 1995, January 31, 1996
and April 30, 1996
(aggregate liquidation value
of $2,167, $1,667, $1,667
and $1,667 at December 31,
1994, 1995, January 31, 1996
and April 30, 1996,
respectively), no shares pro
forma....................... 3,214 2,482 2,482 2,484
-------- -------- -------- --------
Series B convertible,
redeemable Preferred Stock,
6,400 shares authorized,
1,501 shares issued and
outstanding at December 31,
1994, 1995, January 31, 1996
and April 30, 1996
(aggregate liquidation value
of $2,327 at December 31,
1994, 1995, January 31, 1996
and April 30, 1996), no
shares pro forma............ 3,431 3,449 3,450 3,454
-------- -------- -------- --------
Stockholders' deficit:
Preferred Stock, $.001 par
value, 5,000 shares
authorized, no shares
issued or outstanding, pro
forma.....................
Common Stock, no par value
($.001 par value pro
forma), 15,000 shares
authorized (30,000 shares
pro forma), 2,635, 2,837,
2,837 and 2,837 shares
issued and outstanding at
December 31, 1994, 1995,
January 31, 1996 and April
30, 1996, respectively,
6,656 shares pro forma.... 238 508 508 508 7
Additional paid-in capital. 889 889 889 10,398
Accumulated deficit........ (12,179) (12,993) (13,264) (13,195) (13,195)
-------- -------- -------- -------- --------
Total stockholders'
deficit................. (11,941) (11,596) (11,867) (11,798) (2,790)
-------- -------- -------- -------- --------
Total liabilities and
stockholders' deficit... $ 3,541 $ 4,185 $ 4,041 $ 4,533 $ 4,533
======== ======== ======== ======== ========
</TABLE>
The following notes are an integral part of these financial statements.
F-3
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, THREE MONTHS ENDED
------------------------ MONTH ENDED -------------------
JANUARY 31, MARCH 31, APRIL 30,
1993 1994 1995 1996 1995 1996
------- ------- ------ ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product licensing...... $ 1,586 $ 4,394 $4,774 $ 329 $1,224 $1,013
Engineering services
and maintenance....... 3,655 4,942 5,639 396 1,146 2,318
------- ------- ------ ----- ------ ------
Total revenues........ 5,241 9,336 10,413 725 2,370 3,331
------- ------- ------ ----- ------ ------
Cost of revenues:
Product licensing...... 341 218 143 5 43 33
Engineering services
and maintenance....... 5,095 5,457 5,111 564 1,147 1,615
------- ------- ------ ----- ------ ------
Total cost of
revenues............. 5,436 5,675 5,254 569 1,190 1,648
------- ------- ------ ----- ------ ------
Gross margin.......... (195) 3,661 5,159 156 1,180 1,683
------- ------- ------ ----- ------ ------
Operating expenses:
Research and
development........... 1,766 1,767 2,088 127 512 422
Sales and marketing.... 1,656 1,878 2,142 156 483 597
General and
administrative........ 1,048 1,000 1,293 119 304 500
------- ------- ------ ----- ------ ------
Total operating
expenses............. 4,470 4,645 5,523 402 1,299 1,519
------- ------- ------ ----- ------ ------
Income (loss) from
operations............. (4,665) (984) (364) (246) (119) 164
Interest expense, net... 96 118 176 17 35 71
------- ------- ------ ----- ------ ------
Income (loss) before
provision for income
taxes.................. (4,761) (1,102) (540) (263) (154) 93
Provision for income
taxes.................. 63 124 99 7 14 18
------- ------- ------ ----- ------ ------
Net income (loss)..... $(4,824) $(1,226) $ (639) $(270) $ (168) $ 75
======= ======= ====== ===== ====== ======
Pro forma information
(unaudited):
Pro forma net income
(loss) per share...... $(0.08) $ 0.02
====== ======
Pro forma weighted
average number of
common and common
equivalent shares
outstanding........... 7,090 7,762
====== ======
</TABLE>
The following notes are an integral part of the these financial statements.
F-4
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, December 31,
1992.................... 2,555 $192 $ (5,678) $ (5,486)
Issuance of common
stock for cash........ 62 13 13
Repurchase of common
stock for cash........ (17) (3) (3)
Net loss............... (4,824) (4,824)
Increase in redemption
value of Series A and
Series B Preferred
Stock................. (228) (228)
----- ---- -------- --------
Balances, December 31,
1993.................... 2,600 202 (10,730) (10,528)
Issuance of common
stock for cash........ 35 36 36
Net loss............... (1,226) (1,226)
Increase in redemption
value of Series A and
Series B Preferred
Stock................. (223) (223)
----- ---- -------- --------
Balances, December 31,
1994.................... 2,635 238 (12,179) (11,941)
Issuance of common
stock for cash........ 202 270 270
Net loss............... (639) (639)
Increase in redemption
value of Series A and
Series B Preferred
Stock................. (175) (175)
Decrease in redemption
value of Series A
Preferred Stock....... $889 889
----- ---- ---- -------- --------
Balances, December 31,
1995.................... 2,837 508 889 (12,993) (11,596)
Net loss............... (270) (270)
Increase in redemption
value of Series A and
Series B Preferred
Stock................. (1) (1)
----- ---- ---- -------- --------
Balances, January 31,
1996.................... 2,837 508 889 (13,264) (11,867)
Net income (unaudited). 75 75
Increase in redemption
value of Series A and
Series B Preferred
Stock (unaudited)..... (6) (6)
----- ---- ---- -------- --------
Balances, April 30, 1996
(unaudited)............. 2,837 $508 $889 $(13,195) $(11,798)
===== ==== ==== ======== ========
</TABLE>
The following notes are an integral part of these financial statements.
F-5
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
---------------------------- -------------------
MONTH ENDED
JANUARY 31, MARCH 31, APRIL 30,
1993 1994 1995 1996 1995 1996
-------- -------- -------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ (4,824) $ (1,226) $ (639) $ (270) $ (168) $ 75
Adjustments to
reconcile net income
(loss) to net cash
provided (used) by
operating activities:
Depreciation and
amortization......... 147 156 203 15 32 91
Loss on sale of
property and
equipment............ 18
Changes in operating
assets and
liabilities:
Trade accounts
receivable.......... (760) (917) 735 (267) 635 (651)
Unbilled receivables. 152 26 (200) (34) 11 244
Prepaid expenses and
other current
assets.............. (6) 46 63 1 4 29
Other assets......... (63) 30 (241) 5 (29) (32)
Accounts payable..... (216) 119 (117) 36 (283) (90)
Accrued wages........ 134 88 24 29 (156) (228)
Accrued compensated
absences............ 150 121 37 (42) (35) 44
Other current
liabilities......... 168 192 (231) 135 (47) 31
Deferred rent........ 473 (200) (203) (8) (45) (20)
Deferred revenue..... 3,088 994 (767) (24) 671 (10)
-------- -------- -------- ------ ------ -----
Net cash provided
(used) by operating
activities......... (1,539) (571) (1,336) (424) 590 (517)
-------- -------- -------- ------ ------ -----
Cash flows from
investing activities:
Purchases of property
and equipment......... (79) (39) (47) (38) (16) (35)
Proceeds from sale of
property and
equipment............. 5
-------- -------- -------- ------ ------ -----
Net cash used by
investing
activities......... (74) (39) (47) (38) (16) (35)
-------- -------- -------- ------ ------ -----
Cash flows from
financing activities:
Principal payments of
long-term debt........ (61) (74)
Proceeds from issuance
of common stock....... 13 36 270 38
Repurchase of common
stock................. (3)
Proceeds from issuance
of convertible notes
payable............... 3,070
Net proceeds from
issuance of Series B
Preferred Stock....... 1,970
Net (payments)
borrowings on line of
credit................ (75) 270 (1,095) 55 500
Payments on obligations
under capital leases.. (71) (43)
-------- -------- -------- ------ ------ -----
Net cash provided by
financing
activities......... 1,844 232 2,174 93 457
-------- -------- -------- ------ ------ -----
Net increase
(decrease) in cash
and cash
equivalents........ 231 (378) 791 (462) 667 (95)
Cash and cash equiva-
lents, beginning of pe-
riod................... 540 771 393 1,184 393 722
-------- -------- -------- ------ ------ -----
Cash and cash equiva-
lents, end of period... $ 771 $ 393 $ 1,184 $ 722 $1,060 $ 627
======== ======== ======== ====== ====== =====
</TABLE>
(Continued)
The following notes are an integral part of these financial statements.
F-6
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, THREE MONTHS ENDED
---------------- MONTH ENDED -------------------
JANUARY 31, MARCH 31, APRIL 30,
1993 1994 1995 1996 1995 1996
------ ---- ---- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Supplemental disclosure of
cash flow information:
Cash paid during the year
for:
Income taxes................ $ 63 $124 $111 $-- $-- $ 9
====== ==== ==== === === ===
Interest.................... $ 103 $119 $175 $-- $36 $18
====== ==== ==== === === ===
Supplemental schedule of
noncash investing and
financing activities:
Increase in redemption value
of Series A and Series B
Preferred Stock............. $ 228 $223 $175 $ 1 $56 $ 6
====== ==== ==== === === ===
Conversion of accrued
interest on convertible
notes to shares of Series B
Preferred Stock............. $ 27
======
Conversion of convertible
notes to shares of Series B
Preferred Stock............. $1,408
======
Decrease in redemption value
of Series A Preferred Stock. $889
====
Software and equipment
acquired under capital lease
obligations................. $366
====
</TABLE>
The following notes are an integral part of these financial statements.
F-7
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Peerless Systems Corporation ("Peerless" or the "Company") was incorporated
in the State of California in April 1982. Peerless develops and licenses
embedded imaging software and supporting hardware technologies and provides
custom engineering services to Original Equipment Manufacturers ("OEMs"),
located primarily in the United States and Japan. These OEMs sell monochrome
printers, as well as multifunction products which combine printer, fax and
scanner capabilities.
History of Operating Losses; Accumulated Deficit:
The Company recognized net losses of $1,226 and $639 for the fiscal years
ended December 31, 1994 and 1995, respectively, and recognized net income of
$75 for the three months ended April 30, 1996. Losses have resulted in an
accumulated deficit of $13,195 as of April 30, 1996. Management plans to
enhance the Company's cash flows from operations by obtaining license fees
upon the signing of new contracts, and obtaining add-on and new product
contracts with existing and new customers, supplemented with additional
external funding, if necessary. In May 1996, management successfully
renegotiated its line of credit which resulted in covenants that management
believes are achievable.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment:
Property and equipment, including any assets under capital leases, are
stated at cost, less accumulated depreciation and amortization. Depreciation
on property and equipment is calculated using the straight-line method over
estimated useful lives of 5-10 years, and over the lesser of the term of the
lease or the estimated useful life of the leasehold improvements and assets
under capital leases. Maintenance and repairs are expensed as incurred, while
renewals and betterments are capitalized. Upon the sale or retirement of
property and equipment, the accounts are relieved of the cost and the related
accumulated depreciation or amortization, and any resulting gain or loss is
included in operations.
Capitalization of Software Development Costs:
The Company follows the working model approach to determine technological
feasibility of its products. Costs that are incurred subsequent to
establishing technological feasibility are immaterial and, therefore, the
Company expenses all costs associated with the development of its products as
such costs are incurred.
Revenue Recognition:
Revenue from the licensing of source code of the Company's standard products
to customers is recognized upon shipment and customer acceptance. Recurring
licensing revenue is recognized on a royalty basis generally when the
Company's OEM customers ship their products incorporating Peerless' technology
to their end-user customers.
The Company also enters into engineering services contracts with OEMs to
provide research and development work to adapt the Company's standard products
to the OEM's specific hardware and software requirements. Revenue on such
contracts is recognized over the course of the development work on a
percentage-of-completion basis. The Company provides for any anticipated
losses on such contracts in the period in which such losses are first
determinable.
F-8
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Deferred revenue consists of prepayments of recurring licensing royalties,
and payments billed to customers in advance of revenue recognized on
engineering services contracts. Unbilled receivables arise when the revenue
recognized on a contract exceeds invoices to customers under those contracts.
Research and Development Costs:
Research and development costs are expensed as incurred.
Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes." Under
this method, deferred income taxes are recognized for the tax consequences in
future years resulting from differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory rates applicable to the periods in which the
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred income tax assets to the amount expected to
be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred income tax assets and liabilities.
Net Loss Per Common Share:
Net loss per common share is based on reported net loss, with such reported
net loss adjusted for accretion of the Series A and B Preferred Stock and
interest on convertible notes payable. The resulting amount is presented in
the table below as loss applicable to common stock.
Net loss per share is computed based upon the weighted average number of
common shares outstanding adjusted for certain shares issuable under other
equity securities computed in accordance with Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") Topic 4-D. The SAB requires that
common stock issued by the Company, at prices less than the per share initial
public offering price, in the twelve months immediately preceding a proposed
public offering plus the number of common equivalent shares that become
issuable during the same period pursuant to the issuance of warrants or grant
of stock options (using the treasury stock method), convertible notes payable
or other potentially dilutive instruments with per share exercise prices below
the per share initial public offering price be included in the calculation of
common stock and common stock equivalent shares as if they were outstanding
for all periods presented.
F-9
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------------ ----------------------------
MARCH 31, APRIL 30,
1993 1994 1995 1995 1996
--------------- --------------- -------------- -------------- ------------
(UNAUDITED) (UNAUDITED)
PER PER PER PER PER
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
------- ------ ------- ------ ------ ------ ------ ------ ------ -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reported net income
(loss)................. $(4,824) $(1,226) $ (639) $ (168) $ 75
Adjustment for accretion
of Series A and B
Preferred Stock and
interest on convertible
notes.................. (228) (223) (130) (56) 48
------- ------- ------ ------ ------
Net income (loss)
applicable to common
stock and net income
(loss) per common share
and common equivalent
share.................. (5,052) $(1.17) (1,449) $(0.33) (769) $(0.17) (224) $(0.05) 123 $0.02
======= ====== ======= ====== ====== ====== ====== ====== ====== =====
Weighted average number
of:
Common shares.......... 2,556 2,600 2,667 2,661 2,838
Common equivalent
shares................ 1,776 1,776 1,776 1,776 2,279
------- ------- ------ ------ ------
Weighted average common
shares and common
equivalent shares
outstanding............ 4,332 4,376 4,443 4,437 5,117
======= ======= ====== ====== ======
</TABLE>
Primary and fully diluted earnings per share do not differ.
Pro Forma Net Income (Loss) Per Share and Unaudited Pro Forma Stockholders'
Deficit:
Pro forma net income (loss) per share has been computed as described above
and also gives effect, even if antidilutive, to common equivalent shares from
convertible Series A and B Preferred Stock that will automatically convert
upon the closing of the Company's initial public offering (using the if-
converted method). If the offering contemplated by this Prospectus is
consummated, all of the convertible Series A and B Preferred Stock and
convertible notes payable outstanding as of the closing date will
automatically be converted into an aggregate of 2,647 and 1,170 shares of
common stock, respectively.
Unaudited pro forma stockholders' deficit at April 30, 1996, as adjusted for
the assumed conversion of the Series A and Series B Preferred Stock and
convertible notes payable, is disclosed on the balance sheet.
Common Stock Options:
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee stock option. Fair value of
the stock option is determined by considering factors such as the exercise
price, the expected life of the option, the current price of the underlying
stock and its volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option. Under the fair value based
method, compensation cost is measured as of the grant date based on the fair
value of the award and is recognized over the service period. A company may
elect to adopt SFAS No. 123 or elect to continue accounting for its stock
option or similar equity awards using the intrinsic method, where compensation
cost is measured at the date of grant based on the excess of the market value
of the underlying stock over the exercise price. If a company elects not to
adopt SFAS No. 123, then it must provide pro forma disclosure of net income
and net income per share, as if the fair value based method had been applied.
The Company does not intend to adopt SFAS No. 123 and will provide the
required pro forma disclosure.
F-10
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Statements of Cash Flows:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Interim Financial Information:
The financial information at April 30, 1996 and for the three-month periods
ended March 31, 1995 and April 30, 1996 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the financial position
at such date and the operating results and cash flows for those periods.
Results of the April 30, 1996 period are not necessarily indicative of the
results for the entire year.
Change in Fiscal Year-End:
The Company changed its fiscal year-end from December 31 to January 31,
effective in the year beginning February 1, 1996. The results of operations
for the one month transition period ended January 31, 1996 is presented
herein.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- APRIL 30,
1994 1995 1996
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computers and other equipment..................... $ 789 $ 798 $ 858
Furniture......................................... 111 118 118
Leasehold improvements............................ 23 23 34
Software under capital lease obligations.......... 115 156
Equipment under capital lease obligations......... 251 444
----- ------ ------
923 1,305 1,610
Less, accumulated depreciation and amortization. (624) (796) (901)
----- ------ ------
$ 299 $ 509 $ 709
===== ====== ======
</TABLE>
3. LINE OF CREDIT:
The Company has a revolving line of credit with a bank, collateralized by
all of the Company's assets, other than those subject to lease financing
agreements. The maximum amount available under the line of credit is the
lesser of $1,500 or a percentage of the Company's outstanding accounts
receivable and current royalty receivables, which amount was $726 at December
31, 1995 (unaudited: $1,435 at April 30, 1996). The interest rate on this line
of credit is the bank's prime interest rate plus 2% (an effective rate of
10.5% at December 31, 1995 [unaudited: 10.25% at April 30, 1996]). Under the
terms of this agreement, which expires in May 1997, the Company is required to
maintain compliance with certain financial ratios, the most restrictive of
which is a current ratio (as defined in the agreement) of 1:1, and to
recognize net income each fiscal quarter beginning July 31, 1996.
F-11
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. OBLIGATIONS UNDER CAPITAL LEASES:
Obligations under capital leases consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Obligations under capital leases with terms of
eighteen months, bearing an effective interest
rate of 26.97%, payable in monthly payments of
principal and interest ranging from $3 to $5,
expiring on various dates through October 1997,
and collateralized by the software under lease.... $ 83 $100
Obligations under capital leases with terms of
three years, bearing effective interest rates
ranging from 16.53% to 17.87%, payable in monthly
payments of principal and interest ranging from $1
to $3, expiring on various dates through 1999, and
collateralized by the equipment under lease....... 212 386
----- ----
295 486
Less, current portion.............................. (154) (239)
----- ----
$ 141 $247
===== ====
</TABLE>
Total required minimum lease payments under capital leases in the calendar
years subsequent to December 31, 1995 and in the aggregate are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
---------------------------------
<S> <C>
1996................................................................... $198
1997................................................................... 120
1998................................................................... 42
----
Total minimum lease payments......................................... 360
Less, amount representing interest................................. (65)
----
Net minimum lease payments under capital lease................... $295
====
</TABLE>
5. CONVERTIBLE NOTES PAYABLE:
In December 1992, the Company issued $1,408 of convertible notes payable in
exchange for cash. The notes carried an annual interest rate of 4%. The notes
and related accrued interest were converted into shares of the Company's
Series B Preferred Stock in June 1993 at $2.33 per share.
In October 1995, the Company issued 7.00% Senior Convertible Subordinated
Debentures ("Debentures"), to holders of the Company's Preferred Stock, with
an aggregate principal amount of $3,070 and a maturity date of June 1, 2001.
The Debentures bear interest at a rate of 7% per annum with interest due June
1 and December 1 of each year. The Debentures are convertible, at the option
of the holder, to shares of common stock at a specified conversion price of
$2.63 per common share, subject to dilution adjustments. The Debentures are
subordinate to all bank indebtedness. The Debentures will automatically
convert upon the effective date of a registration statement relating to a
public offering of at least $10,000 of the Company's common stock under the
Securities Act of 1933.
F-12
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. CONVERTIBLE NOTES PAYABLE--(CONTINUED)
If the Company receives requests for redemption on or prior to May 1, 1999
from the holders of a majority in aggregate principal amount of the Debentures
and obtains the appropriate consents from the preferred stockholders, all
Debentures will be redeemed at the rate of one-third of the then outstanding
principal plus accrued and unpaid interest on each of the following three
redemption dates: June 1, 1999, 2000 and 2001. The Company is not required to
set up a sinking fund for the redemption.
As of December 31, 1995 and January 31, 1996, total outstanding principal
was $3,070 and the Company had not received redemption requests from the
holders.
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company leases its offices and certain operating equipment under
operating leases that expire through 2001.
Future minimum rental payments under long-term operating leases are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
---------------------------------
<S> <C>
1996............................................................... $ 886
1997............................................................... 701
1998............................................................... 620
1999............................................................... 620
2000............................................................... 620
Thereafter......................................................... 155
------
Total........................................................... $3,602
======
</TABLE>
Total rental expense was $1,160, $916 and $1,059 for the years ended
December 31, 1993, 1994 and 1995, respectively. Unaudited: Rental expense was
$204 for the three months ended April 30, 1996.
Concentration of Credit Risk:
At December 31, 1994 and 1995, the Company had cash on deposit at a bank
that was in excess of federally-insured limits. The aggregate excess amount
was $300 and $1,164, respectively. Unaudited: The aggregate excess amount at
April 30, 1996 was $682.
The Company's credit risk in accounts receivable, which are generally not
collateralized, is concentrated with customers which are OEMs of laser
printers and printer peripheral technologies. The accounting loss, should a
customer be unable to meet its obligation to the Company, would be equal to
the recorded accounts receivable. At December 31, 1994 and 1995, two customers
represented 79% and 50% of total receivables, respectively. For the years
ended December 31, 1993, 1994 and 1995, two customers represented 40%, 45% and
41%, respectively, of product licensing revenues, and four customers
represented 64%, 81% and 94%, respectively, of engineering services revenues.
Unaudited: At April 30, 1996, two customers represented 65% of total
receivables. For the three months ended April 30, 1996, two customers
represented 68% of product licensing revenues and four customers represented
63% of engineering services revenues.
F-13
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES:
The income tax provision consists of:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal..................................................... $-- $ -- $--
State....................................................... -- -- --
Foreign..................................................... 63 124 99
--- ---- ---
63 124 99
--- ---- ---
Deferred:
Federal..................................................... -- -- --
State....................................................... -- -- --
Foreign..................................................... -- -- --
--- ---- ---
-- -- --
--- ---- ---
$63 $124 $99
=== ==== ===
</TABLE>
The foreign tax provision is comprised of foreign withholding taxes on
license fees and royalty payments.
Temporary differences that give rise to the deferred tax provision consist
of:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -----
<S> <C> <C> <C>
Property and equipment.............................. $ 9 $ 11 $ 19
Accrued liabilities................................. 61 40 42
Deferred revenue.................................... 1,337 431 (332)
Deferred expenses................................... 33 87 43
Tax credit carryforwards............................ 1,401 253
Net operating loss carryforwards.................... 447 (92) 317
Other............................................... (2) (36) (3)
------- ------- -----
1,885 1,842 339
Valuation allowance................................. (1,885) (1,842) (339)
------- ------- -----
Net deferred income taxes......................... $ -- $ -- $ --
======= ======= =====
</TABLE>
F-14
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES--(CONTINUED)
Temporary differences which give rise to deferred income tax assets and
liabilities are as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities...................................... $ 108 $ 150
Deferred revenue......................................... 2,365 2,033
Deferred expenses........................................ 120 163
Tax credit carryforwards................................. 1,401 1,654
Net operating loss carryforwards......................... 1,757 2,074
Other.................................................... 3
------- -------
Total deferred tax assets.............................. 5,754 6,074
Deferred tax liability:
Property and equipment................................... (49) (30)
------- -------
Subtotal............................................... 5,705 6,044
Valuation allowance........................................ (5,705) (6,044)
------- -------
Net deferred income taxes.............................. $ -- $ --
======= =======
</TABLE>
The Company periodically evaluates the sufficiency of its deferred tax asset
valuation allowance, which is adjusted as deemed appropriate based on
operating results.
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory regular federal income tax rate........... (34.0)% (34.0)% (34.0)%
Foreign provision................................... 1.3 11.2 18.3
Nondeductible expenses.............................. 1.2 1.1 3.2
Foreign tax and research and experimentation
credits............................................ (3.7) (74.4) (23.4)
Change in federal valuation allowance............... 39.6 108.4 55.7
Other............................................... (3.1) (1.1) (1.5)
----- ----- -----
1.3% 11.2% 18.3%
===== ===== =====
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards
for federal and state purposes of approximately $5,299 and $2,932,
respectively. The net operating loss carryforwards begin expiring in 2005 and
1997, respectively. The Company has research and experimentation credit
carryforwards for federal and state purposes of approximately $840 and $460,
respectively. The research and experimentation credits begin to expire in 2000
for federal purposes. The Company also has foreign tax credits of
approximately $355 for federal purposes, which begin to expire in 1996.
8. CONVERTIBLE, REDEEMABLE PREFERRED STOCK:
The Company has authorized 15,000 shares of Preferred Stock, of which 1,736
are designated as Series A Preferred Stock, 1,736 are designated as Series A1
Preferred Stock, 3,200 are designated as Series B Preferred Stock, 3,200 are
designated as Series B1 Preferred Stock, and 5,128 are undesignated.
F-15
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. CONVERTIBLE, REDEEMABLE PREFERRED STOCK--(CONTINUED)
During 1991, the Company issued 1,111 shares of Series A Preferred Stock at
a price of $2.25 per share in exchange for $2,500 of cash, less $51 of
offering expenses.
Shares of Series A Preferred Stock are convertible into the Company's common
stock at a rate of $2.22 per share of common stock, subject to anti-dilution
adjustments. Conversion into the Company's common stock may occur at any time
at the holder's option, but will automatically occur upon the effective date
of a registration statement relating to a public offering of at least $10,000
of the Company's common stock under the Securities Act of 1933.
Holders of Series A Preferred Stock are entitled to a noncumulative annual
dividend of $0.18 per share, payable only when and as declared by the Board of
Directors out of legally available funds.
Until October 1995, the Company was required to redeem all shares of Series
A Preferred Stock in three equal installments on June 1, 1997, 1998 and 1999
upon the request of a majority of the holders of the outstanding Series A
Preferred Stock received prior to May 1, 1997. The redemption amount was based
on $2.25 per share of Common Stock plus a redemption premium equal to $0.045
per share times the number of calendar quarters that elapsed between March 31,
1991 and the date of redemption. As a result of this provision for a
redemption premium, the Company recorded the incremental increases in Series A
Preferred Stock and charged the like amount to Accumulated Deficit.
As a result of an amendment of the Company's Articles of Incorporation in
1995, the Series A Preferred Stock redemption dates were changed to June 1,
1999, 2000 and 2001, redeemable upon the request of a majority of the holders
of the outstanding Series A Preferred Stock received prior to April 1, 1999
and consent of the holders of a majority of the then outstanding principal
amount of the Debentures (Note 5). All redemption premiums relating to Series
A Preferred Stock were retroactively eliminated. As a result of this
amendment, $889 of accumulated incremental increases to Series A Preferred
Stock relating to redemption premiums, including $200, $200 and $150
recognized in 1993, 1994 and 1995, respectively, was added to Additional Paid-
In Capital and charged to Series A Preferred Stock in 1995. The Company is
continuing to accrete for the difference between the carrying values and the
redemption values of its Series A and B Preferred Stock.
During 1993, the Company issued 1,501 shares of Series B Preferred Stock at
a per share price of $2.33 in exchange for $1,435 of convertible notes
payable, including $27 of accrued interest, and $2,055 of cash, less $85 of
offering expenses.
The Company's Series B Preferred Stock has substantially the same rights,
privileges and restrictions as those of Series A Preferred Stock. Shares of
Series B Preferred Stock are convertible into the Company's common stock at a
rate of $2.30 per share of common stock, subject to anti-dilution adjustments,
and also automatically convert into common stock upon the effective date of a
registration statement relating to a public offering of at least $10,000 of
the Company's common stock under the Securities Act of 1933.
In the event of a liquidation, holders of Series A Preferred Stock, and
Series B Preferred Stock would be entitled to receive a distribution equal to
$2.25 per share and $2.33 per share, respectively, plus all declared but
unpaid dividends. Holders of common stock would then participate in the
distribution to the extent of $1,250 on a pro rata basis. Thereafter, proceeds
would be allocated among the holders of common stock and Series A and Series B
Preferred Stock, with the Preferred Stock being treated on an as-converted
basis.
F-16
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. CONVERTIBLE, REDEEMABLE PREFERRED STOCK--(CONTINUED)
Holders of Series A Preferred Stock and Series B Preferred Stock vote as
separate classes from common stock with respect to elections of the Board of
Directors, and participate in other voting rights of the Company with
Preferred Stock being treated on an as-converted basis. Preferred Stock is
transferable in certain circumstances, subject to a right of first refusal by
the other holders of Preferred Stock.
9. COMMON STOCK, WARRANTS AND STOCK OPTIONS:
Common Stock:
The Company has reserved shares of common stock at December 31, 1995 as
follows:
<TABLE>
<S> <C>
Series A and A1 Preferred Stock..................................... 1,736
Series B and B1 Preferred Stock..................................... 2,779
Conversion of warrants.............................................. 1,538
Stock option plans.................................................. 1,783
Conversion of notes payable......................................... 1,771
-----
Total............................................................. 9,607
=====
</TABLE>
In 1994, the Company adopted an Employee Stock Purchase Plan, under which
employees were offered the opportunity to purchase shares of common stock at a
price of $1.43 per share. Pursuant to this plan which terminated in December
1995, 159 shares of common stock were issued. In addition, not related to this
plan, during 1994 and 1995, the Company issued 33 and 27 shares, respectively,
of common stock at a price of $1.43 per share to certain employees.
Warrants:
The Company has issued warrants to purchase common and preferred stock in
connection with various financing transactions, as follows:
<TABLE>
<CAPTION>
PER
SHARE
NUMBER OF EXERCISE EXPIRATION
STOCK CLASS SHARES PRICE DATE(1)
----------- --------- -------- ----------
<S> <C> <C> <C>
Common(2)................................ 67 $4.50 December 1996
Common(3)................................ 517 $1.13 July 1997
Common(4)................................ 27 $1.13 December 1997
Common(4)................................ 13 $2.55 December 1997
Common(5)................................ 365 $1.13 December 1998
Common(6)................................ 31 $1.13 February 2003
Common(7)................................ 5 $2.97 December 1998
Series A Preferred(8).................... 32 $2.25 July 2001
Series B Preferred(6).................... 75 $2.33 February 2003
</TABLE>
F-17
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK, WARRANTS AND STOCK OPTIONS--(CONTINUED)
- --------
(1) All warrants, except the Series A and Series B Preferred Stock warrants,
expire on the earlier of the above dates or the closing date of an initial
public offering of the Company's common stock. The Series A Preferred
Stock warrants expire on the earlier of July 2001 or five years after the
closing date of an initial public offering of the Company's common stock.
The Series B Preferred Stock warrants expire on the earlier of September
2003 or five years after the closing date of an initial public offering of
the Company's common stock.
(2) During 1991, the Company issued warrants to purchase these shares in
connection with the Series A Preferred Stock transaction.
(3) During 1993, the Company issued warrants to purchase 125 shares in
connection with a convertible note payable transaction. The Company had
previously issued warrants to purchase 125 shares in connection with the
same transaction and warrants to purchase 267 shares in connection with a
loan guarantee transaction.
(4) During 1993 and 1994, the Company issued warrants to purchase 27 and 13
shares, respectively, in connection with bank line of credit transactions.
(5) During 1993, the Company issued warrants to purchase these shares in
connection with the Series B Preferred Stock transaction.
(6) During 1993, the Company issued warrants to purchase these shares in
connection with an equipment lease transaction.
(7) During 1995, the Company issued warrants to purchase these shares in
connection with an equipment lease transaction.
(8) During 1991, the Company issued warrants to purchase these shares in
connection with an equipment lease transaction.
At December 31, 1994, 1995 and (unaudited) at April 30, 1996, no warrants
had been exercised, and there was no imputed value associated with any of the
outstanding warrants due to deemed immateriality.
Stock Option Plans:
During 1992, the Board of Directors authorized a nonstatutory stock option
program for the purpose of granting options to purchase a total of 222 shares
of the Company's common stock to employees. The Board of Directors reduced the
number of shares authorized to 133 during 1994. Options vest annually, pro
rata over a five-year period, retroactive to the date of hire for each
recipient.
The following represents option activity under the nonstatutory stock option
plan:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, THREE MONTHS
---------------- ENDED APRIL 30,
1993 1994 1995 1996
---- ---- ---- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Options outstanding at beginning of
period............................ 222 94 88 65
Options exercised.................. (61) -- (13) --
Options forfeited.................. (67) (6) (10) --
--- --- --- ---
Options outstanding at end of
period............................ 94 88 65 65
=== === === ===
</TABLE>
At December 31, 1994 and 1995, unexercised stock options to purchase 49 and
46 shares, respectively, were vested and no shares were available for
granting. With respect to the options to acquire 65 shares of common stock
outstanding at December 31, 1995, per share exercise prices are $0.21 and
$0.53. There was no stock option activity under this plan during the month of
January 1996.
F-18
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK, WARRANTS AND STOCK OPTIONS--(CONTINUED)
During 1992, the Board of Directors authorized the 1992 Stock Option Plan
for the purpose of granting options to purchase the Company's common stock to
employees, directors and consultants. The Board of Directors determines the
form, term, option price and conditions under which each option becomes
exercisable. Options to purchase a total of 1,055 shares of common stock have
been authorized by the Board under this plan.
The following represents option activity under the 1992 Stock Option Plan:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, THREE MONTHS
---------------- ENDED APRIL 30,
1993 1994 1995 1996
---- ---- ---- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Options outstanding at beginning of
period............................ 147 188 309 774
Options granted.................... 115 137 503 202
Options exercised.................. (1) (2) (3) --
Options forfeited.................. (73) (14) (35) (33)
--- --- --- ---
Options outstanding at end of
period............................ 188 309 774 943
=== === === ===
</TABLE>
Options were granted at a per share exercise price of $0.53 during the year
ended December 31, 1993 and at per share exercise prices ranging from $0.53 to
$1.43 and $1.43 to $1.65 during the years ended December 31, 1994 and 1995,
respectively. There was no stock option activity under this plan during the
month of January 1996.
At December 31, 1994 and 1995, unexercised stock options to purchase 79 and
162 shares, respectively, were vested and 411 and 277 shares were available
for granting, respectively.
During the years ended December 31, 1993, 1994 and 1995 and (unaudited) the
three months ended April 30, 1996, no compensation had been recorded on the
granting of any options, as such option prices equaled or exceeded the then
per share fair market value of the Company's common stock.
10. PROFIT-SHARING PLAN:
The Company has a profit-sharing plan which is available for all employees
age 21 or over. Employer contributions are at the discretion of the Company.
No employer contributions were made during the years ended December 31, 1993,
1994 and 1995. Unaudited: No employer contribution was made during the three
months ended April 30, 1996.
11. RELATED PARTIES:
During 1993, 1994 and 1995, the Company recognized revenues of $229, $623
and $707, respectively, from transactions with a holder of Series B Preferred
Stock. Unaudited: Such revenues for the three-month period ended April 30,
1996 were $725. At December 31, 1994 and 1995, the Company owed this related
party $25 and $0, respectively, which was included in accounts payable. At
December 31, 1994 and 1995, the Company had $1,465 and $1,689, respectively,
of deferred revenue relating to license fees prepaid by this related party.
Unaudited: The amount of deferred revenue relating to license fees prepaid by
this related party at April 30, 1996 was $1,159.
F-19
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. INTERNATIONAL OPERATIONS:
The Company's revenues are derived from the following geographic regions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, THREE MONTHS ENDED
--------------------- -------------------
MARCH 31, APRIL 30,
1993 1994 1995 1995 1996
------ ------ ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States......................... $3,680 $6,940 $ 6,139 $1,514 $2,249
Japan................................. 1,193 2,253 4,221 845 1,032
Other................................. 368 143 53 11 50
------ ------ ------- ------ ------
$5,241 $9,336 $10,413 $2,370 $3,331
====== ====== ======= ====== ======
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED):
On July 25, 1995 the Board of Directors approved a 2-for-3 reverse split of
all outstanding common stock, Series A and Series B Preferred Stock, stock
options and warrants. All share and per share amounts have been adjusted to
give retroactive effect to this reverse split for all periods presented.
Prior to the closing of the public offering pursuant to the Company's
registration statement filed with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public, the
Company plans to reincorporate in the state of Delaware, change the par value
of its common stock to $0.001 per share and increase its authorized number of
shares of common stock to 30,000 and decrease its authorized number of shares
of Preferred Stock to 5,000. The pro forma balance sheet at April 30, 1996
includes the effect of this change
During the period May 1, 1996 to July 25, 1996, the Company granted options
to purchase 502 shares of its common stock at per share exercise prices
ranging from $3.30 to $9.00. The Company anticipates recognizing deferred
compensation expense of $452 for the difference between the exercise price and
the deemed fair value of the Company's common stock at the date of grant for
these options. Of the total deferred expense, the Company anticipates that $27
will be recognized as a compensation expense during the three months ended
July 31, 1996. The remaining deferred compensation expense will be amortized
over the vesting periods of the options, which range from 2 to 60 months.
F-20
<PAGE>
[Description: The image will depict the color, multifunction and networked
monochrome markets targeted by the Company, and display logos of selected OEM
customers of the Company.]
<TABLE>
<CAPTION>
TARGET NETWORKED TARGET MULTIFUNCTION
MONOCHROME MARKET MARKET TARGET COLOR MARKET
----------------- -------------------- -------------------
<S> <C> <C>
. low cost networkable . lower cost networkable . networkable color laser
office laser printers inkjet and laser-based printers
MFPs to high speed
copier-based MFPs
. 1 to 40 pages per . 1 to 40 pages per . 1 to 10 color pages
minute minute per minute
. 600 to 1200 dots . 600 to 1200 dots . 600 to 1200 dots
per inch per inch per inch
. gray scale support . multitasking support for . contone color quality
print, copy, fax and
scan features
. multiprotocol network . multiprotocol network . multiprotocol network
support support support
</TABLE>
Peerless markets complete solutions for the networked monochrome,
multifunction product and, in the future, color printer markets. The Company
has designed its embedded imaging technology with a modular architecture that
addresses a broad spectrum of digital document product technologies and that
may be tailored to individual OEM requirements. The Company offers its OEMs
the flexibility to add functionality, such as networking support, languages or
multifunction features or, in the future, color, to their products as their
needs dictate. As a result, the Company provides OEMs with the ability to
offer a broadened array of digital document products, further leveraging their
core investment in the Company's imaging solution.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAV-
ING BEEN AUTHORIZED BY THE COM-
PANY, ANY SELLING STOCKHOLDER OR
ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PER-
SON TO WHOM IT IS UNLAWFUL. NEI-
THER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 13
Dividend Policy......................................................... 13
Capitalization.......................................................... 14
Dilution................................................................ 15
Selected Financial Data................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 17
Business................................................................ 24
Management.............................................................. 37
Certain Transactions.................................................... 44
Principal and Selling Stockholders...................................... 45
Description of Capital Stock............................................ 48
Shares Eligible for Future Sale......................................... 50
Underwriting............................................................ 52
Legal Matters........................................................... 53
Experts................................................................. 53
Additional Information.................................................. 53
Index to Financial Statements........................................... F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AF-
TER THE DATE OF THIS PROSPEC-
TUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,750,000 SHARES
LOGO
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
PRUDENTIAL SECURITIES INCORPORATED
WESSELS, ARNOLD & HENDERSON
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the registration fee, the NASD filing fee and the Nasdaq National
Market application fee.
<TABLE>
<S> <C>
Registration fee................................................ $ 19,333
NASD filing fee................................................. 6,106
Nasdaq National Market application fee.......................... 43,000
Blue sky qualification fee and expenses......................... 15,000
Printing and engraving expenses................................. 110,000
Legal fees and expenses......................................... 250,000
Accounting fees and expenses.................................... 175,000
Transfer agent and registrar fees............................... 10,000
Miscellaneous................................................... 221,561
--------
Total........................................................... $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive
officers and may indemnify its other officers, employees and other agents to
the fullest extent not prohibited by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty
of care to the Registrant and its stockholders. These provisions do not
eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person
may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since June 30, 1993, the Registrant has sold and issued the following
unregistered securities:
(1) In June, July and October 1993, the Registrant issued an aggregate of
1,501,177 shares of Series B Preferred Stock convertible into 1,520,800
shares of Common Stock and warrants to purchase an aggregate of 615,635
shares Common Stock to a group of accredited investors for cash in the
aggregate amount of $2,055,004 and the cancellation of convertible
promissory notes in the aggregate principal amount of $1,407,950.
(2) In September 1993, the Registrant issued a warrant to purchase 75,268
shares of Series B Preferred Stock, at an exercise price of $2.33 per
share, in connection with the execution and delivery of a Master Lease
Agreement dated as of July 9, 1991, Equipment Schedule #VL-3 and #VL-4, and
related Summary Equipment Schedules.
(3) In November 1993, the Registrant issued a warrant to purchase 26,666
shares of Common Stock, at an exercise price of $1.13 per share, in
connection with bank line of credit transactions.
(4) In June 1994, the Registrant issued a warrant to purchase 13,333
shares of Common Stock, at an exercise price of $2.55 per share, in
connection with bank line of credit transactions.
(5) In December 1994 and January 1995, the Registrant issued an aggregate
of 59,459 shares of Common Stock, pursuant to the Deferred Compensation
Stock Purchase Plan, for $84,729.55.
(6) In February 1995, the Registrant issued a warrant to purchase 4,333
shares of Common Stock, at an exercise price of $2.97 per share, in
connection with equipment lease transactions.
(7) In October 1995, the Registrant issued 7.00% Convertible Debentures
in the aggregate principal amount of $3,070,000 (the "Debentures"). The
Debentures are convertible into 1,169,522 shares of Common Stock at a
conversion price of $2.63 per share.
(8) In December 1995, the Registrant issued an aggregate of 159,545
shares of Common Stock, pursuant to the Employee Stock Purchase Plan, for
an aggregate of $227,352.10.
(9) As of July 31, 1996, the Registrant granted incentive stock options
and nonstatutory stock options to employees, directors and consultants
covering an aggregate of 1,872,040 shares of the Registrant's Common Stock,
at a weighted average exercise price of $1.90 per share. Options to
purchase 1,502,743 shares are currently outstanding. Options to purchase
250,899 shares of Common Stock have been canceled or have lapsed without
being exercised. The Registrant has sold 118,398 shares of its Common Stock
to employees, directors and consultants pursuant to exercise of stock
options. Options to purchase 838,855 shares remained available for grant.
The sale and issuance of securities in the transactions described in
paragraphs (1) through (4), (6) and (7) above were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) adopted
thereunder. The purchasers in each case represented their intention to acquire
the securities for investment only and not with a view to distribution
thereof. Appropriate legends are affixed to the stock certificate issued in
such transactions. All recipients either received adequate information about
the Registrant or had access, through employment or other relationships, to
such information.
The sale and issuance of securities in the transactions described in
paragraphs (5), (8) and (9) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated thereunder, in that
they were issued either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Registrant.
3.2* Form of Certificate of Incorporation of the Registrant to be effective
upon the closing of the offering.
3.3 Bylaws of the Registrant.
Bylaws of the Registrant to be effective upon the closing of the
3.4* offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
5.1* Opinion of Cooley Godward Castro Huddleson & Tatum.
10.1 Form of Indemnity Agreement.
10.2 1992 Stock Option Plan.
10.3 1996 Equity Incentive Plan.
10.4 Form of Incentive Stock Option.
10.5 Form of Nonstatutory Stock Option.
10.6 1996 Employee Stock Purchase Plan.
10.7+ Third Party Development and License Agreement (the "Adobe Third Party
License") dated September 18, 1992 between the Registrant and Adobe
Systems Incorporated ("Adobe").
Reference Post Appendix #2 to the Adobe Third Party License dated
10.8+ February 11, 1993.
10.9 Amendment No. 1 to Adobe Third Party License, dated November 29, 1993.
10.10+ PCL Development and License Agreement (the "PCL License"), dated June
14, 1993, between the Registrant and Adobe.
10.11+ Amendment No. 1 to the PCL License dated October 31, 1993.
10.12+ Letter Modification to the PCL License dated August 5, 1994.
10.13+ Addendum No. 1 to the PCL License dated March 31, 1995.
10.14+ Letter Modification to the PCL License dated August 30, 1995.
10.15 Lease Agreement between the Company and Continental Development
Corporation, dated February 6, 1992, and Addendum, dated February 6,
1992.
10.16* Amended and Restated Investor Rights Agreement, dated October 6, 1995.
10.17* Employment Agreement with Lauren Shaw.
10.18* Employment Agreement with Edward Gavaldon.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made
to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements
or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 14 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 Act 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 by such director, officer, or
controlling person in connection with the securities being registered, 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 Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus as filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to
be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of El Segundo, County of
Los Angeles, State of California, on the 1st day of August, 1996.
PEERLESS SYSTEMS CORPORATION
By: /s/ Edward A. Gavaldon
----------------------------------
Edward A. Gavaldon President and
Chief Executive Officer (Principal
Executive Officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Edward A.
Gavaldon and Lauren L. Shaw his or her true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to the Registration Statement on Form S-1, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Edward A. Gavaldon President, Chief August 1, 1996
- ------------------------------------- Executive Officer
Edward A. Gavaldon and Director
(Principal
Executive Officer)
/s/ Hoshi Printer Vice President, August 1, 1996
- ------------------------------------- Finance and
Hoshi Printer Administration,
Chief Financial
Officer and
Secretary
(Principal
Financial and
Accounting Officer)
/s/ Robert G. Barrett Director August 1, 1996
- -------------------------------------
Robert G. Barrett
/s/ Robert L. North Director August 1, 1996
- -------------------------------------
Robert L. North
/s/ Lauren L. Shaw Director August 1, 1996
- -------------------------------------
Lauren L. Shaw
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Registrant.
3.2* Form of Certificate of Incorporation of the Registrant to be effective
upon the closing of the offering.
3.3 Bylaws of the Registrant.
3.4* Bylaws of the Registrant to be effective upon the closing of the
offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
5.1* Opinion of Cooley Godward Castro Huddleson & Tatum.
10.1 Form of Indemnity Agreement.
10.2 1992 Stock Option Plan.
10.3 1996 Equity Incentive Plan.
10.4 Form of Incentive Stock Option.
10.5 Form of Nonstatutory Stock Option.
10.6 1996 Employee Stock Purchase Plan.
10.7+ Third Party Development and License Agreement (the "Adobe Third Party
License") dated September 18, 1992 between the Registrant and Adobe
Systems Incorporated ("Adobe").
10.8+ Reference Post Appendix #2 to the Adobe Third Party License dated
February 11, 1993.
10.9 Amendment No. 1 to Adobe Third Party License, dated November 29, 1993.
10.10+ PCL Development and License Agreement (the "PCL License"), dated June
14, 1993, between the Registrant and Adobe.
10.11+ Amendment No. 1 to the PCL License dated October 31, 1993.
10.12+ Letter Modification to the PCL License dated August 5, 1994.
10.13+ Addendum No. 1 to the PCL License dated March 31, 1995.
10.14+ Letter Modification to the PCL License dated August 30, 1995.
10.15 Lease Agreement between the Company and Continental Development
Corporation, dated February 6, 1992, and Addendum, dated February 6,
1992.
10.16* Amended and Restated Investor Rights Agreement, dated October 6, 1995.
10.17* Employment Agreement with Lauren Shaw.
10.18* Employment Agreement with Edward Gavaldon.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made
to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION OF
PEERLESS SYSTEMS CORPORATION
Edward A. Gavaldon and Stephen R. Butterfield each certify that:
1. They are the President and Secretary, respectively, of Peerless Systems
Corporation, a California corporation.
2. The Articles of Incorporation of this Corporation are hereby amended and
restated to read as follows:
"I.
The name of the Corporation is Peerless Systems Corporation.
II.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. The Corporation is authorized to issue two (2) classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is thirty million
(30,000,000) shares, fifteen million (15,000,000) shares of which shall be
Common Stock and fifteen million (15,000,000) shares of which shall be Preferred
Stock.
B. One million seven hundred thirty-five thousand eight hundred ninety-nine
(1,735,899) of the authorized shares of Preferred Stock are hereby designated
"Series A Preferred Stock," one million seven hundred thirty-five thousand eight
hundred ninety-nine (1,735,899) of the authorized shares of Preferred Stock are
hereby designated "Series A1 Preferred Stock," three million two hundred
thousand (3,200,000) of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock," and three million two hundred thousand
(3,200,000) of the authorized shares of Preferred Stock are hereby designated
"Series B1 Preferred Stock," with the respective rights, preferences, privileges
and restrictions as set forth in the succeeding provisions of this Article III.
The Series A Preferred Stock, the Series A1 Preferred Stock, the Series B
Preferred Stock and the Series B1 Preferred Stock are referred to herein
collectively as the "Preferred Stock."
C. Except as specifically set forth in these Articles, the preferences,
privileges and restrictions granted to or imposed on each of the Series A
Preferred Stock and the Series B
1.
<PAGE>
Preferred Stock, or the holders thereof, shall be identical to those granted to
or imposed on the Series A1 Preferred Stock and the Series B1 Preferred Stock,
respectively, or the respective holders thereof, and each reference to the
Series A Preferred Stock and Series B Preferred Stock shall also be deemed a
reference to the Series A1 Preferred Stock and the Series B1 Preferred Stock,
respectively.
D. The respective rights, preferences, privileges, restrictions and other
matters relating to the Preferred Stock are as follows:
1. Dividends.
---------
(a) The holders of the Series A Preferred Stock and the Series B
Preferred Stock shall be entitled to an annual noncumulative dividend preference
of Twelve Cents ($0.12) per share (as adjusted for any combinations,
consolidations, stock splits, stock distributions or stock dividends with
respect to such shares). Dividends on the Preferred Stock shall be payable only
out of funds legally available therefor, and shall be payable only when and as
declared by the Board of Directors. No such dividends shall accrue or
accumulate for any period unless declared in respect of that period by the Board
of Directors. In the event dividends are paid on any share of Common Stock, an
additional dividend shall be paid with respect to all outstanding shares of
Preferred Stock in an amount equal per share (on an as-if-converted to Common
Stock basis) to the amount paid or set aside for each share of Common Stock.
(b) Unless and until all declared but unpaid dividends on the
Preferred Stock, if any, shall have been fully paid or a sum sufficient for the
full payment thereof set apart, and until dividends in the total amount of
Twelve Cents ($0.12) per share on the Series A Preferred Stock and the Series B
Preferred Stock (as adjusted for any combinations, consolidations, stock splits,
stock distributions or stock dividends with respect to such shares) shall have
been paid or declared and funds set apart therefor in respect of the then
current year, (i) no dividend whatsoever (other than a dividend payable solely
in Common Stock of the Corporation) shall be paid or declared or funds set apart
for the payment thereof, and no distribution shall be made on any Common Stock,
and (ii) no shares of Common Stock shall be purchased, redeemed, or acquired by
the Corporation and no funds shall be paid into or set aside or made available
for a sinking fund for the purchase, redemption, or acquisition thereof,
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock held at the time of such purchase by the present or
former employees, officers, directors, consultants, or other persons performing
services for the Corporation or any subsidiary thereof (including, but not by
way of limitation, distributors and sales representatives) that are subject to
restrictive stock purchase agreements under which the Corporation has the option
to repurchase such shares upon the occurrence of certain events, such as the
termination of employment.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock and the Series B Preferred Stock shall be entitled to receive an
amount per share equal to (i) One Dollar
2.
<PAGE>
and Fifty Cents ($1.50) and One Dollar and Fifty-five Cents ($1.55),
respectively (as adjusted for any combinations, consolidations, stock splits,
stock distributions, stock dividends or recapitalizations with respect to such
shares), and (ii) all declared but unpaid dividends, if any, on each share of
Preferred Stock then held by such holders. Such distribution shall be prior and
in preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Common Stock by reason of their ownership thereof.
If upon the occurrence of such an event, the assets and funds thus distributed
among the holders of the Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then all of
the assets and funds of the Corporation legally available for distribution shall
be distributed among the holders of the Preferred Stock in proportion to the
liquidation preference of the shares of Preferred Stock then held by them.
(b) After payment to the holders of the Preferred Stock of the
amounts set forth in Section 2(a) above, then the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock in proportion to the shares of
Common Stock then held by them (excluding the Preferred Stock on an as-converted
basis) until such time as the holders of Common Stock have received, in the
aggregate, distributions equal to $1,250,000. Thereafter, the entire remaining
assets and funds of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock and the Preferred
Stock in proportion to the shares of Common Stock and the Preferred Stock (on an
as-converted basis) then held by them; provided, however, that holders of
Preferred Stock shall not be entitled to share in any such distribution after
the holders of Preferred Stock have received (including amounts received by such
holders pursuant to Section 2(a) above) Four Dollars and Fifty Cents ($4.50) per
share of Series A Preferred Stock and Four Dollars and Sixty-five Cents ($4.65)
per share of Series B Preferred Stock then held by them (as adjusted for any
combinations, consolidations, stock splits, stock distributions, stock dividends
or recapitalizations with respect to such shares).
(c) The following events shall be considered a liquidation under
this Section 2:
(i) any consolidation or merger of the Corporation with or into
any other corporation or other entity or person, or any other corporate
reorganization in which the Corporation shall not be the continuing or surviving
entity of such consolidation, merger or reorganization and in which the holders
of the Corporation's securities do not continue to hold, directly or indirectly,
at least fifty percent (50%) of the voting securities of the surviving entity,
or any transaction or series of related transactions by the Corporation in any
twelve (12) month period in which in excess of fifty percent (50%) of the
Corporation's outstanding voting power is transferred; and
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation.
(d) Any securities to be delivered to the holders of the Preferred
Stock or Common Stock pursuant to this Section 2 shall be valued as follows:
3.
<PAGE>
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange, the value shall
be deemed to be the average of the security's closing prices on such exchange
over the thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the thirty (30) day
period ending three (3) days prior to the closing; and
(3) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Corporation and
the holders of not less than fifty percent (50%) of the outstanding Preferred
Stock or, if no such determination can be agreed to, as determined by an
appraiser selected by the Corporation and the holders of not less than fifty
percent (50%) of the outstanding Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in Sections
2(d)(i)(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and the holders of not less than fifty
percent (50%) of the outstanding Preferred Stock, or, if no such determination
can be agreed to, as determined by an appraiser selected by the Corporation and
the holders of not less than fifty percent (50%) of the outstanding Preferred
Stock.
(e) The Corporation shall give each holder of record of Series A
Preferred Stock and Series B Preferred Stock written notice of any transaction
described in Section 2(c) above not later than twenty (20) days prior to the
shareholders' meeting called to approve such transaction or twenty (20) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of said notices shall describe the material terms and conditions of the
contemplated transaction, as well as the terms and conditions of this Section 2,
and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the mailing by the Corporation of the first notice
provided for herein or sooner than ten (10) days after the mailing by the
Corporation of any notice of material changes provided for herein; provided,
however, that such periods may be shortened upon the written consent of the
holders of not less than fifty percent (50%) of the then outstanding Series A
Preferred Stock and Series B Preferred Stock, together as a class.
3. Redemption.
----------
(a) Upon the request of the holders of a majority of the then
outstanding shares of Preferred Stock, the Corporation shall redeem all shares
of Preferred Stock then outstanding in three equal installments on June 1, 1999,
June 1, 2000, and June 1, 2001, provided, that no redemption shall be required
or effected unless and until the holders of a
4.
<PAGE>
majority in aggregate principal amount of the Corporation's then outstanding
7.00% Senior Convertible Subordinated Debentures Due 2001 (the "Debentures")
consent to such redemption. On or prior to April 1, 1999, but in no event
earlier than January 31, 1999, the Corporation shall give written notice by
mail, postage prepaid, to the holders of the then outstanding Preferred Stock at
the address of each such holder appearing on the books of the Corporation or
given by such holder to the Corporation for the purpose of notice. Such notice
shall set forth the date specified for redemption and the Redemption Price (as
defined below) and shall further state that (i) any holder of Preferred Stock
who intends to request redemption of its Preferred Stock pursuant to this
Section 3 commencing on June 1, 1999, must give written notice to the
Corporation of its request for redemption on or before May 1, 1999, and (ii) no
redemption commencing on June 1, 1999, will occur unless the Corporation
receives requests for redemption from the holders of a majority of the shares of
Preferred Stock then outstanding, in which event the holders of the Preferred
Stock will have a further right of redemption commencing on June 1, 2000.
(b) If the Corporation receives requests for redemption on or prior to
May 1, 1999, from the holders of a majority of the Preferred Stock and obtain
the requisite consents from the holders of the Debentures, it shall give written
notice by mail, postage prepaid, to the holders of the Preferred Stock that all
shares of Preferred Stock will be redeemed in three equal installments on
June 1, 1999, June 1, 2000, and June 1, 2001 (collectively, the "Redemption
Dates" and each individually the "Redemption Date") for a cash price of (i) One
Dollar and Fifty Cents ($1.50) per share for the Series A Preferred Stock (the
"Series A Redemption Price") and One Dollar and Fifty-five Cents ($1.55) per
share of Series B Preferred Stock (the "Series B Redemption Price"), and (ii)
all declared but unpaid dividends, if any, on each share of Preferred Stock then
held by such holders (as adjusted for any combinations, consolidations, stock
splits, stock distributions, stock dividends or recapitalizations with respect
to such shares). The notice shall further call upon such holders to surrender to
the Corporation on or before the relevant Redemption Date at the place
designated in the notice such holder's certificate or certificates representing
the shares to be redeemed and shall state that, in lieu of redemption, a holder
may, prior to the relevant Redemption Date, convert its Preferred Stock into
Common Stock in accordance with Section 5 below. Except as provided in Section
3(c), on or after the Redemption Date, each holder of shares of Series A
Preferred Stock and Series B Preferred Stock to be redeemed shall surrender to
the Corporation the certificate or certificates representing such shares, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. In the event that the Corporation
receives on or prior to May 1, 1999 requests for redemption commencing on
June 1, 1999 from less than the holders of a majority of the Preferred Stock or
fails to receive the requisite consents from the holders of the Debentures, the
holders of the Preferred Stock shall have a further right of redemption upon the
same terms as set forth in this Section 3 except that each of the dates set
forth in Sections 3(a) and 3(b), other than the last date in Section 3(a) and
the dates in this sentence, shall be one year later.
5.
<PAGE>
(c) From and after the applicable Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all rights of the
holders of shares which have been redeemed (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series A Preferred Stock and Series B
Preferred Stock on any Redemption Date are insufficient to redeem the total
number of such shares to be redeemed on such date, then those funds which are
legally available for such purpose will be used to redeem the maximum possible
number of such shares ratably among the holders of such shares of Series A
Preferred Stock and Series B Preferred Stock to be redeemed based upon their
holdings of Series A Preferred Stock and Series B Preferred Stock; provided,
however, that no Premium shall be paid until all shares of Preferred Stock have
been redeemed. The shares of Series A Preferred Stock and Series B Preferred
Stock not redeemed shall remain outstanding and entitled to all respective
rights and preferences provided herein. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of shares of
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares of Series A Preferred Stock and Series B Preferred Stock which the
Corporation has become obliged to redeem on any Redemption Date but which it has
not redeemed.
(d) On or prior to each Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock and
Series B Preferred Stock to be redeemed and not yet redeemed with a bank or
trust company having aggregate capital and surplus in excess of One Hundred
Million Dollars ($100,000,000) as a trust fund for the benefit of the respective
holders of the shares designated for redemption and not yet redeemed, with
irrevocable instructions and authority to the bank or trust company to pay the
Redemption Price for such shares to their respective holders on or after the
applicable Redemption Date upon receipt of notification from the Corporation
that such holder has surrendered its share certificate to the Corporation
pursuant to Section 3(b) above. Such instructions shall also provide that any
monies deposited by the Corporation pursuant to this Section 3(d) for the
redemption of shares of Preferred Stock thereafter converted into shares of the
Corporation's Common Stock pursuant to Section 5 hereof prior to the Redemption
Date shall be returned to the Corporation forthwith upon such conversion. The
balance of any moneys deposited by the Corporation pursuant to this Section 3(d)
remaining unclaimed at the expiration of two (2) years following the Redemption
Date shall thereafter be returned to the Corporation upon its request expressed
in a resolution of its Board of Directors.
(e) The Corporation shall, to the fullest extent permitted by law,
do all things permitted by law and necessary to redeem the Series A Preferred
Stock and Series B Preferred Stock as provided herein and make the payments
therefor required by this Section 3. For the purpose of determining whether
funds are legally available for redemption of shares of Series A Preferred Stock
and Series B Preferred Stock as provided herein, the Corporation shall value its
assets at the highest amount permissible under applicable law.
4. Voting Rights; Directors.
------------------------
6.
<PAGE>
(a) Except as otherwise expressly provided herein or as required by
law, the holder of each share of Preferred Stock shall be entitled to the number
of votes equal to the number of shares of Common Stock into which such share of
Preferred Stock could be converted at that time and shall have voting rights and
powers corresponding to the voting rights and powers of the Common Stock (except
as otherwise expressly provided herein or as required by law, voting together
with the Common Stock as a single class) and shall be entitled to notice of any
shareholders meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) (i) The authorized number of directors of the Corporation shall
be five (5).
(ii) So long as at least five hundred thousand (500,000) shares
of Series A Preferred Stock (as adjusted for any combinations, consolidations,
stock splits, stock dividends or stock distributions with respect to such
shares) are outstanding, the holders of Series A Preferred Stock shall be
entitled, voting as a class, to elect one (1) director to the Board of Directors
at each meeting or by consent of shareholders for the election of directors and
to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. At such time as there are fewer
than five hundred thousand (500,000) shares of Series A Preferred Stock
outstanding (as appropriately adjusted for any stock splits, stock dividends or
the like), such director shall be elected and/or removed solely by a vote of the
holders of the Common Stock and the Series A Preferred Stock voting together as
a single class.
(iii) So long as at least five hundred thousand (500,000) shares
of Series B Preferred Stock (as adjusted for any combinations, consolidations,
stock splits, stock dividends or stock distributions with respect to such
shares) are outstanding, the holders of Series B Preferred Stock shall be
entitled, voting as a class, to elect one (1) director to the Board of Directors
at each meeting or by consent of shareholders for the election of directors and
to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. At such time as there are fewer
than five hundred thousand (500,000) shares of Series B Preferred Stock
outstanding (as appropriately adjusted for any stock splits, stock dividends or
the like), such director shall be elected and/or removed solely by a vote of the
holders of the Common Stock and the Series B Preferred Stock voting together as
a single class.
(iv) The holders of Common Stock (without the Preferred Stock
voting on an as-converted basis) shall be entitled to elect two (2) directors to
the Board of Directors at each meeting or consent of shareholders for the
election of directors and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors.
(v) The holders of Common Stock and the Preferred Stock, voting
together as a single class (with the Preferred Stock voting on an as-converted
basis) shall be entitled to elect one (1) director to the Board of Directors at
each meeting or consent of
7.
<PAGE>
shareholders for the election of directors and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director.
5. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Each share of Series A Preferred Stock and Series A1
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing One Dollar
and Fifty Cents ($1.50), plus all declared but unpaid dividends on such shares
of Preferred Stock, by the Series A Conversion Price or the Series A1 Conversion
Price, as the case may be, determined as hereinafter provided, in effect on the
date the certificate is surrendered for conversion. Each share of Series B
Preferred Stock and Series B1 Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing One Dollar and Fifty-five Cents ($1.55), plus all
declared but unpaid dividends on such shares of Preferred Stock, by the Series B
Conversion Price or the Series B1 Conversion Price, as the case may be,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion.
(ii) The price at which shares of Common Stock shall be
deliverable upon conversion of the Series A Preferred Stock (the "Series A
Conversion Price") and the Series A1 Preferred Stock (the "Series A1 Conversion
Price") shall initially be One Dollar and Fifty Cents ($1.50) per share of
Common Stock. The price at which shares of Common Stock shall be deliverable
upon conversion of the Series B Preferred Stock (the "Series B Conversion
Price") and the Series B1 Preferred Stock (the "Series B1 Conversion Price")
shall initially be One Dollar and Fifty-five Cents ($1.55) per share of Common
Stock. The Series A Conversion Price, the Series A1 Conversion Price, the Series
B Conversion Price and the Series B1 Conversion Price are sometimes collectively
referred to herein as the "Conversion Price," which term shall also designate
only the applicable conversion price of a particular series to the extent the
context so requires. The Conversion Price shall be adjusted from time to time as
hereinafter provided.
(b) Automatic Conversion.
--------------------
(i) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Conversion Price for
the respective series of Preferred Stock, immediately upon the closing of the
sale of the Corporation's Common Stock in a firm commitment, underwritten public
offering registered under the Securities Act of 1933, as amended (the "Act"),
(other than a registration relating solely to a transaction under Rule 145 under
such Act (or any successor rule thereto) or to an employee benefit plan of the
Corporation), (1) at a public offering price (prior to underwriter commissions
and expenses) per share of
8.
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Common Stock (appropriately adjusted for subdivisions and combinations of shares
of Common Stock and dividends on Common Stock payable in shares of Common Stock)
equal to or exceeding three times the then applicable Conversion Price of the
Series A Preferred Stock, and (2) with gross proceeds to the Corporation of at
least Ten Million Dollars ($10,000,000) (a "Qualifying IPO"). In the event of
such an offering, the person(s) entitled to receive the Common Stock issuable
upon such conversion of the Preferred Stock shall not be deemed to have
converted that Preferred Stock until immediately prior to the closing of such
offering.
(ii) (1) For purposes of this Section 5(b)(ii), the
following definitions shall apply:
(A) "New Securities" shall mean any Common Stock
or Preferred Stock of the Corporation, whether now authorized or not, and
rights, options, or warrants to purchase said Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible into
said Common Stock or Preferred Stock; provided, however, that "New Securities"
does not include (i) securities issuable upon conversion of or with respect to
the Preferred Stock, (ii) shares of Common Stock issuable upon exercise of any
warrants to purchase Common Stock issued pursuant to that certain Series A
Preferred Stock and Warrant Purchase Agreement (the "Series A Purchase
Agreement") dated as of March 27, 1991, as amended, and that certain Series B
Preferred Stock and Warrant Purchase Agreement, dated June 5, 1993 (the "Series
B Purchase Agreement"), (iii) securities offered to the public pursuant to a
registration statement filed under the Securities Act, (iv) securities issued
pursuant to the acquisition of another corporation by the Corporation by merger,
purchase of all or substantially all of the assets, or other reorganization
whereby the Corporation owns not less than fifty-one percent (51%) of the voting
power of such corporation, or securities issued by the Corporation in a merger
transaction in which the Corporation is effectively acquired by another entity,
(v) shares of Common Stock (or stock options) issued to employees, officers,
directors or consultants of the Corporation and approved by the Corporation's
Board of Directors and shares of Common Stock issued pursuant to the
Corporation's 1992 Stock Option Plan, as may be amended from time to time, or
any replacement or successor plan; provided that the total number of shares of
Common Stock issuable to such persons or pursuant to such plan shall not exceed
1,783,000, (vi) shares of Common Stock issued pursuant to the Company's Deferred
Compensation Stock Purchase Plan, as may be amended from time to time, or any
replacement or successor plan; provided that the total number of shares of
Common Stock issuable pursuant to such plan shall not exceed 131,000,
(vii) shares of Common Stock issued pursuant to the Company's Employee Stock
Purchase Plan, as may be amended from time to time, or any replacement or
successor plan; provided that the total number of shares of Common Stock
issuable pursuant to such plan shall not exceed 450,000, (viii) shares of the
Corporation's Common Stock or Preferred Stock issued in connection with any
stock split, stock dividend or recapitalization, (ix) securities issued pursuant
to the acquisition of license or other rights, assets or technology from third
parties, on the condition that such issuance and acquisition is unanimously
approved by the Board of Directors, (x) securities issued in connection with
equipment purchase or lease transactions to the seller or lessor of such
equipment, on the condition that such issuance and purchase or lease is
unanimously approved by the Board of Directors, (xi) that certain Warrant
Agreement dated September 12, 1991 by the Company in favor of Comdisco, Inc., a
Delaware
9.
<PAGE>
corporation ("Comdisco") and that certain Warrant Agreement dated February, 1993
by the Company in favor of Comdisco and any additional warrant issued to
Comdisco for the purchase of Series A Preferred Stock or Series B Preferred
Stock pursuant to the terms of such Warrant Agreements (the "Comdisco
Agreements"), and any amendments, modifications and supplements to such
warrants, and the Preferred Stock issuable upon exercise of all such warrants
and the Common Stock issuable on the conversion of such Preferred Stock,
(xii) warrants issued by the Corporation in connection with the guarantee of the
Corporation's line of credit (the "Guarantee Agreements") and the Common Stock
issuable upon exercise of such warrants and (xiii) the Debentures and the Common
Stock or other securities issuable upon conversion thereof.
(B) "Pro Rata Share" shall mean the portion
determined by the ratio of the number of shares of Common Stock issuable upon
the conversion of Preferred Stock then held by a holder of Series A Preferred
Stock (a "Series A Holder") or a holder of Series B Preferred Stock (a "Series B
Holder"), as applicable, to the total number of shares of Common Stock of the
Corporation outstanding, assuming conversion of all outstanding Preferred Stock.
(C) "Dilutive Issuance" shall mean the issuance of
New Securities without consideration or for a consideration per common share
equivalent (as determined in Section 5d(v) herein) less than the Series A
Conversion Price (but not the Series A1 Conversion Price) or the Series B
Conversion Price (but not the Series B1 Conversion Price) in effect on the date
of and immediately prior to such issue and in which the Corporation sells at
least $1,000,000 of New Securities.
(D) "Diluted Stock" shall mean shares of Series A
Preferred Stock (but not the Series A1 Preferred Stock) or the Series B
Preferred Stock (but not the Series B1 Preferred Stock) that have a per share
Series A Conversion Price or Series B Conversion Price, as applicable, greater
than the consideration per share to be received in a Dilutive Issuance.
(E) "Diluted Holder" shall mean any Series A
Holder or Series B Holder, as applicable, of Diluted Stock.
(F) "Participating Investor" shall mean any
Diluted Holder that agrees to purchase at least its Pro Rata Share of a Dilutive
Issuance pursuant to Section 5(b)(ii)(2) hereof for its own account or for the
account of an assignee. For purposes of this definition, one hundred percent
(100%) of a Diluted Holder's investment in a Dilutive Issuance shall be
allocated first to the Diluted Holder's Pro Rata Share for purposes of
determining whether such Diluted Holder has agreed to purchase at least its Pro
Rata Share of the Dilutive Issuance, regardless of whether such Diluted Holder
may have rights by virtue of its ownership of other series of Preferred Stock or
otherwise to participate in the Dilutive Issuance.
(G) "Non-participating Investor" shall mean any
Diluted Holder that is not a Participating Investor.
10.
<PAGE>
(H) "Purchased Share" for a Non-participating
Investor shall mean the portion of a Dilutive Issuance, if any, that such Non-
participating Investor agrees to purchase (considering for this purpose, one
hundred percent (100%) of the Non-participating Investor's investment in the
Dilutive Issuance).
(I) "Conversion Rate" for a Non-participating
Investor shall mean that fraction the numerator of which is such Non-
participating Investor's Pro Rata Share less such Non-participating Investor's
Purchased Share and the denominator of which is such Non-participating
Investor's Pro Rata Share.
(J) "Issuance Notice" shall mean a written notice
stating the Corporation's intention to issue a Dilutive Issuance and describing
the type of New Securities, the price and the general terms upon which the
Corporation proposes to issue the same.
(K) "Notice Period" shall mean the twenty (20)
days immediately following the date of the Issuance Notice.
(L) "Overallotment Shares" shall mean any shares
of a Dilutive Issuance that Participating Investors and Non-participating
Investors have not agreed to purchase by the end of a Notice Period.
(2) In the event the Corporation proposes to undertake a
Dilutive Issuance, it shall give each Diluted Holder an Issuance Notice. Each
Diluted Holder shall, within the Notice Period, provide written notice to the
Corporation that (i) such Holder agrees to become a Participating Investor for
the price and upon the terms specified in the Issuance Notice, or (ii) such
Holder shall be a Non-participating Investor. Any Diluted Holder who shall fail
to provide such written notice within the Notice Period shall be deemed to be a
Non-participating Investor with a Purchased Share equal to zero. After the
expiration of the Notice Period, the Corporation shall provide to all
Participating Investors written notice (the "Overallotment Notice") of any
Overallotment Shares, and such Participating Investors shall have the right to
purchase such Overallotment Shares, on a pro rata basis, by giving written
notice to the Corporation within the ten (10) day period immediately following
the date of the Overallotment Notice.
(3) Diluted Stock held by each and every Non-
participating Investor shall be automatically converted immediately prior to the
closing of the applicable Dilutive Issuance as follows:
(A) The number of shares of Series A Preferred
Stock equal to the nearest whole number determined by multiplying the number of
shares of Series A Preferred Stock held by such Non-participating Investor by
the Conversion Rate for such Non-participating Investor shall automatically be
converted into an equal number of shares of Series A1 Preferred Stock. The
remaining shares of Series A Preferred Stock, if any, held by such Non-
participating Investor shall remain outstanding and shall not be converted.
11.
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(B) The number of shares of Series B Preferred
Stock equal to the nearest whole number determined by multiplying the number of
shares of Series B Preferred Stock held by such Non-participating Investor by
the Conversion Rate for such Non-participating Investor shall automatically be
converted into an equal number of shares of Series B1 Preferred Stock. The
remaining shares of Series B Preferred Stock, if any, held by such Non-
participating Investor shall remain outstanding and shall not be converted.
In no event shall any share of Series A Preferred Stock or Series B Preferred
Stock be automatically converted into a share of Series A1 Preferred Stock or
Series B1 Preferred Stock unless such Series A Preferred Stock or Series B
Preferred Stock, as the case may be, constitutes Diluted Stock as defined in
Section 5(b)(ii)(1) hereof.
(4) Upon the conversion of Diluted Stock held by a Non-
participating Investor as set forth herein, the shares of Diluted Stock
converted shall no longer be outstanding on the books of the Corporation, and
the Non-participating Investor shall be treated for all purposes as the record
holder of shares of Series A1 Preferred Stock or Series B1 Preferred Stock, as
the case may be, into which such Diluted Stock was converted on the date of
closing of the applicable Dilutive Issuance and immediately prior to such
Dilutive Issuance. Shares of Diluted Stock that do not convert pursuant to
Section 5(b)(ii)(3) shall remain outstanding on the books of the Corporation,
and the holders of such shares shall continue to be treated for all purposes as
the record holders of such shares.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock (other than
pursuant to the automatic conversion provisions of Section 5(b) above), such
holder shall surrender the certificate or certificates thereof, duly endorsed,
at the office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that it elects to
convert the same and shall state therein the name or names in which it wishes
the certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of surrender of the shares of Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 5(d), the
-------------------
following definitions apply:
(1) "Options" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities (as hereinafter defined).
12.
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(2) "Original Issue Date" shall mean, with respect to the
Series A Preferred Stock and the Series B Preferred Stock, the date on which the
first shares of the respective series of Preferred Stock were first issued,
provided, that the Original Issue Dates of the Series A1 Preferred Stock and the
Series B1 Preferred Stock shall mean the dates on which the first shares of the
Series A Preferred Stock and the Series B Preferred Stock, respectively, were
first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Preferred Stock) or other
securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued (or deemed to be issued) or issuable:
(A) upon conversion of shares of the Preferred Stock;
(B) upon exercise of warrants pursuant the Series A
Purchase Agreement, the Series B Purchase Agreement, the Comdisco Agreements and
the Guarantee Agreements;
(C) pursuant to the acquisition of another corporation
by the Corporation by merger, purchase of all or substantially all of the
assets, or other reorganization whereby the Corporation owns not less than
fifty-one percent (51%) of the voting power of such corporation, or securities
issued by the Corporation in a merger transaction in which the Corporation is
effectively acquired by another entity;
(D) to employees, officers, directors or consultants of
the Corporation and approved by the Corporation's Board of Directors and shares
of Common Stock issued pursuant to the Corporation's 1992 Stock Option Plan, as
may be amended from time to time, or any replacement or successor plan; provided
that the total number of shares of Common Stock issuable to such persons or
pursuant to such plan shall not exceed 1,783,000;
(E) pursuant to the acquisition of license or other
rights, assets or technology from third parties, on the conditions that such
issuance and acquisition is unanimously approved by the Board of Directors;
(F) in connection with equipment purchase or lease
transactions to the seller or lessor of such equipment, on the condition that
such issuance and purchase or lease is unanimously approved by the Board of
Directors;
(G) for which adjustment of the Conversion Price is made
pursuant to Section 5(d)(vi);
13.
<PAGE>
(H) pursuant to issuance of the Debentures or upon
conversion thereof;
(I) pursuant to unanimous approval of the Board of
Directors; or
(J) by way of a dividend or other distribution of shares
of Common Stock excluded from the definition of Additional Shares of Common
Stock by the foregoing clause(s) (A) through (I) above.
(ii) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
Conversion Price of a particular share of Series A Preferred Stock or Series B
Preferred Stock shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to such issue,
for such share of Series A Preferred Stock and Series B Preferred Stock,
respectively. No adjustment in the Conversion Price of any share of Series A1
Preferred Stock or Series B1 Preferred Stock shall be made in respect of the
issuance of Additional Shares of Common Stock.
(iii) Deemed Issue of Additional Shares of Common Stock. In the
-------------------------------------------------
event the Corporation at any time or from time to time after the Original
Issuance Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein designed to protect against dilution) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 5(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the applicable Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
applicable Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any
14.
<PAGE>
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
applicable Conversion Price shall affect Common Stock previously issued upon
conversion of the Preferred Stock);
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of Convertible Securities or Options
for Common the only Additional Shares of Common issued were the shares of
Common, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options and the consideration
received by the Corporation for the Additional Shares of Common deemed to have
been then issued was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation (determined pursuant to Section
5(d)(v)) upon the issue of the Convertible Securities with respect to which such
Options were actually exercised;
(4) no readjustment pursuant to clauses (2) or (3) above
shall have the effect of increasing the applicable Conversion Price to an amount
which exceeds the lower of (A) the applicable Conversion Price on the original
adjustment date, or (B) the applicable Conversion Price that would have resulted
from any actual issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(5) in the case of any Options which expire by their terms
not more than thirty (30) days after the date of issue thereof, no adjustment of
the applicable Conversion Price shall be made, except as to shares of Preferred
Stock converted in such period, until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner provided in
clause (3) above; and
(6) if any such record date shall have been fixed and such
Options or applicable Convertible Securities are not issued on the date fixed
thereof, the adjustment previously made in the Conversion Price which became
effective on such record date shall be
15.
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canceled as of the close of business on such record date, and shall instead be
made on the actual date of issuance, if any.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. In the event this Corporation, at any time after the
- ----------------------
Original Issue Date, shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
5(d)(iii) but excluding Additional Shares of Common Stock under Section
5(d)(i)(4)(G), which event is covered under Section 5(d)(vi) hereof) without
consideration or for a consideration per share less than the Series A Conversion
Price or the Series B Conversion Price, as the case may be, in effect on the
date of and immediately prior to such issue, then and in such event, such Series
A Conversion Price or Series B Conversion Price, but not the Series A1
Conversion Price or the Series B1 Conversion Price, shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Series A Conversion Price or the Series B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock issuable upon conversion of the shares of
Preferred Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock issuable upon conversion of the shares
of Preferred Stock outstanding immediately prior to such issue plus the number
of such Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
------------------------------
Section 5(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Corporation's Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
16.
<PAGE>
(2) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing:
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustments for Combinations or Subdivisions of Common
-------------------------------------------------------
Stock. In the event that this Corporation at any time or from time to time after
- -----
the Original Issue Date shall declare or pay any dividend on the Common Stock
payable in Common Stock or in any right to acquire Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise), or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Conversion Price for each series of Preferred Stock in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate.
(e) Other Distributions. In the event the Corporation shall at any
-------------------
time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of its
subsidiaries other than Additional Shares of Common Stock, then in each such
event provision shall be made so that the holders of Preferred Stock shall
receive, upon the conversion thereof, the securities of the Corporation which
they would have received had their stock been converted into Common Stock on the
date of such event.
(f) No Impairment. The Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
17.
<PAGE>
(g) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the applicable Conversion Price pursuant to this
Section 5, the Corporation at its expense shall promptly compute such adjustment
and prepare and furnish to each holder of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the applicable Conversion Price for each
series of Preferred Stock at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of the Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of
Preferred Stock at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken, and the
amount and character of such dividend, distribution, security or right.
(i) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
----------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these Articles.
(k) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock, as the case may be, by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation
18.
<PAGE>
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as conclusively determined in good faith by
the Board of Directors of the Corporation).
(l) Notices. Any notice required by the provisions of this Section 5
-------
to be given to the holders of shares of Preferred Stock shall be in writing and
shall be effective five (5) days after deposited by first-class mail, postage
prepaid, with the United States mail or delivery by hand, by fax or by messenger
or air courier, if addressed to each such holder at its address appearing on the
books of the Corporation or at such other address as such holder shall have
furnished to the Corporation in writing.
(m) Adjustments. In case of any reorganization or any
-----------
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations,
other than any such event covered by Section 2(c) above, each share of Preferred
Stock shall thereafter be convertible into the number of shares of stock or
other securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of Preferred
Stock would have been entitled upon the record date of (or date of, if no record
date is fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of
Preferred Stock to the end that the provisions set forth herein shall thereafter
be applicable, as nearly as equivalent as is practicable, in relation to any
shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of Preferred Stock.
6. Amendment. Any term relating to the Preferred Stock may be amended
---------
only with the affirmative vote or written consent of holders of more than fifty
percent (50%) of all Preferred Stock then outstanding and the affirmative vote
or written consent of holders of more than fifty percent (50%) of all shares of
Common Stock then outstanding. Any amendment so effected shall be binding upon
the Corporation and any holder of Preferred Stock.
7. Restrictions and Limitations. As used in this Section 7, the Series
----------------------------
A Preferred Stock and the Series B Preferred Stock shall include the Series A1
Preferred Stock and the Series B1 Preferred Stock. So long as at least five
hundred thousand (500,000) shares of Series A Preferred Stock and Series B
Preferred Stock (as adjusted for any combinations, consolidations, stock splits,
stock distributions or stock dividends with respect to such shares) remain
outstanding, the Corporation shall not, without the vote or written consent of
the holders of more than fifty percent (50%) of the then outstanding shares of
Series A Preferred Stock and Series B Preferred Stock, voting together as one
class, and fifty percent (50%) of the then outstanding shares of Common Stock,
voting as a single class:
(i) Authorize or issue, or obligate itself to issue, any New
Securities (as such term is defined in Section 5) or any debt security, or
create any obligation or security convertible into or exchangeable for, or
having any option rights to purchase, any debt security, or
19.
<PAGE>
(ii) Effect any sale or other conveyance of all or substantially
all of the assets of the Corporation or any of its subsidiaries, any
consolidation or merger involving the Corporation or any of its subsidiaries,
any reclassification or other change of its capital stock or any
recapitalization of the Corporation; or
(iii) Amend, alter or repeal its Articles of Incorporation or
Bylaws (including any filing of a Certificate of Determination); or
(iv) Effect any liquidation, dissolution, or reorganization of
the Corporation; or
(v) Declare, pay or set apart funds for the payment of, any
dividends or distributions (payable in Common Stock or otherwise) on the Common
Stock of the Corporation; or
(vi) Redeem any Common Stock other than a redemption or
repurchase that is unanimously approved by the Corporation's Board of Directors
or a redemption or repurchase pursuant to the exercise of any contractual rights
of first refusal unanimously approved by the Corporation's Board of Directors.
8. No Reissuance of Preferred Stock. No share or shares of Preferred
--------------------------------
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be returned to the
status of undesignated shares of Preferred Stock.
IV.
The liability of the directors of the Corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law. Any
repeal or modification of this Article shall only be prospective and shall not
affect the rights under this Article in effect at the time of the alleged
occurrence of any action or omission to act giving rise to liability.
V.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Corporation and its shareholders through bylaw provisions, or through
agreements with the agents, or through shareholder resolutions, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the California Corporations Code. Any repeal or
modification of this Article shall only be prospective and shall not affect the
rights under this Article in effect at the time of the alleged occurrence of any
action or omission to act giving rise to indemnification."
3. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the Board of Directors of this
Corporation.
20.
<PAGE>
4. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The total
number of outstanding shares of the Corporation is 4,014,315 shares of Common
Stock, 1,666,666 shares of Series A Preferred Stock and 2,251,777 shares of
Series B Preferred Stock. The total number of shares of each class voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required of each class was more than fifty percent (50%).
21.
<PAGE>
We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed at El Segundo, California, on October 6, 1995.
_____________________________________________________
Edward A. Gavaldon, President
_____________________________________________________
Stephen R. Butterfield, Secretary
22.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
PEERLESS SYSTEMS CORPORATION
(a California corporation)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - OFFICES..................................................... 1.
Section 1. PRINCIPAL EXECUTIVE OFFICES....................... 1.
Section 2. OTHER OFFICES..................................... 1.
ARTICLE II - SHAREHOLDERS................................................ 1.
Section 1. PLACE OF MEETINGS................................. 1.
Section 2. ANNUAL MEETINGS................................... 1.
Section 3. SPECIAL MEETINGS.................................. 2.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS.................. 2.
Section 5. MANNER OF GIVING NOTICE........................... 2.
Section 6. QUORUM............................................ 3.
Section 7. ADJOURNED MEETING; NOTICE......................... 4.
Section 8. VOTING............................................ 4.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS...................................... 5.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING................................. 5.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE,
VOTING, AND GIVING CONSENTS....................... 6.
Section 12. PROXIES........................................... 6.
Section 13. INSPECTORS OF ELECTION............................ 7.
ARTICLE III - DIRECTORS.................................................. 8.
Section 1. POWERS............................................ 8.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS............. 8.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS;
CLASS DIRECTORS................................... 8.
Section 4. VACANCIES, REMOVAL, RESIGNATION................... 9.
Section 5. PLACE OF MEETING.................................. 11.
Section 6. REGULAR MEETINGS.................................. 11.
Section 7. SPECIAL MEETINGS.................................. 11.
Section 8. NOTICE OF SPECIAL DIRECTORS MEETING............... 11.
Section 9. QUORUM............................................ 11.
Section 10. WAIVER OF NOTICE.................................. 12.
Section 11. ADJOURNMENT....................................... 12.
Section 12. NOTICE OF ADJOURNMENT............................. 12.
Section 13. ACTION WITHOUT MEETING............................ 12.
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
Page
----
<S> <C>
Section 14. FEES AND COMPENSATION OF DIRECTORS................ 12.
Section 15. DUTIES AND LIABILITIES OF DIRECTORS............... 12.
ARTICLE IV - COMMITTEES.................................................. 13.
Section 1. COMMITTEES OF DIRECTORS........................... 13.
Section 2. MEETINGS AND ACTION OF COMMITTEES................. 13.
ARTICLE V - OFFICERS..................................................... 14.
Section 1. OFFICERS.......................................... 14.
Section 2. ELECTION OF OFFICERS.............................. 14.
Section 3. SUBORDINATE OFFICERS.............................. 14.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS............... 14.
Section 5. VACANCIES IN OFFICES.............................. 14.
Section 6. CHAIRMAN OF THE BOARD............................. 15.
Section 7. PRESIDENT......................................... 15.
Section 8. VICE PRESIDENT.................................... 15.
Section 9. SECRETARY......................................... 15.
Section 10. TREASURER AND CHIEF FINANCIAL OFFICER............. 16.
Section 11. ADDITIONAL POWERS................................. 16.
Section 12. COMPENSATION...................................... 16.
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS............................................ 16.
Section 1. AGENTS, PROCEEDINGS, EXPENSES..................... 16.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION............. 17.
Section 3. ACTIONS BY THE CORPORATION........................ 17.
Section 4. SUCCESSFUL DEFENSE BY AGENT....................... 18.
Section 5. REQUIRED APPROVAL................................. 18.
Section 6. ADVANCE OF EXPENSES............................... 18.
Section 7. OTHER INDEMNIFICATION............................. 18.
Section 8. LIMITATIONS....................................... 18.
Section 9. INSURANCE......................................... 19.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT
PLAN.............................................. 19.
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
Page
----
<S> <C>
ARTICLE VII - RECORDS AND REPORTS........................................ 19.
Section 1. REQUIRED RECORDS.................................. 19.
Section 2. MAINTENANCE AND INSPECTION OF SHARE
REGISTER.......................................... 19.
Section 3. MAINTENANCE AND INSPECTION OF BYLAWS.............. 20.
Section 4. MAINTENANCE AND INSPECTION OF OTHER
CORPORATE RECORDS................................. 20.
Section 5. INSPECTION BY DIRECTORS........................... 20.
Section 6. ANNUAL REPORT TO SHAREHOLDERS..................... 20.
Section 7. FINANCIAL STATEMENTS............................... 21.
Section 8. ANNUAL STATEMENT OF GENERAL
INFORMATION....................................... 21.
ARTICLE VIII - GENERAL CORPORATE MATTERS................................. 22.
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING............................................ 22.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS......... 22.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS;
HOW EXECUTED...................................... 22.
Section 4. CERTIFICATES FOR SHARES........................... 22.
Section 5. LOST CERTIFICATES................................. 23.
Section 6. TRANSFER ON THE BOOKS............................. 23.
Section 7. TRANSFER AGENTS AND REGISTRARS.................... 23.
Section 8. RECORD OWNERSHIP.................................. 23.
Section 9. CORPORATE SEAL.................................... 24.
Section 10. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS...................................... 24.
Section 11. LEGEND CONDITION.................................. 24.
Section 12. CLOSING STOCK TRANSFER BOOK....................... 24.
Section 13. CONSTRUCTION AND DEFINITIONS...................... 24.
ARTICLE IX - AMENDMENTS.................................................. 24.
Section 1. AMENDMENT BY SHAREHOLDERS......................... 24.
Section 2. AMENDMENT BY DIRECTORS............................ 25.
Section 3. RECORD OF AMENDMENTS.............................. 25.
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
Page
----
<S> <C>
ARTICLE X - RIGHT OF FIRST REFUSAL....................................... 25.
</TABLE>
iv.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
PEERLESS SYSTEMS CORPORATION
(a California corporation)
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL EXECUTIVE OFFICES. The Board of Directors
---------------------------
shall fix the location of the principal executive office of the corporation at
any place within or outside the State of California. The Board of Directors
shall have full power and authority to change the location of the principal
executive office. If the principal executive office is located outside this
State, and the corporation has one or more business offices in this State, the
Board of Directors shall fix and designate a principal business office in the
State of California.
Section 2. OTHER OFFICES. The Board of Directors may at any time
-------------
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
SHAREHOLDERS
------------
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall
-----------------
be held at the principal executive office of the corporation , or any other
place within or without the State of California as may be designated for that
purpose from time to time by the Board of Directors or by written consent of all
persons entitled to vote thereat given either before or after the meeting and
filed with the Secretary.
Section 2. ANNUAL MEETINGS. All meetings of the Shareholders shall
---------------
be held on the 22nd of April in each year at 10:00 A.M.; provided, however, that
(a) should said day fall upon a legal holiday, then any such annual meeting of
Shareholders shall be held at the same time and place on the next succeeding
business day and (b) in any year the Board of Directors may, by resolution,
establish another day as the day for the annual meeting of shareholders. At
such meetings, Directors shall be elected and any other proper business may be
transacted.
1.
<PAGE>
If there is a failure to hold the annual meeting for a period of sixty
(60) days after the date designated therefor or, if not date has been
designated, for a period of fifteen (15) months after the organization of the
corporation or after its last annual meeting, the Superior court of the proper
county may summarily order a meeting to be held upon the application of any
Shareholder after notice to the corporation giving it an opportunity to be
heard.
Section 3. SPECIAL MEETINGS. A special meeting of the Shareholders
----------------
may be called at any time by the Board of Directors, or by any three (3) or more
members of the Board of Directors, or by a single member of the Board of
Directors where there are two (2) or less authorized or acting Directors, or by
the Chairman of the Board, or by the President, or by one (1) or more
Shareholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting. In the event a class vote is
required at such meeting, one (1) or more Shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes of
Preferred shares may call such meeting.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings
--------------------------------
of Shareholders, annual or special, shall be in writing and shall be sent or
otherwise given in accordance with Section 5 of this Article II not less than
ten (10) nor more than sixty (60) days before the date of the meeting. The
notice shall specify the place, date and hour of the meeting and (a) in the case
of a special meeting, the general nature of the business to be transacted at the
meeting (and no other business may be transacted at such a special meeting), or
(b) in the case of the annual meeting, those matters which the Board of
Directors, at the time of giving the notice, intends to present for action by
the Shareholders, but,. subject to the provisions of applicable law, any proper
matter may be presented at the meeting for such action. The notice of any
meeting at which Directors are to be elected shall include the name of any
nominee or nominees whom, at the time of the notice, management intends to
present for election.
If action is taken at any meeting to approve of (a) a contract or
transaction in which a Director has a direct or indirect financial interest,
pursuant to Section 310 of the California General Corporation Law, (b) an
amendment of the Articles of Incorporation, pursuant to Section 902 of that Law,
(c) a reorganization of the corporation,m pursuant to Section 1201 of that Law,
(d) a voluntary dissolution of the corporation, pursuant to Section 1900 of that
Law, or (e) a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, pursuant to Section 2007 of that Law,
any Shareholder approval at such meeting, other than unanimous approval by those
entitled to vote shall be valid only if the general nature of the proposal so
approved was stated in the notice of the meeting or in a written waiver of
notice.
Section 5. MANNER OF GIVING NOTICE. Written notice of all meetings
-----------------------
of Shareholders or any report to Shareholders shall be given either personally
or by first class mail or telegraphic or other written communication, charges
prepaid, addressed to the Shareholder at the address of that Shareholder
appearing on the books of the corporation or given by the Shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that Shareholder by first class mail or telegraphic or other written
communication to the corporation's
2.
<PAGE>
principal executive office, or if published at least one in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally to the recipient
or deposited in the mail or sent by telegram or other means of written
communication. for the purposes of this Section "sent by telegraphic
communication" shall mean the time the notice is placed with the telegraph
company for delivery.
If any notice addressed to a Shareholder at the address of that
Shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the Shareholder
at the address, all future notices or reports shall be deemed to have been duly
given without further mailing if the notice or report shall be available to the
Shareholder on written demand of the Shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice or report to all other Shareholders.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 5 of this Article II, executed by the Secretary,
assistant secretary or any transfer agent, shall be prima facie evidence of the
giving of the notice or report.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, any
vice President, or the Secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the Shareholders entitled to
vote in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice in accordance with the provisions of Sections 4 and
5 of this Article II or the Superior Court of the proper county may summarily
order the giving of notice, after notice to the corporation giving it an
opportunity to be heard.
Section 6. QUORUM. Unless otherwise specified in the Articles, the
------
presence in person or by proxy of the holders of a majority of the shares
entitled to vote shall constitute a quorum at any meeting of Shareholders.
Notwithstanding the foregoing, the presence in person or by proxy of the holders
of a majority of the Common shares entitled to vote at any meeting of
Shareholders and a majority of the Preferred shares entitled to vote at any
meeting of Shareholders shall be required to constitute a quorum for the
transaction of any business requiring the approval of a majority of Common
shares and a majority of Preferred shares. The Shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough Shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
3.
<PAGE>
For the purposes of this Section, any shares which are disqualified
from voting on any matter; pursuant to the provisions of the General Corporation
Law, shall not be considered outstanding for the determination of a quorum at
any meeting to act on that matter.
Section 7. ADJOURNED MEETING; NOTICE. Any Shareholders' meeting,
-------------------------
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the shares represented at the meeting, either in person
or by proxy, but in the absence of a quorum, and except as expressly provided
for in Section 6 of this Article II, no other business may be transacted at that
meeting.
When any meeting of Shareholders, either annual or special is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken, unless after the adjournment a new record date for the
adjourned meeting is fixed, or unless the adjournment is for more than forty-
five (45) days from the date of the original meeting, in which case notice of
any such adjourned meeting shall be given to each Shareholder or record entitled
to vote at the adjourned meeting in accordance with the provisions of Sections
4, 5 and 11 of this Article II. At any adjourned meeting, at which a quorum is
present, the corporation may transact any business which might have been
transacted at the original meeting.
Section 8. VOTING. The Shareholders entitled to vote at any meeting
------
of Shareholders shall be determined in accordance with the provisions of Section
11 of this Article II, subject to the provisions of Sections 702 and 704,
inclusive, of the California General Corporation Law (relating to voting shares
held by a fiduciary, in the name of a corporation, or in joint ownership). The
Shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for Directors must be by allot if demanded by and Shareholder
before the voting has begun. On any matter other than the election of
Directors, any Shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against the proposal,
but, if the Shareholder fails to specify the number of shares which the
Shareholder is voting affirmatively, it will be conclusively presumed that the
Shareholder's approving vote is with respect to all shares that the Shareholder
is entitled to vote. If a quorum is present, the affirmative vote of a majority
of the shares represented at the meeting and entitled to vote on any matter
(other than the election of Directors) shall be the act of the Shareholders,
unless the vote of a greater number of voting by classes is required by the
California General Corporation Law or by the Articles of Incorporation.
Whenever, under the provisions of the General Corporation Law, shares are
disqualified from voting on any matter, they shall not be considered outstanding
for the determination of the required vote to approve action upon that matter.
Except as otherwise provided in these Bylaws, by applicable law or in
the Articles of Incorporation, each outstanding Common share shall be entitled
to one (1) vote, and each outstanding shares of Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Preferred Stock could be converted at that time, as
provided in the Articles of Incorporation, on every matter submitted to a vote
of the
4.
<PAGE>
Shareholders. Subject to the same exceptions, the outstanding Preferred shares
shall vote together with the common stock as a single class on all matters
submitted to vote of the Shareholders.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
--------------------------------------------------
transactions of any meeting of Shareholders, however called and noticed, and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each Shareholder entitled to vote,
who was not present in person or by proxy, sings a written waiver of notice or a
consent to the holding of the meeting, or an approval of the minutes thereof.
The waiver of notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of Shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the action
taken or proposed to be taken. All such waivers, consents or approvals shall be
filed with the corporate records and made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters not included
in the notice of the meeting if such objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------------
Unless otherwise provided in the Articles, any action which may be taken at any
annual or special meeting of Shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take that action
at a meeting at which all shares entitled to vote on that action were present
and voted. Notwithstanding the foregoing, in the case of election of Directors,
such a consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of the class or classes of
Directors standing for election; provided, however, that a Director may be
elected at any time to fill a vacancy on the Board of Directors which was not
created by removal and that has not been filled by the Directors, by written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of Directors of the same class or classes as to which the
vacancy exists. All such consents shall be filed with the Secretary of the
corporation and shall be maintained in the corporate records. Any Shareholder
giving a written consent, or the Shareholder's proxy holder, or a transferee of
the shares or a personal representative of the Shareholder or their respective
proxy holders, may revoke the consent by a writing received by the Secretary of
the corporation before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary, but may not do
so thereafter. Such revocation is effective upon its receipt by the Secretary
of the corporation.
If the consents of all Shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
Shareholders shall not have been received, the
5.
<PAGE>
Secretary shall give prompt notice of the corporate action approved by the
Shareholders without a meeting. This notice shall be given in the manner
specified in Section 5 of this Article II. In the case of approval of (a)
contracts or transactions in which a Director has a direct or indirect financial
interest, pursuant to Section 310 of the California General Corporation Law, (b)
indemnification of agents of the corporation, pursuant to Section 317 of that
Law, (c) a reorganization of the corporation, pursuant to Section 1201 of that
Law, and (d) a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, pursuant to Section 2007 of that Law,
the notice shall be given at least ten (10) days before the consummation of any
action authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
------------------------------------------------------
CONSENTS. For purposes of determining the Shareholders who are entitled to
- --------
notice of any meeting or who are entitled to vote or who are entitled to give
consent to corporate action without a meeting, the Board of directors may fix,
in advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of any such meeting no more than sixty (60)
days before any such action without a meeting, and in this event only
Shareholders of record on the date so fixed are entitled to notice and to vote
or to give consents, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the California General corporation Law.
If the Board of Directors does not so fix a record date: (a) the
record date for determining Shareholders entitled to notice of or to vote at a
meeting of Shareholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held; (b) the record date for determining Shareholders entitled to
give consent to corporate action in writing without a meeting, when no prior
action by the Board has been taken, shall be the day on which the first written
consent is given; (c) the record date for determining Shareholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
A determination of Shareholders of record entitled to notice of or to
vote at a meeting of Shareholders shall apply to any adjournment of the meeting
unless the Board fixes a new record date for the adjourned meeting, but the
Board shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days from the date set for the original meeting.
Section 12. PROXIES. Every person entitled to vote for Directors or
-------
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy singed by the person and filed with
the Secretary of the corporation. A proxy shall be deemed signed if the
Shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the Shareholder or the
Shareholder's attorney-in-fact. If the corporation has outstanding shares held
of record by one hundred (100) or more persons, but is not subject to the
reporting requirements of the Securities Exchange Act of 1934, any proxy or form
of written consent distributed to ten (10) or more Shareholders must afford the
person voting an opportunity to specify a choice among approval, disapproval, or
6.
<PAGE>
abstention as to each matter or group of related matters, other than elections
of directors or officers as provided in Section 604 of the California General
Corporation Law.
No proxy shall be valid after the expiration of eleven (11) months
from the date thereof unless otherwise provided in the proxy. Every proxy
continues in full force and effect until revoked by the person executing it
prior to the vote pursuant thereto, except as otherwise provided in this Section
12 of Article II. Such revocation may be effected by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by the person executing the prior proxy and presented to the meeting, or by
attendance at the meeting and voting in person by the person executing the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed.
A proxy is not revoked by the death or incapacity of the maker unless,
before the vote is counted, written notice of such death or incapacity is
received by the corporation. Except when other provision shall have been made
by written agreement between the parties, the recordholder of shares which such
person holds as pledgee or otherwise as security or which belong to another
shall issue to the pledgor or to the owner of such shares, upon demand therefor
and payment of necessary expenses thereof, a proxy to vote or take other action
thereon.
A proxy which states that it is irrevocable is irrevocable for the
period specified therein under the circumstances and to the extent permitted in
the California General Corporation Law.
Section 13. INSPECTORS OF ELECTION. In advance of any meeting of
----------------------
Shareholders, the Board of Directors may appoint any person or persons as
inspectors of election to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, or if any persons so appointed fail
to appear or refuse to act, the chairman of any such meeting may, and on the
request of any Shareholder of a Shareholder's proxy shall, make such appointment
at the meeting. The number of inspectors shall be either one (1) or three (3).
If appointed at a meeting on the request of one (1) or more Shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one (1) or three (3) inspectors are to be appointed.
The inspectors of election shall determine the number of share
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all Shareholders.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three (3) inspectors of election, the decision, act or certificate
of a majority is effective in all respects as the decision, act or certificate
of all. Any report or certificate made by the inspectors of election is prima
facie evidence of the facts stated therein.
7.
<PAGE>
ARTICLE III
DIRECTORS
---------
Section 1. POWERS. Subject to the provisions of the California
------
General Corporation Law and any limitations in the Articles of Incorporation
relating to action required to be approved by the Shareholders or any class or
series thereof or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operation of the business of the corporation to the
officers or employees of the corporation or to other persons or entities
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
-------------------------------------
number of Directors shall be five (5) until changed by a duly adopted amendment
to the Articles of Incorporation; provided, however, that an amendment reducing
the number of Directors to a number less than five (5) cannot be adopted if the
votes cast against its adoption at a meeting, or the shares not consenting in
the case of actions by written consent, are equal to more than sixteen and two-
thirds percent (16-2/3%) of the outstanding shares of any class entitled to
vote. In the event there is a reduction in the number of Directors, all
Directors shall be elected at such time.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS; CLASS DIRECTORS.
---------------------------------------------------------
Directors shall be elected at each annual meeting of Shareholders to hold office
until the next annual meeting. Each Director, including a Director elected to
fill a vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualified.
Pursuant to the Articles of Incorporation, the holders of the Common
shares shall be entitled to elect two (2) directors to the Board of Directors
(the "Common Directors"). Pursuant to the Articles of Incorporation, so long as
the number of shares of issued and outstanding Series A Preferred Stock and
Series A1 Preferred Stock equals or exceeds the number required for this purpose
by the Articles of Incorporation, the holders of Series A Preferred Stock and
Series A1 Preferred Stock, voting as a class, shall be entitled to elect one (1)
director to the Board of Directors (the "Series A Director"). Pursuant to the
Articles of Incorporation, at such time as there are fewer than such required
number of shares of Series A Preferred Stock and Series A1 Preferred Stock
issued and outstanding, one (1) director shall be elected and/or removed solely
by the vote of the holders of Common Stock and the Series A Preferred Stock and
Series A1 Preferred Stock, voting together as a single class. Pursuant to the
Articles of Incorporation, so long as the number of shares of issued and
outstanding Series B Preferred Stock and Series B1 Preferred Stock equals or
exceeds the number required for this purpose by the Articles of Incorporation,
the holders of the Series B Preferred Stock and Series B1 Preferred Stock,
voting as a class, shall be entitled to elect one (1) director to the Board of
Directors (the "Series B
8.
<PAGE>
Director"). Pursuant to the Articles of Incorporation, at such time as there are
fewer than such required number of shares of Series B Preferred Stock and Series
B1 Preferred Stock issued and outstanding, one (1) director shall be elected
and/or removed solely by the vote of the holders of the Common Stock and the
Series B Preferred Stock and Series B1 Preferred Stock, voting together as a
single class. Pursuant to the Articles of Incorporation, the holders of the
Common Shares and the Preferred Stock shall be entitled to elect one (1)
director to the Board of Directors (the "Mutual Director").
Every Shareholder entitled to vote at any election of Directors may
cumulate such Shareholder's votes and give one (1) candidate a number of votes
equal to the number of Directors to be elected by such Shareholder's class of
shares, multiplied by the number of votes to which the Shareholder's shares are
entitled, or may distribute the Shareholder's votes on the same principle among
as many candidates of the Shareholder's class as the shareholder thinks fit,
provided that such candidate or candidate's names have been placed in nomination
prior to commencement of the voting and at least one (1) Shareholder has given
notice at the meeting prior to commencement of the voting of the Shareholder's
intention to cumulate the Shareholder's votes. If any one (1) shareholder has
given such notice, all Shareholders may cumulate their votes for candidates in
nomination. No Shareholder shall be entitled to cumulate votes (i.e., cast for
any one or more candidates a number of votes greater than the number of the
Shareholder's shares) unless such candidate or candidates' names have been
placed in nomination prior to commencement of the voting and one (1) or more
Shareholders has given notice at the meeting prior to commencement of the voting
of the Shareholder's intention to cumulate the Shareholder's votes. The
candidates within each category of Directors (i.e., the Common Directors, the
Series A Director, the Series B Director, or the Mutual Director) receiving the
highest number of votes, up to the number of Directors to be elected in such
category, shall be elected.
Section 4. VACANCIES, REMOVAL, RESIGNATION. A vacancy or vacancies
-------------------------------
on the Board of Directors shall be deemed to exist in the event of the death,
resignation, or removal of any Director, or if the Board of Directors by
resolution declares vacant the office of a Director who has been declared of
unsound mind by an order of court or convicted of a felony, or if the authorized
number of Directors is increased, or if the Shareholders fail, at any meeting of
Shareholders at which any Director or Directors are elected, to elect the full
authorized number of Directors to be voted for at that meeting.
Any Director may be removed at any time by the vote of a majority of
the shares entitled to vote for such Director (e.g., in the case of Common
Directors, the Common Stock; in the case of the Series A Director, the Series A
Preferred Stock and the Series A1 Preferred Stock; in the case of the Series B
Director, the Series B Preferred Stock and the Series B1 Preferred Stock; and in
the case of the Mutual Director, the Common Stock and the Preferred Stock)
represented at a duly held meeting at which a quorum is present, or by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for such Director. Said removal shall be effective from the date on
which written notice of said removal is given to said Director, the corporation,
and each of the Shareholders entitled to vote for such Director.
9.
<PAGE>
Any Director may resign effective on giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a Director is effective at a future time, the
Board of Directors may call for the election or appointment of a successor as
heretofore provided to take office when the resignation becomes effective.
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Director's term of office expires as
heretofore provided.
(a) Vacancies with Respect to the Common Directors.
----------------------------------------------
Vacancies on the Board of Directors of Common Directors may
be filled by a majority of the remaining Common Directors, though less than a
quorum, or by a sole remaining Common Director, except that a vacancy created by
the removal of a Common Director by the vote or written consent of the Common
Shareholders or by court order may be filled only be the vote of a majority of
the Common shares entitled to vote represented at a duly held meeting at which a
quorum is present, or by the unanimous written consent of holders of the
outstanding Common shares entitled to vote. Each Common Director so elected
shall hold office until the next annual meeting of the Shareholders and/or until
a successor has been elected and qualified.
Subject to the Articles of Incorporation, the Common
Shareholders may elect a Common Director or Directors at any time to fill any
vacancy or vacancies of Common Directors not filled by the Common Directors, but
any such election by written consent shall require the consent of a majority or,
in the case of a vacancy created by removal, the unanimous written consent of
the outstanding Common shares entitled to vote.
Subject to the Articles of Incorporation, the Common
Shareholders and the Preferred Shareholders may elect a Mutual Director at any
time to fill any vacancy of the Mutual Director, but any such election by
written consent shall require the consent of a majority or, in the case of a
vacancy created by removal, the unanimous written consent of the outstanding
Common Shares and Preferred Shares entitled to vote.
(b) Vacancies with Respect to the Series A Director.
-----------------------------------------------
Subject to the provisions the second paragraph of Section 3
above, a vacancy on the Board of Directors of the Series A Director may be
filled by the vote or written consent of a majority of the Series A Preferred
shares and Series A1 Preferred shares, voting as a class, except that a vacancy
created by the removal of a Series A Director by the vote or written consent of
the Series A Preferred Shareholders and Series A1 Preferred Shareholders or by
court order may be filled only be the vote of a majority of the Series A
Preferred shares and Series A1 Preferred shares, entitled to vote and voting as
a class, represented at a duly held meeting at which a quorum is present, or by
the unanimous written consent of holders of the outstanding Series A Preferred
shares and Series A1 Preferred shares entitled to vote. Each Series A Director
so elected shall hold office until the next annual meeting of the Shareholders
and/or until a
10.
<PAGE>
successor has been elected and qualified. If there are not in the aggregate at
least 500,000 Series A Preferred and Series A1 Preferred shares outstanding,
vacancies of the Series A Director on the Board of Directors, other than a
vacancy created by removal, may be filled by a majority of the remaining
Directors, though less than a quorum. If there are not in the aggregate at
least 500,000 Series A Preferred and Series A1 Preferred shares outstanding, the
Common Shareholders and the holders of the Series A Preferred and Series A1
Preferred shares, voting together as a class, may elect an additional Director
or Directors to fill any vacancy or vacancies not filled by the remaining
Directors.
(c) Vacancies with Respect to the Series B Director.
-----------------------------------------------
Subject to the last sentence of the second paragraph of
Section 3 above, a vacancy on the Board of Directors of the Series B Director
may be filled by the vote or written consent of a majority of the Series B
Preferred shares and Series B1 Preferred shares, voting as a class, except that
a vacancy created by the removal of a Series B Director by the vote or written
consent of the Series B Preferred Shareholders and Series B1 Preferred
Shareholders or by court order may be filled only by the vote of a majority of
the Series B Preferred shares and Series B1 Preferred shares, entitled to vote
and voting as a class, represented at a duly held meeting at which a quorum is
present, or by the unanimous written consent of holders of the outstanding
Series B Preferred shares and Series B1 Preferred shares entitled to vote. Each
Series B Director so elected shall hold office until the next annual meeting of
the Shareholders and/or until a successor has been elected and qualified. If
there are not in the aggregate at least 500,000 Series B Preferred and Series B1
Preferred shares outstanding, vacancies of the Series B Director on the Board of
Directors, other than a vacancy created by removal, may be filled by a majority
of the remaining Directors, though less than a quorum. If there are not in the
aggregate at least 500,000 Series B Preferred and Series B1 Preferred shares
outstanding, the Common shareholders and the holders of the Series B Preferred
and Series B1 Preferred shares, voting together as a class, may elect an
additional Director or Directors to fill any vacancy or vacancies not filled by
the remaining Directors.
Section 5. PLACE OF MEETING. Regular or special meetings of the
----------------
Board of Directors shall be held at any place within or without the State of
California which has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular or special meetings shall
be held at the principal executive office of the corporation.
Section 6. REGULAR MEETINGS. Immediately following each annual
----------------
meeting of Shareholders, the Board of Directors shall hold a regular meeting for
the purpose of electing officers, and the transaction of other business. Other
regular meetings of the Board of Directors may be held at such time as shall
from time to time be fixed by the Board of Directors. Call and notice of all
regular meetings shall not be required.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors for any purpose or purposes may be called at any time by the Chairman
of the Board or the President or
11.
<PAGE>
any Vice President or the Secretary or any three (3) Directors or a single
Director where there are two (2) or fewer authorized or acting Directors.
Section 8. NOTICE OF SPECIAL DIRECTORS MEETING. Notice of the time
-----------------------------------
and place of special meetings shall be delivered personally or by telephone,
telegram, telex, or other similar means of communication to each Director or
sent by first class mail, addressed to each Director at the Director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone, telegram, telex, or other similar means of
communication, it shall be given at least forty-eight (48) hours before the time
of the holding of the meeting. Notice by mail shall be deemed to have been
given at the time written notice is deposited in the United States mails,
postage prepaid. Any other written notice shall be deemed to have been given at
the time it is personally delivered to the recipient or is delivered to a common
carrier for transmission, or actually transmitted by the person giving notice by
electronic means, to the recipient. Any oral notice given personally or by
telephone may be communicated either to Director or to a person at the office of
the Director whom the person giving the notice has reason to believe will
promptly communicate it to the Director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation; unless the purpose or purposes of
the meeting is to (a) consider the filing of any type of bankruptcy or
insolvency proceeding, or (b) solicit Shareholder votes or consent to dissolve
the corporation, sell or encumber substantially all the corporation's assets, or
(c) participate in a merger.
Section 9. QUORUM. A majority of the authorized number of Directors
------
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 12 of this Article III. Every act or decision done or made
by a majority of the Directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors, subject to
the provisions of Section 310 of the California General Corporation Law (as to
approval of contracts or transactions in which a Director has a direct or
indirect material financial interest), Section 311 of that Law (as to
appointment of the committees), and Section 317(e) of that Law (as to
indemnification of Directors). Members of the Board of Directors may
participate in a meeting (and so participating shall be considered as present in
person) through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of a Director or Directors, so long as any action
taken is subsequently approved in writing by at least a majority of the required
quorum for that meeting.
Section 10. WAIVER OF NOTICE. Notice of a meeting of the Board of
----------------
Directors need not given to any Director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to such Director. All
such waivers, consents and approvals shall be filed with the corporate records
and made a part
12.
<PAGE>
of the minutes of the meeting. Unless otherwise required by Section 8 of this
Article III, the waiver of notice or consent need not specify the purpose of the
meeting.
Section 11. ADJOURNMENT. A majority of the Directors present,
-----------
whether or constituting a quorum, may adjourn any meeting to another time and
place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
---------------------
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 8 of this Article III.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
----------------------
to be taken by the Board of Directors, or a committee of the Board, may be taken
without a meeting, if all members of the Board shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as an unanimous vote of the Board of
Directors. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and
----------------------------------
members of committees may receive only such compensation for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the Board of Directors. This Section 14 shall not be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving compensation for those services.
Section 15. DUTIES AND LIABILITIES OF DIRECTORS. A Director shall
-----------------------------------
perform the duties of a Director, including duties as a member of any committee
of the Board upon which the Director may serve, in good faith, in a manner such
Director believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, as an ordinarily prudent person in a like
position would use under similar circumstances. In performing the duties of a
Director, a Director shall be entitled to rely on information, opinions, reports
or statements, including financial statements and other financial data, in each
case prepared or presented by: (a) one or more officers or employees of the
corporation whom the Director believes to be reliable and competent in the
matters presented; (b) counsel, independent accountants or other persons as to
matters which the Director believes to be within such person's professional or
expert competence; or (c) a committee of the Board upon which the Director does
not serve, as to matters within its designated authority, which committee the
Director believes to merit confidence, so long as, in any such case, the
Director acts in good faith, after reasonable inquiry when the need therefore is
indicated by the circumstances and without knowledge that would cause such
reliance to be unwarranted. A person who performs the duties of a Director in
accordance with this Section 15 shall have no liability based upon any alleged
failure to discharge the person's obligations as a Director.
13.
<PAGE>
ARTICLE IV
COMMITTEES
----------
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may, be
-----------------------
resolution, adopted by a majority of the authorized number of Directors,
designate one (1) or more committees, each consisting of three (3) or more
Directors, to serve at the pleasure of the Board. A majority of the Board may
designate one (1) or more Directors as alternate members of the committee, who
may replace any absent member at any meeting of the committee. Subject to the
provisions of the California General Corporation Law and any limitations
contained in the Articles of Incorporation or Bylaws, each such committee shall
have such authority as shall be delegated to it by resolution of the Board of
Directors. The foregoing notwithstanding, no committee or committees, singly or
in the aggregate, shall have any authority with respect to: (a) the approval of
any action which, under the California General Corporation Law, also requires
Shareholders' approval or approval of the outstanding shares; (by the filling of
vacancies on the Board of Directors or on any committee; (c) the fixing of
compensation of the Directors for serving on the Board or on any committee; (d)
the amendment or repeal of Bylaws or the adoption of new Bylaws: (e) the
amendment or repeal of any resolution of the Board of Directors; (f) a
distribution to the Shareholders of the corporation, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors; or
(g) the appointment of any other committees of the Board of Directors of the
members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Sections 5 (Place of Meetings), 6
(Regular Meetings), 7 (Special Meetings), 8 (Notice of Special Directors
Meetings), 9 (Quorum), 10 (Waiver of Notice), 11 (Adjournment), 12 (Notice of
Adjournment), and 13 (Action Without Meeting), with such changes in the context
of these Bylaws as are necessary to substitute the committee and its members for
the Board of Directors and its members, except that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee; special meetings of committees may also be
called by resolution of the Board of Directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee.
ARTICLE V
OFFICERS
--------
Section 1. OFFICERS. The officers of the corporation shall be a
--------
Chairman of the Board or a President or both, one or more Vice Presidents, a
Secretary, a Chief Financial Officer and such other officers with such titles as
shall be determined by the Board of Directors and with such duties as shall be
delegated to them by the Board of Directors or any supervisory officer. Any
number of offices may be held by the same person.
14.
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Section 2. ELECTION OF OFFICERS. The officers of the corporation,
--------------------
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
--------------------
and may empower the President to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or as
the President or Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
-----------------------------------
rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the Board of Directors, or, except
in case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect on the date of the receipt of
that notice by any member of the Board of Directors of the corporation or at any
later time specified in that notice; and, unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
by the Board of Directors in the manner prescribed in these Bylaws for regular
appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
---------------------
an officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws. If there is no President, the Chairman of the Board shall in addition
be the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the Board of Directors.
He shall have the general powers and duties as from time to time may be
prescribed by the Board of Directors or the Bylaws.
15.
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Section 8. VICE PRESIDENT. In the absence or disability of the
--------------
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors, or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
Section 9. SECRETARY. The Secretary shall attend all meetings of the
---------
Board of Directors and all meetings of the Shareholders, shall record or cause
to be recorded all votes and minutes of the Board of Directors, shall give
notice of each meeting of the Shareholders and Board of Directors requiring
notice and shall perform such other duties as may be prescribed by the Board of
Directors or the President or the Chairman of the Board. The Secretary shall
keep in safe custody the seal of the corporation, and, when authorized by the
Board of Directors, shall affix the same to any instrument.
The Secretary shall keep, or cause to be kept, at the principal
executive office, or at the office of any attorney or attorneys representing or
advising the corporation, or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors, and Shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of these present at Directors' meetings or committee meetings, the number of
shares present or represented at Shareholders' meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all Shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
In the absence or disability of the Secretary, the Assistant Secretary
shall perform the duties and exercise the powers of the Secretary and shall
perform such other duties as may be prescribed by the Board of Directors, the
President or the Secretary.
Section 10. TREASURER AND CHIEF FINANCIAL OFFICER. The Treasurer
-------------------------------------
shall be the Chief Financial Officer and shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
The Treasurer and Chief Financial Officer shall deposit all moneys and
other valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the
16.
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Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, shall render to the President and Directors,
whenever they request it, an account of all of his transactions as Treasurer and
Chief Financial Officer and of the financial condition of the corporation, and
shall have other powers and perform such other duties as may be prescribed by
the Board of Directors or the Bylaws.
The subordinate financial officers, which may be a Controller and one
or more Assistant Treasurers and Assistant Controllers, shall perform such
duties and exercise such powers as shall be delegated to them by the Board of
Directors or the Treasurer and Chief Financial Officer.
Section 11. ADDITIONAL POWERS. In addition to the foregoing powers
-----------------
and duties specifically prescribed for the respective officers, the Board of
Directors may from time to time impose or confer upon any of the officers such
additional duties and powers as the Board of Directors may see fit, and the
Board of Directors may from time to time impose or confer any or all of the
foregoing duties and powers specifically prescribed for any officer upon any
other officer or officers.
Section 12. COMPENSATION. The officers of this corporation shall
------------
receive such compensation shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to any officer or
officers the power to fix the compensation of any other officer or officers. No
officer shall be prevented from receiving compensation by reason of the fact
that the officer is also a Director of the corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
---------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
Section 1. AGENTS, PROCEEDINGS, EXPENSES. For the purposes of this
-----------------------------
Article, "agent" means any person who is or was a Director, officer, employee,
or other agent of this corporation, or is or was serving at the request of this
corporation as a Director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a Director, officer, employee, or agent of a foreign or domestic corporation
which was a predecessor corporation of this corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. Subject to the
-------------------------------------
requirement for advance approval set forth in Section 5 of this Article, this
corporation shall indemnify any person who was or is a party, or is threatened
to be made a party, to any proceeding (other than an action by or in the right
of this corporation) by reason of the fact that
17.
<PAGE>
such person is or was an agent of this corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of this
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a pleas of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of this corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. Subject to the requirement
--------------------------
for advance approval set forth in Section 5 of this Article, this corporation
shall indemnify any person who was or is a party or is threatened to be made a
party, to any threatened, pending or completed action by or in the right of this
corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of this corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if such person acted in good faith, in a manner such person
believed would be in the best interests of this corporation and with such care,
including reasonable inquiry, as an ordinarily prudent person in a like position
would use under similar circumstances. No indemnification shall be made under
this Section 3:
(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to this corporation in the
performance of such person's duty to this corporation, unless and only to the
extent that the court in which that action was brought shall determine upon
application that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnify for the expenses which the court
shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action without court approval; or
(c) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent
---------------------------
of this corporation has been successful on the merits in defense of any
proceeding referred to in Sections 2 or 3 of this Article, or in defense of any
claim, issue, or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of
-----------------
this Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case, upon a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article, by any of the following:
18.
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(a) A majority vote of a quorum consisting of Directors who are
not parties to such proceeding;
(b) Approval or ratification by the affirmative vote of a
majority of the shares of this corporation entitled to vote represented at a
duly held meeting at which a quorum is present or by the written consent of
holders of a majority of the outstanding shares entitled to vote. For such
purpose, the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon; or
(c) The court in which the proceeding is or was pending, upon
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
-------------------
proceeding may be advanced by this corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the agent to
repay such amount unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article.
Section 7. OTHER INDEMNIFICATION. Provisions made by the corporation
---------------------
to indemnify its or its subsidiary's Directors or officers for the defense of
any proceeding, whether contained in the Articles, Bylaws, a resolution of
Shareholders or Directors, an agreement, or otherwise, to an extent beyond that
set forth in this article shall be valid if consistent with the limitations on
such indemnification set forth in the California General Corporation Law.
Nothing contained in this Article shall affect any right of indemnification to
which persons other than such Directors and officers may be entitled by contract
or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made
-----------
under this Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles, Bylaws, a resolution of the Shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. INSURANCE. Upon and in the event of a termination by the
---------
Board of Directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against the liability
under the provisions of this Section.
19.
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Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This
----------------------------------------------
Article does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in such person's
capacity as such, even though such person may also be an agent of the
corporation as defined in Section 1 of this Article. Nothing contained in this
Article shall limit any right to indemnification to which such a trustee,
investment manager, or other fiduciary may be entitled by contract or otherwise,
which shall be enforceable to the extent permitted by applicable law other than
this Article.
ARTICLE VII
RECORDS AND REPORTS
-------------------
Section 1. REQUIRED RECORDS. The corporation shall keep (a) adequate
----------------
and correct books and records of account; (b) minutes of the proceedings of its
Shareholders, Board of Directors and committees of the Board; and (c) a record
of its Shareholders, at its principal executive office, or at the office of its
transfer agent or registrar if either be appointed by resolution of the Board of
Directors, giving the names and addresses of all Shareholders and the number and
class of shares held by each. Minutes shall be kept in written form. All other
books shall be kept either in written form or in any other form capable of being
converted into written form.
Section 2. MAINTENANCE AND INSPECTION OF SHARE REGISTER. A
--------------------------------------------
Shareholder or Shareholders of the corporation (a) holding at least five percent
(5%) in the aggregate of the outstanding voting shares of the corporation, or
(b) who holds at least one percent (1%) of such voting shares and has filed a
Schedule 14B with the United States Securities and Exchange Commission relating
to the election of Directors of the corporation, has the right to (i) inspect
and copy the records of Shareholders' names and addresses and shareholdings
during usual business hours on five (5) days prior written demand on the
corporation, and (ii) obtain from the transfer agent of the corporation, on
written demand and on the tender of such transfer agent's usual charges for such
list, a list of the Shareholders' names and addresses, who are entitled to vote
for the election of Directors, and their shareholdings, as of the most recent
record date for which that list has been compiled or as of a date specified by
the Shareholder subsequent to the date of demand. This list shall be made
available to any such Shareholder by the transfer agent on or before the later
of five (5) days after the demand is received or the date specified in the
demand as the date as of which the list is to be compiled. The record of
Shareholders shall also be open to inspection on the written demand of any
Shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
Shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this section 2 may be made in person or by an agent or attorney of
the Shareholder or holder of a voting trust certificate making the demand.
Section 3. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
------------------------------------
shall keep at its principal executive office, or if its principal executive
office is not in the State of
20.
<PAGE>
California, at its principal business office in this State, the original or a
copy of the Bylaws as amended to date, which shall be open to inspection by the
Shareholders at all reasonable times during office hours. If the principal
executive office of the corporation is outside the State of California and the
corporation has no principal business office in this State, the Secretary shall,
upon the written request of any Shareholder, furnish to that Shareholder a copy
of the Bylaws as amended to date.
Section 4. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
-----------------------------------------------------
The accounting books and records and minutes of proceedings of the Shareholders
and the Board of Directors and any committee or committees of the Board of
Directors shall be adequate and correct, and shall be kept at such place or
places designated by the Board of Directors, or, in the absence of such
designation, at the principal executive office of the corporation. The minutes
of proceedings shall be kept in written form. The accounting books and records
shall be kept either in written form or in any other form capable of being
converted into written form. The minutes and accounting books and records shall
be open to inspection upon the written demand of any Shareholder or holder of a
voting trust certificate, at any reasonable time during usual business hours,
for a purpose reasonably related to the holder's interests as a Shareholder or
as the holder of a voting trust certificate. The inspection may be made in
person or by an agent or attorney, and shall include the right to copy and make
extracts. These rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
Section 5. INSPECTION BY DIRECTORS. Every Director shall have the
-----------------------
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and they physical properties of the corporation and each
of its subsidiary corporations. This inspection by a Director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 6. ANNUAL REPORT TO SHAREHOLDERS. So long as this
-----------------------------
corporation shall have less than one hundred (100) holders of record of its
shares, the Annual Report to Shareholders referred to in Section 1501(a) of the
California General Corporation Law is expressly dispensed with, however the
Board of Directors of the corporation may caused to be sent to the Shareholders
annual or other periodic reports in such form as may be deemed appropriate by
the Board of Directors. At any time when this corporation has one hundred (100)
or more holders of record of its shares, the Board of Directors shall cause an
annual report to be sent to the Shareholders of this corporation not later than
one hundred and twenty (120) days after the close of this corporation's fiscal
year in accordance with the provisions of Section 1501 of the California General
Corporation Law.
Section 7. FINANCIAL STATEMENTS. A copy of any annual financial
--------------------
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the
21.
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corporation for twelve (12) months and each such statement shall be exhibited at
all reasonable times to any Shareholder demanding an examination of any such
statement.
A Shareholder or Shareholders holding at least five percent (5%) of
the outstanding shares of any class of this corporation may make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the current fiscal year ended
more than thirty (30) days prior to the date of the request and a balance sheet
of the corporation as of the end of such period and, in addition, if no annual
report for the last fiscal year has been sent to the Shareholders, the
statements required by Section 1501, subdivision (a) of the California General
Corporation Law for the last fiscal year. Such statement, if not already
prepared, shall be prepared and shall be delivered or mailed to the person
making the request within thirty (30) days thereafter.
The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 8. ANNUAL STATEMENT OF GENERAL INFORMATION. This corporation
---------------------------------------
shall, during the applicable filing period, as defined in Section 1502(c) of the
California General Corporation Law, file with the Secretary of State of the
State of California. on the prescribed form, a statement setting forth the
authorized number of Directors, the names and complete business or residence
addresses of all incumbent Directors, the names and complete business or
residence addresses of the Chief Executive Officer, Secretary, and Chief
Financial Officer, the street address of its principal executive office or
principal business office in this State, and the general type of business
constituting the principal business activity of the corporation, together with a
designation of the agent of the corporation for the purpose of service of
process, all in compliance with Section 1502 the California General Corporation
Law.
ARTICLE VIII
GENERAL CORPORATE MATTERS
-------------------------
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
-----------------------------------------------------
For purposes of determining the Shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
Shareholders by written consent without a meeting), the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only Shareholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
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If the Board of Directors does not so fix a record date, the record
date for determining Shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
In connection with the setting of any such record date, the
corporation shall comply with any and all requirements for the notice of the
establishment of such record date set forth in the Articles of Incorporation in
Article III, Section 5.C(b).
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
-----------------------------------------
drafts, or other orders for payment of money, notes, or other evidence of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
-------------------------------------------------
Board of Directors, except as otherwise provided in these Bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
-----------------------
for shares of the capital stock of the corporation shall be issued to each
Shareholder when any of these shares are fully paid, and the Board of Directors
may authorize the issuance of certificates for shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the Chairman of the Board or Vice Chairman of the Board or
the President or Vice President and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent, or registrar at the date of issue. All certificates shall
conspicuously disclose on their face any restrictions pertaining to their
transferability, and shall also set forth any statement, summary or legend
authorized by the Board of Directors or required to or which, in the exercise of
sound business judgment, should be stated thereon pursuant to (a) any agreement
to which the corporation is a party, or (b) any provision of law, including but
not limited to the federal securities laws, the California Corporate Securities
law of 1968, as amended, and Section 417 and Section 418 of the California
General Corporation Law.
23.
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Section 5. LOST CERTIFICATES. The Board of Directors or any officer
-----------------
designated by the Board of Directors may direct a new certificate or
certificates to be issued in placed of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate for shares so lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors or such officer, as a
condition precedent to the issuance thereof, may require the person claiming
such lost or destroyed certificate or certificates to give the corporation a
bond or other adequate security sufficient to indemnify it against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate.
Section 6. TRANSFER ON THE BOOKS. Upon (a) the surrender to the
---------------------
Secretary or transfer agent of the corporation of a certificate representing
shares of stock in the corporation, duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, and (b) delivery to
the corporation of evidence sufficient to indicate that the transfer of such
shares would not be in violation of the Articles of Incorporation or Bylaws of
the corporation, or any legend appearing on said certificates, or any agreement
to which the corporation is a party, or any applicable law, it shall be the duty
of the corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 7. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
------------------------------
may appoint one or more transfer agents or transfer clerks, and one or more
registrars, who may be the same person, and may be the Secretary of the
corporation, or an incorporated bank or trust company, either domestic or
foreign, who shall be appointed at such times and places as the requirements of
the corporation may necessitate and the Board of Directors may designate.
Section 8. RECORD OWNERSHIP. Except as other wise expressly provided
----------------
by law, the corporation shall be entitled to recognize the exclusive right of a
person registered as such on the books of the corporation as the owner of shares
of the corporation's stock to receive notices and reports, to receive dividends,
other distributions, and notices, to vote, and to give written consents as such
owner.
Section 9. CORPORATE SEAL. The Board of Directors may, in its
--------------
discretion, adopt a corporate seal. In the event such corporate seal is
adopted, it shall be circular in form, and shall have inscribed thereon the name
of the corporation, the date of its incorporation, and the word "California."
Section 10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
----------------------------------------------
Chairman of the Board, the President, or any Vice President, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these
officers to vote or represent on behalf of the corporation any and all shares
held by the
24.
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corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
Section 11. LEGEND CONDITION. In the event any shares of this
----------------
corporation are issued pursuant to a permit or exemption therefrom requiring the
imposition of a legend condition, said legend shall appear on each certificate
issued subject to said legend and on the stub relating thereto in the stock
record book. The corporation shall not be required to transfer any shares free
of such legend unless there shall first be presented to the corporation an
amendment to such permit or a new permit issued authorizing such a deletion, or
such other evidence of the legality of the removal of said legend as the
corporation shall reasonably require.
Section 12. CLOSING STOCK TRANSFER BOOK. The Board of Directors may
---------------------------
close the transfer books in its discretion for a period not exceeding thirty
(30) days preceding any meeting, annual or special, of the Shareholders, or the
day appointed for the payment of a dividend.
Section 13. CONSTRUCTION AND DEFINITIONS. Unless the context
----------------------------
requires otherwise, the general provisions, rules of construction, and
definitions in the California General Corporation Law shall govern the
construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
----------
Section 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or
-------------------------
these Bylaws may be amended or repealed by the affirmative vote or written
consent of holders of a majority of the outstanding shares entitled to vote,
except as otherwise provided by law or by the Articles of Incorporation, and
except that so long as the number of shares of issued and outstanding Series A
Preferred Stock equals or exceeds the number required for this purpose by the
Articles of Incorporation, the affirmative vote or written consent of holders of
a majority of the outstanding Series A Preferred shares entitled to vote shall
also be required to amend, repeal or adopt any provision of these Bylaws that
would in any way reduce the rights of the holders of Series A Preferred shares
provided hereunder.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
----------------------
Shareholders as provided in Section 1 of this Article IX, and subject to the
provisions of Section 2 of Article III of these Bylaws, the Board of Directors
may amend or repeal these Bylaws or adopt new Bylaws, and except that the
affirmative vote of a majority of the Series A Directors and a majority of the
Common Directors shall be required to amend, repeal or adopt any provision of
these Bylaws that would in any way reduce the rights of the holders of Series A
Preferred shares provided hereunder, and except that the affirmative vote of a
majority of the Series B Directors and a
25.
<PAGE>
majority of the Common Directors shall be required to amend, repeal or adopt any
provision of these Bylaws that would in any way reduce the rights of the holders
of Series B Preferred shares provided hereunder.
Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new Bylaw
--------------------
as adopted, it shall be placed in the book of minutes with the original Bylaws.
If any Bylaw is repealed, the fact of repeal, with the date of the meeting at
which the repeal was enacted or written consent was filed, shall be placed in
the book of minutes immediately after the Bylaws.
ARTICLE X
RIGHT OF FIRST REFUSAL
----------------------
RIGHT OF FIRST REFUSAL. No shareholder shall sell, assign, pledge, or
in any manner transfer any of the shares of Common Stock of the corporation or
any right or interest therein, whether voluntarily or by operation of law, or by
gift or otherwise, except by a transfer which meets the requirements hereinafter
set forth in this bylaw:
1. If the shareholder desires to sell or otherwise transfer any of
his shares of Common Stock, then the shareholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
2. For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Article X, the price shall be
deemed to be the fair market value of the Common Stock at such time as
determined in good faith by the Board of Directors. In the event the
corporation elects to purchase all of the shares or, with consent of the
shareholder, a lesser portion of the shares, it shall give written notice to the
transferring shareholder of its election and settlement for said shares shall be
made as provided below in paragraph (d).
3. The corporation may assign its rights hereunder.
4. In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring shareholder as specified in said
transferring shareholder's notice, the Secretary of the corporation shall so
notify the transferring shareholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring shareholder's notice; provided that if the terms of payment set
forth in said transferring
26.
<PAGE>
shareholder's notice were other than cash against delivery, the corporation
and/or its assignee(s) shall pay for said shares on the same terms and
conditions set forth in said transferring shareholder's notice.
5. In the event the corporation and/or its assignee(s) do not elect
to acquire all of the shares specified in the transferring shareholder's notice,
said transferring shareholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and/or its
assignee(s) herein, transfer the shares specified in said transferring
shareholder's notice which were not acquired by the corporation and/or its
assignee(s) as specified in said transferring shareholder's notice. All shares
so sold by said transferring shareholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
6. Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(a) A shareholder's transfer of any or all shares held either
during such shareholder's lifetime or on death by will or intestacy to such
shareholder's immediate family or to any custodian or trustee for the account of
such shareholder or such shareholder's immediate family. "Immediate family" as
used herein shall mean spouse, lineal descendant, father, mother, brother, or
sister of the shareholder making such transfer.
(b) A shareholder's bona fide pledge or mortgage of any shares
with a commercial lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the manner set forth in
this bylaw.
(c) A shareholder's transfer of any or all of such
shareholder's shares to the corporation or to any other shareholder of the
corporation.
(d) A shareholder's transfer of any or all of such
shareholder's shares to a person who, at the time of such transfer, is an
officer, director, or bona fide employee of the corporation.
(e) A corporate shareholders' transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate shareholder.
(f) A corporate shareholder's transfer of any or all of its
shares to any or all of its shareholders.
(g) A transfer by a shareholder which is a limited or general
partnership to any or all of its partners or former partners.
27.
<PAGE>
In any such case, the transferee, assignee, or other recipient shall
receive and hold such Common Stock subject to the provisions of this bylaw, and
there shall be no further transfer of such Common Stock except in accord with
this bylaw.
7. The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the shareholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring shareholder).
This bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the shareholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.
8. Any sale or transfer, or purported sale or transfer, of securities
of the corporation shall be null and void unless the terms, conditions, and
provisions of this bylaw are strictly observed and followed.
9. The foregoing right of first refusal shall terminate on either of
the following dates, whichever shall first occur:
(a) On March 31, 2001; or
(b) Upon the date securities of the corporation are first
publicly offered pursuant to a registration statement filed with, and declared
effective by, the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended.
10. The certificate representing shares of Common Stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"The shares represented by this certificate are subject to a
right of first refusal option in favor of the corporation and/or its
assignee(s), as provided in the bylaws of the corporation."
28.
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of __________, 1996
by and between PEERLESS SYSTEMS CORPORATION, a California corporation and,
following its reincorporation in Delaware, a Delaware corporation (the
"Corporation"), and _________________ ("Agent"). This Agreement supersedes any
and all indemnity agreement(s) previously entered into between the Corporation
and the Agent.
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as ______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the California Corporations Code, as amended, and,
following the Company's reincorporation in Delaware, by the Delaware General
Corporation Law, as amended (as applicable, the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ___________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as __________
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
1.
<PAGE>
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws or the Code permitted prior to
adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by the
Corporation under the non-exclusivity provisions of the Code and Section 41 of
the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of profits
made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of Agent's
duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
2.
<PAGE>
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be
3.
<PAGE>
liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except for
reasonable costs of investigation or otherwise as provided below. Agent shall
have the right to employ separate counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded that there may be a conflict of
interest between the Corporation and Agent in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Agent shall
have made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
4.
<PAGE>
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be inva lid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California prior to the Company's
reincorporation in Delaware, and following such reincorporation, in accordance
with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
5.
<PAGE>
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to
Peerless Systems Corporation
2381 Rosecrans Avenue
El Segundo, California 90245
Attn: Edward A. Gavaldon
or to such other address as may have been furnished to Agent by the Corporation.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
PEERLESS SYSTEMS CORPORATION
By: ______________________________________________
Title: ___________________________________________
AGENT
By: ______________________________________________
Print Name: ______________________________________
Address: _________________________________________
__________________________________________________
7.
<PAGE>
EXHIBIT 10.2
PEERLESS SYSTEMS CORPORATION
1992 STOCK OPTION PLAN
ADOPTED SEPTEMBER 1, 1992
APPROVED BY SHAREHOLDERS APRIL 22, 1993
AMENDED JUNE 7, 1993
APPROVED BY SHAREHOLDERS APRIL 22, 1994
AMENDED OCTOBER 20, 1994
AMENDED APRIL 26, 1995
APPROVED BY SHAREHOLDERS MAY 11, 1995
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services
of persons who are now Employees or Directors of or Consultants to the Company,
to secure and retain the services of new Employees, Directors and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
<PAGE>
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Peerless Systems Corporation, a California
corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock Options,
any such leave may not exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including certain Company
policies) or statute; or (ii) transfers between locations of the Company or
between the Company, Affiliates or its successor.
(h) "DIRECTOR" means a member of the Board.
2.
<PAGE>
(i) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(j) "DISINTERESTED PERSON" means a Director: (i) who was not during
the one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its affiliates entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by Rule
16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reporting in the Wall Street Journal or such
other source as the Board deems reliable;
3.
<PAGE>
(ii) If the common stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the high bid
and high asked prices for the common stock on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(s) "OPTIONED STOCK" means the common stock of the Company subject
to an Option.
(t) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option.
4.
<PAGE>
(u) "PLAN" means this 1992 Stock Option Plan.
(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how the Option shall
be granted; whether the Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be granted to
each such person.
(ii) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan as provided in Section 11.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be disinterested persons, if required and as defined by
the provisions of subsection 3(d). If
5.
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administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall thereafter be to
the Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, and notwithstanding anything to the contrary contained herein, the
Board may delegate administration of the Plan to any person or persons and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate one million five hundred eighty-two thousand five
hundred (1,582,500) shares of the Company's common stock. If any Option shall
for any reason expire or otherwise terminate without having been exercised in
full, the stock not purchased under such Option shall again become available
for the Plan.
6.
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(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Options may be granted, or in the determination of the
number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of such stock at the date of grant and
the Option is not exercisable after the expiration of five (5) years from the
date of grant.
7.
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6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the fair market value of
the stock subject to the Option on the date the Option is granted. The exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the fair market value of the stock subject to the Option on the
date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement in connection with
the exercise of an Incentive Stock Option, interest shall be payable at least
annually and shall be charged at the
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minimum rate of interest necessary to avoid the treatment as interest, under
any applicable provisions of the Code, of any amounts other than amounts stated
to be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules thereunder
(a "QDRO"), and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person or any transferee pursuant to a QDRO.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. During the remainder of the term of the Option (if its term
extends beyond the end of the installment periods), the option may be exercised
from time to time with respect to any shares then remaining subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection 6(d),
as a condition of exercising
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any such Option, (1) to give written assurances satisfactory to the Company as
to the Optionee's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Option; and
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the Option has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Board, and only to the extent that the
Optionee was entitled to exercise it at the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the case of an Incentive Stock Option, the Board shall determine
such period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after
10.
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termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option, but only
within twelve (12) months from the date of such termination (or such longer or
shorter period, which in no event shall be less than six (6) months), and only
to the extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following the
date of death (or such shorter period specified in the Option Agreement) (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death. If, at
the time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after death, the Optionee's estate or a person who
acquired the right to exercise the Option by bequest or inheritance does not
11.
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exercise the Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee, Director
or Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the
12.
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Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Options unless and until such authority is
obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(b) Throughout the term of any Option, the Company shall deliver to
the holder of such Option, not later than one hundred twenty (120) days after
the close of each of the Company's fiscal years during the Option term, a
balance sheet and an income statement. This section shall not apply when
issuance is limited to key employees whose duties in connection with the Company
assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or relationship as a
Director or Consultant of any Employee, Director, Consultant or Optionee with or
without cause.
13.
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(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Options will be
appropriately adjusted in the class(es) and maximum number of shares subject to
the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding Options.
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan, or (ii) such
Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute similar
options for those outstanding under the Plan, then such Options shall be
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the
14.
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Company, any Options outstanding under the Plan shall terminate if not exercised
prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for options under
the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(c) Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
Option was granted and (ii) such person consents in writing.
15.
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12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on September 1, 2002. No Options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
16.
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EXHIBIT 10.3
PEERLESS SYSTEMS CORPORATION
1996 EQUITY INCENTIVE PLAN
ADOPTED July 25, 1996
APPROVED BY STOCKHOLDERS ____________, 1996
INTRODUCTION.
In May 1996, the Board of Directors adopted the Peerless Systems
Corporation 1996 Stock Option Plan. In July 1996, the Board of Directors
amended and restated the 1996 Stock Option Plan to read as set forth herein.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
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(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means Peerless Systems Corporation, a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
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(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(r) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(s) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(t) "PLAN" means this Peerless Systems Corporation 1996 Equity Incentive
Plan.
(u) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(v) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
3.
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(w) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, or a
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one or more persons. In the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Code Section 162(m), or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4.
<PAGE>
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate one million nine hundred thousand (1,900,000) shares
of Common Stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full
(or vested in the case of Restricted Stock), the stock not acquired under such
Stock Award shall revert to and again become available for issuance under the
Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted options covering
more than [_____________________] shares in any calendar year. This subsection
5(c) shall not apply prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act and, following such
registration, shall not apply until (i) the earliest of: (A) the first material
modification of the Plan (including any increase to the number of shares
reserved for issuance under the Plan in accordance with Section 4); (B) the
issuance of all of the shares of common stock reserved for issuance under the
Plan; (C) the expiration of the Plan; or (D) the first meeting of stockholders
at which directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option
5.
<PAGE>
shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option
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Agreement may provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect to some or all
of the shares allotted to that period, and may be exercised with respect to some
or all of the shares allotted to such period and/or any prior period as to which
the Option became vested but was not fully exercised. The Option may be subject
to such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire
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Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
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Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 11(d) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
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(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of any adversely affected holders of
Options, the cancellation of any outstanding Options under the Plan and the
grant in substitution therefor of new Options under the Plan covering the same
or different numbers of shares of stock, but having an exercise price per share
not less than: eighty-five percent (85%) of the Fair Market Value for a
Nonstatutory Stock Option one hundred percent (100%) of the Fair Market Value
for an Incentive Stock Option1 or, for an Incentive Stock Option held by a 10%
stockholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 8, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 8(b) shall be applicable only to the extent required by Section
162(m) of the Code.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable
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efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to whom a
Stock Award is transferred in accordance with the Plan shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted, or
any person to whom a Stock Award is transferred in accordance with the Plan, as
a condition of exercising or acquiring stock under any Stock Award, (1) to give
written assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable
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of evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: (i) any surviving
corporation or an Affiliate of such
12.
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surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar Stock Awards for those outstanding under the Plan,
or (ii) such Stock Awards shall continue in full force and effect. In the event
any surviving corporation and its Affiliates refuse to assume or continue such
Stock Awards, or to substitute similar options for those outstanding under the
Plan, then, with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the time during which such
Stock Awards may be exercised shall be accelerated and the Stock Awards
terminated if not exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company where stockholder is necessary for the Plan to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board
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or approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
This amendment and restatement of the Plan shall become effective on the
effective date of the registration statement with respect to the Company's
initial public offering of shares of Common Stock, but no Stock Awards granted
under the Plan shall be exercised unless and until the Plan has been approved by
the stockholders of the Company, which approval shall be within twelve (12)
months before or after the date the Plan is adopted by the Board.
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EXHIBIT 10.4
1996 EQUITY INCENTIVE PLAN
INCENTIVE STOCK OPTION
______________________, Optionee:
PEERLESS SYSTEMS CORPORATION (the "Company"), pursuant to its 1996
Equity Incentive Plan (the "Plan"), has granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number
of shares of Common Stock subject to this option is _______________ (________).
2. VESTING. Subject to the limitations contained herein, this option
shall be exercisable with respect to each installment shown below on or after
the date of vesting applicable to such installment as follows:
NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING)
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
______________________ (_______) per share, being not less than the fair market
value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is due
in full upon exercise of all or any part of each installment which has accrued
to you. You may elect, to the extent permitted by applicable statutes and
regulations, to make payment of the exercise price under one of the following
alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
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(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
6. TERM. The term of this option commences on ____________, the date of
grant, and expires on _______________ (the "Expiration Date," which date shall
be no more than ten (10) years from the date this option is granted), unless
this option expires sooner as set forth below or in the Plan. In no event may
this option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date as follows: three (3) months after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company unless one of the following
circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your permanent and total disability (within the meaning of
Section 422(c)(6) of the Code). This option will then expire on the earlier of
the Expiration Date set forth above or twelve (12) months following such
termination of Continuous Status as an Employee, Director or Consultant.
(b) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within three (3) months
following your termination of Continuous Status as an Employee, Director or
Consultant for any other reason. This option will then expire on the earlier of
the Expiration Date set forth above or twelve (12) months after your death.
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(c) If during any part of such three (3) month period you may not
exercise your option solely because of the condition set forth in paragraph 5
above, then your option will not expire until the earlier of the Expiration Date
set forth above or until this option shall have been exercisable for an
aggregate period of three (3) months after your termination of Continuous Status
as an Employee, Director or Consultant.
(d) If your exercise of the option within three (3) months after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under section 16(b) of the Securities Exchange Act of 1934, then your option
will expire on the earlier of (i) the Expiration Date set forth above, (ii) the
tenth (10th) day after the last date upon which exercise would result in such
liability or (iii) six (6) months and ten (10) days after the termination of
your Continuous Status as an Employee, Director or Consultant with the Company
or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of paragraph 2 of
this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months after
the date your employment with the Company and all Affiliates of the Company
terminates.
7. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection 6(f)
of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise
of this option, the Company may require you to enter an arrangement providing
for the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise;
3
<PAGE>
(ii) you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of the
Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of this option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Act as may be requested by
the Company or the representative of the underwriters. You further agree that
the Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective stockholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
4
<PAGE>
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the _______ day of ___________, 19___.
Very truly yours,
PEERLESS SYSTEMS CORPORATION
By
--------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
1996 Equity Incentive Plan
Notice of Exercise
5
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth
the entire understanding between the undersigned optionee and the Company and
its affiliates regarding the acquisition of stock in the Company and supersedes
all prior oral and written agreements on that subject with the exception of (i)
the options previously granted and delivered to the undersigned under stock
option plans of the Company, and (ii) the following agreements only:
NONE
---------
(Initial)
OTHER
------------------------
------------------------
------------------------
-------------------------------------------
OPTIONEE
Address:
-------------------------------
-------------------------------
-------------------------------
6
<PAGE>
NOTICE OF EXERCISE
Peerless Systems Corporation
2381 Rosecrans Avenue
El Segundo, CA 90245 Date of Exercise: ____________________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option (check one): Incentive [_] Nonstatutory [_]
Stock option dated:
-------------------
Number of shares as
to which option is
exercised:
-------------------
Certificates to be
issued in name of:
-------------------
Total exercise price: $
------------------
Cash payment delivered
herewith: $
------------------
Value of ______ shares of
Peerless common
stock delivered herewith/1/: $
------------------
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1996 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any shares
of Common
- ------------------
/1/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
1
<PAGE>
Stock issued upon exercise of this option that occurs within two (2) years after
the date of grant of this option or within one (1) year after such shares of
Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that all certificates representing any of the Shares subject
to the provisions of the Option shall have endorsed thereon appropriate legends
reflecting the foregoing limitations, as well as any legends reflecting
restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or
applicable securities laws.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, I will not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act (the "Effective Date") as may be requested by the Company or the
representative of the underwriters.
Very truly yours,
------------------------------------------
Optionee
2
<PAGE>
EXHIBIT 10.5
1996 EQUITY INCENTIVE PLAN
NONSTATUTORY STOCK OPTION
_____________________, Optionee:
PEERLESS SYSTEMS CORPORATION (the "Company"), pursuant to its 1996
Equity Incentive Plan (the "Plan") has granted to you, the optionee named above,
an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option
is 2-. Subject to the limitations contained herein, this option shall be
exercisable with respect to each installment shown below on or after the date of
vesting applicable to such installment, as follows:
NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING)
2. (a) The exercise price of this option is ________________________
($_________) per share, being not less than 85% of the fair market value of the
Common Stock on the date of grant of this option.
(b) Payment of the exercise price per share is due in full upon
exercise of all or any part of each installment which has accrued to you. You
may elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt
1
<PAGE>
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subparagraph 2(b)(i) through 2(b)(iii) above.
3. This option may not be exercised for any number of shares which would
require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this option
may not be exercised unless the shares issuable upon exercise of this option are
then registered under the Act or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.
5. The term of this option commences on _______________, the date of
grant and expires on _______________ (the "Expiration Date," which date shall be
no more than ten (10) years from the date this option is granted), unless this
option expires sooner as set forth below or in the Plan. In no event may this
option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date as follows: three (3) months after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company for any reason or for no reason
unless:
(a) such termination of Continuous Status as an Employee, Director or
Consultant is due to your permanent and total disability (within the meaning of
Section 422(c)(6) of the Code), in which event the option shall expire on the
earlier of the Expiration Date set forth above or twelve (12) months following
such termination of Continuous Status as an Employee, Director or Consultant; or
(b) such termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within three (3) months
following your termination for any other reason, in which event the option shall
expire on the earlier of the Expiration Date set forth above or twelve (12)
months after your death; or
(c) during any part of such three (3) month period the option is not
exercisable solely because of the condition set forth in paragraph 4 above, in
which event the option shall not expire until the earlier of the Expiration Date
set forth above or until it shall have been exercisable for an aggregate period
of three (3) months after the termination of Continuous Status as an Employee,
Director or Consultant; or
2
<PAGE>
(d) exercise of the option within three (3) months after termination
of your Continuous Status as an Employee, Director or Consultant with the
Company or with an Affiliate of the Company would result in liability under
section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act), in
which case the option will expire on the earlier of (i) the Expiration Date set
forth above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days after
the termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of paragraph 1 of
this option.
6. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection 6(f)
of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of
this option, the Company may require you to enter an arrangement providing for
the cash payment by you to the Company of any tax withholding obligation of the
Company arising by reason of: (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise. You
also agree that any exercise of this option has not been completed and that the
Company is under no obligation to issue any Common Stock to you until such an
arrangement is established or the Company's tax withholding obligations are
satisfied, as determined by the Company; and
(ii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. You further agree that the Company
may impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
7. This option is not transferable, except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
satisfying the requirements of Rule 16b-3 of the Exchange Act (a "QDRO"), and is
exercisable during your life only by you or a transferee pursuant to a QDRO.
Notwithstanding the foregoing, by delivering written
3
<PAGE>
notice to the Company, in a form satisfactory to the Company, you may designate
a third party who, in the event of your death, shall thereafter be entitled to
exercise this option.
8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company. In addition, nothing in this option shall obligate
the Company or any Affiliate of the Company, or their respective stockholders,
Board of Directors, officers, or employees to continue any relationship which
you might have as a Director or Consultant for the Company or Affiliate of the
Company.
9. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
4
<PAGE>
10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the ______ day of ___________, 19___.
Very truly yours,
PEERLESS SYSTEMS CORPORATION
By
--------------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1996 Equity Incentive Plan
Notice of Exercise
5
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth
the entire understanding between the undersigned optionee and the Company and
its affiliates regarding the acquisition of stock in the Company and supersedes
all prior oral and written agreements on that subject with the exception of (i)
the options previously granted and delivered to the undersigned under stock
option plans of the Company, and (ii) the following agreements only:
NONE
------------
(Initial)
OTHER
-----------------------------------
-----------------------------------
-----------------------------------
----------------------------------------
1-, OPTIONEE
Address:
------------------------------
------------------------------
6
<PAGE>
NOTICE OF EXERCISE
Peerless Systems Corporation
2381 Rosecrans Avenue
El Segundo, CA 90245 Date of Exercise:
-------------
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option (check one): Incentive [_] Nonstatutory [_]
Stock option dated:
-----------------
Number of shares as
to which option is
exercised:
-----------------
Certificates to be
issued in name of:
-----------------
Total exercise price: $
----------------
Cash payment delivered
herewith: $
----------------
Value of ______ shares of
Peerless common stock delivered
herewith /1/: $
----------------
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1996 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any shares
of Common
- ------------------
/1/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the
option, and must be owned free and clear of any liens, claims, encumbrances
or security interests. Certificates must be endorsed or accompanied by an
executed assignment separate from certificate.
1
<PAGE>
Stock issued upon exercise of this option that occurs within two (2) years after
the date of grant of this option or within one (1) year after such shares of
Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that all certificates representing any of the Shares subject
to the provisions of the Option shall have endorsed thereon appropriate legends
reflecting the foregoing limitations, as well as any legends reflecting
restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or
applicable securities laws.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, I will not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act (the "Effective Date") as may be requested by the Company or the
representative of the underwriters.
Very truly yours,
----------------------------------------
OPTIONEE
2
<PAGE>
EXHIBIT 10.6
PEERLESS SYSTEMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED July 25, 1996
APPROVED BY STOCKHOLDERS _____________, 1996
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Peerless Systems Corporation, a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
1.
<PAGE>
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
comprised of one or more persons (the "Committee"), which may be constituted in
accordance with Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act" and "Rule 16b-3"). If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate four hundred fifty thousand (450,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
2.
<PAGE>
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
3.
<PAGE>
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of
this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding fifteen percent (15%) of such
employee's Earnings (as defined by the Board or the Committee in each Offering)
during the period which begins on the Offering Date (or such later date as the
Board or the Committee determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering. The Board or the Committee shall establish one or more dates during
an Offering (the "Purchase Date(s)") on which rights granted under the Plan
shall be exercised and purchases of Common Stock carried out in accordance with
such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant
4.
<PAGE>
to such Offering. In addition, in connection with each Offering that contains
more than one Purchase Date, the Board or the Committee may specify a maximum
aggregate number of shares which may be purchased by all eligible employees on
any given Purchase Date under the Offering. If the aggregate purchase of shares
upon exercise of rights granted under the Offering would exceed any such maximum
aggregate number, the Board or the Committee shall make a pro rata allocation of
the shares available in as nearly a uniform manner as shall be practicable and
as it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering (as defined by the Board or Committee in each Offering). The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of the
Company. A participant may reduce (including to zero) or increase such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
5.
<PAGE>
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee) under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if
6.
<PAGE>
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding rights will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the class(es) and number of shares and
price per share of stock subject to outstanding rights. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
7.
<PAGE>
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act
or any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then, as determined by the
Board in its sole discretion (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such rights were granted, or except as necessary to comply
with any laws or governmental
8.
<PAGE>
regulations, or except as necessary to ensure that the Plan and/or rights
granted under the Plan comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of the
Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day that the Company's initial
public offering of shares of common stock becomes effective, but no rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board or the Committee, which date may
be prior to such effective date.
9.
<PAGE>
EXHIBIT 10.7
ADOBE CONFIDENTIAL
THIRD PARTY DEVELOPMENT AND
LICENSE AGREEMENT
Dated as of September 18, 1992
------------
BETWEEN
PEERLESS SYSTEMS CORP.
AND
ADOBE SYSTEMS INCORPORATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
RECITALS 1
1. DEFINITIONS 1
1.1 Adobe-Designed Hardware 1
1.2 Adobe OEM License Agreement 1
1.3 Adobe Screening Test Suite 1
1.4 Adobe Software 1
1.5 Adobe Support Information 1
1.6 Adobe Trademarks 2
1.7 Confidentiality Agreement 2
1.8 Development Site 2
1.9 Documentation 2
1.10 Documentation Addendum 2
1.11 End User 2
1.12 First Commercial Shipment 2
1.13 Font Programs 2
1.14 Licensed System 2
1.15 OEM Customer 3
1.16 OEM Customer Hardware Product 3
1.17 Other Adobe Software 3
1.18 Peerless Development Agreement 3
1.19 Peerless Modifications 3
1.20 PPD File 3
1.21 Reference Port 3
1.22 Revised Adobe Software 4
1.23 Typeface 4
1.24 Update 4
2. LICENSE GRANTS 4
2.1 License to Use Reference Port Support Source and
Adobe Support Information 4
2.2 Limitations on License to Peerless 4
2.3 No Other Rights 5
2.4 License Grant to Adobe to Use Peerless Support
Modifications and PPD Files 5
2.5 Similar Products 5
3. DEVELOPMENT, DELIVERY. AND TESTING 5
3.1 Adobe Deliverables and Reference Systems 5
3.2 Peerless Development 6
3.3 Adobe Training 6
3.4 Peerless Deliverables 6
3.5 Technical Coordinators 7
3.6 Testing 7
4. PROPRIETARY RIGHTS; CONFIDENTIALITY 7
4.1 Ownership 7
4.2 Confidentiality; Security 7
4.3 Peerless Confidential Information 7
5. LICENSE TO USE TRADEMARKS 7
6. PAYMENTS 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
6.1 Source License Fees 7
6.2 Royalty Payments 8
6.3 Reference Port Update Fees 8
6.4 Per Copy License Fees for Use of Third Party Software 8
6.5 Taxes 8
7. PERFORMANCE WARRANTY 8
7.1 Reference Port Warranties 8
7.2 Update Warranties 9
7.3 Other Adobe Software Warranties 9
7.4 Limitations on Warranties 9
7.5 Peerless Warranty 9
8. PROPRIETARY RIGHTS INDEMNITY 10
8.1 By Adobe 10
8.2 By Peerless 10
9. TERM AND CANCELLATION 10
9.1 Term 10
9.2 Cancellation by Adobe for Cause 10
9.3 Cancellation by Peerless for Cause 11
9.4 Bankruptcy 11
9.5 Obligations on Cancellation, Termination, or Expiration 11
10. LIMITATION OF LIABILITY 11
10.1 Adobe 11
10.2 Peerless 11
11. GENERAL 12
11.1 Governing Law 12
11.2 Attorneys' Fees 12
11.3 Forum 12
11.4 Notices 12
11.5 Injunctive Relief 12
11.6 No Agency 12
11.7 Force Majeure 12
11.8 Waiver 13
11.9 Severability 13
11.10 Headings 13
11.11 No Patent License 13
11.12 Assignment 13
11.13 Export 13
11.14 Full Power 13
11.15 Confidential Agreement 14
11.16 Counterparts 14
11.17 Entire Agreement 14
</TABLE>
<PAGE>
EXHIBITS
--------
<TABLE>
<CAPTION>
Description Exhibit Paragraph References
- ----------- ------- ------------------------------
<S> <C> <C>
Description of Adobe Software A 1.4, 1.4.1, 1.9
Adobe Trademarks B 1.6
Confidentiality Agreements C 1.7, Exhibit K, Exhibit L
Development Site D 1.8, Exhibit L
Restricted OEM Customers E 1.15.1, 22.5
Training and Support F 1.24, 3.2, 3.3, 6.3, 7.1, 7.2,
7.3, 7.5
Sample Format for Reference Port Appendix G 3.1.1
Test Procedures H 3.4.1, 3.4.2, 3.4.3, 3.6,
Exhibit F, Exhibit K
Adobe Deliverables I 3.1.1, 6.4
Minimum Terms of Peerless Development J 3.2
Agreement
Secure Procedures for Handling Adobe K 4.2, Exhibit L
Confidential Information
Additional Secure Procedures for Handling L 4.2, Exhibit K
Adobe Restricted Information
Royalty Payments M 6.2, Exhibit E
Additional Provisions Regarding Use of N 5
Trademarks
</TABLE>
<PAGE>
THIRD PARTY DEVELOPMENT AND
LICENSE AGREEMENT
THIS AGREEMENT is between ADOBE SYSTEMS INCORPORATED, a California
corporation having its principal place of business at 1585 Charleston Road, PO
Box 7900, Mountain View, California 94039-7900 ("Adobe"), and PEERLESS SYSTEMS
CORP., a California corporation having its principal place of business at 2629
Manhattan Beach Blvd., Redondo Beach, California 90278 ("Peerless"). This
Agreement is effective as of September 18, 1992 (the "Effective Date").
RECITALS:
A. Adobe owns certain computer programs which are useful in controlling raster
devices including, but not limited to, CRT displays, dot-matrix printers, and
laser printers, known collectively as the PostScript software.
B. Peerless provides printing and imaging technologies and products that enhance
the development, output and performance of printer products. Peerless currently
licenses the Peerless Page Imaging Operating System, a platform upon which
Peerless provides industry-standard language (including the PostScript language)
and networking product.
C. Adobe and Peerless desire that Peerless provide certain porting and support
services to Adobe's OEM Customers and that Adobe license portions of the
PostScript software (in source code form as defined below) to Peerless so that
Peerless may provide such porting and support services.
AGREEMENT:
1. DEFINITIONS. Capitalized terms shall have the meaning set forth below.
-----------
1.1 "Adobe-Designed Hardware" means the specific device including, but not
-------------------------
limited to, a controller, which executes or operates with the Revised Object, if
such device is based on a design which Adobe provides to an OEM Customer
pursuant to a Licensed System appendix.
1.2 "Adobe OEM License Agreement" means an agreement pursuant to which
-----------------------------
Adobe licenses to an OEM Customer the right to use and distribute the object
code version of the PostScript software.
1.3 "Adobe Screening Test Suite" means the test programs, procedures and
----------------------------
accompanying documentation developed by Adobe, and subject to change by Adobe in
its sole discretion, to be used by Peerless to test implementations of Licensed
Systems and Revised Object for conformity to the Documentation.
1.4 "Adobe Software" means (a) the unmodified computer programs, both in
----------------
source and object code form, and compilations thereof, as described in item (1)
of Exhibit A (Description of
---------
<PAGE>
Adobe Software) provided by Adobe to Peerless and (b) any changes to the Adobe
Software which Adobe may supply to Peerless.
1.4.1 "Adobe Source" means the source code of the Adobe Software and
------------
any corresponding source documentation described in item (2) of Exhibit A
---------
(Description of Adobe Software).
1.4.2 "Adobe Object" means all of the object code of the
------------
Adobe Software.
1.5 "Adobe Support Information" means any (a) Adobe Software, Font
---------------------------
Programs, design packages for Adobe-Designed Hardware. Documentation, Adobe
Screening Test Suite and other documentation and computer recorded data related
to any of the above, and (b) Other Adobe Software, which Adobe may supply to
Peerless; provided, that the Adobe Support Information shall not include any
Peerless Modifications made pursuant to the licenses granted herein.
1.6 "Adobe Trademarks" means (a) the trademarks, stylistic marks and
------------------
distinctive logotypes set forth in Exhibit B (Adobe Trademarks) and (b) other
---------
marks and logotypes as Adobe may from time to time designate during the course
of this Agreement.
1.7 "Confidentiality Agreement" means individually and collectively the
---------------------------
agreements in writing. substantially in the form attached as Exhibit C-1
-----------
(Employee Nondisclosure Agreement), Exhibit C-2 (Contractor Agreement) and
-----------
Exhibit C-3 (Notice Regarding Confidentiality).
- -----------
1.8 "Development Site" means a site specified in Exhibit D (Development
------------------ ---------
Site) at which Peerless may use the Adobe Support Information and Adobe
Software.
1.9 "Documentation" means the documentation described in item (3) of
-------------
Exhibit A (Description of Adobe Software).
- ------- -
1.10 "Documentation Addendum" means a supplement to the Documentation for
------------------------
each Licensed System to be written by Peerless from the republisher information
provided by Adobe, with technical content approved by Adobe, that describes the
features specific to a Licensed System and the means of accessing those features
via the Postscript language.
1.11 "End User" means a third party using a Licensed System for its
----------
ordinary and customary business or personal purposes, but not for redistribution
or resale.
1.12 "First Commercial Shipment" as to each Licensed System appendix means
---------------------------
(a) an OEM Customer's first internal use of a Licensed System described in a
Licensed System appendix other than for development or testing, or (b) shipment
of such Licensed System to a third party, whichever occurs first.
1.13 "Font Programs" means the digitally encoded, machine readable outline
---------------
programs and screen fonts, if any, for the Typefaces identified as Initial
Installation Font Programs, Additional Font Programs (if any) and Other Font
Programs (if any) encoded in a special format. "Font Programs" does not include
any font programs which Adobe is not entitled to license to Adobe's OEM
Customers.
<PAGE>
1.13.1 "Initial Installation Font Programs" means the Font
----------------------------------
Programs for Typefaces specified as Initial Installation Font Programs in a
Reference Port appendix or Licensed System appendix, and bundled as a part of a
Licensed System.
1.13.2 "Additional Font Programs" means the Font Programs
------------------------
for any Typefaces specified as Additional Font Programs in a Reference Port
appendix or Licensed System appendix, and bundled as a part of a Licensed
System.
1.13.3 "Other Font Programs" means the Font Programs (which
-------------------
may include, but are not limited to, Font Programs for Japanese Typefaces) for
Roman or non-Roman Typefaces which are specified in a Reference Port appendix or
Licensed System appendix, and bundled as a part of a Licensed System, or other
Font Program that Adobe may make available from time to time.
1.14 "Licensed System" means the collective term for a final product
------------------
composed of Revised Object, Other Adobe Software (if any), Adobe-Designed
Hardware (if any), the OEM Customer Hardware Product(s) and any Font Programs
bundled as a single commercial product and described in a Licensed System
appendix.
1.14.1 "Licensed System appendix" means any Licensed System
-------------------------
appendix to an Adobe OEM License Agreement.
1.15 "OEM Customer" means a party to whom Adobe has licensed the right to
--------------
use and distribute the object code version of the Postscript software in
accordance with the terms and conditions of an Adobe OEM License Agreement.
1.15.1 "Restricted OEM Customer" means an OEM Customer listed on
Exhibit E (Restricted OEM Customers). Adobe may in its sole discretion, add,
- ---------
delete or otherwise change this list upon thirty (30) days prior written notice
to Peerless, provided that (i) Adobe may not add the name of a company that
Peerless "introduces" (as defined below) to Adobe prior to the execution of an
Adobe OEM License Agreement between Adobe and such company and (ii) the
designation of an OEM Customer as "Restricted" after the date of this Agreement
shall only apply to Licensed Systems of such OEM Customer developed after the
date of the addition of such OEM Customer to the list. For purposes of this
Paragraph 1.15.1, the term, "introduces," means to refer in writing
- ----------------
individuals authorized to negotiate an Adobe OEM License Agreement.
1.16 "OEM Customer Hardware Product" means a device consisting of a marking
-------------------------------
engine or other output device and OEM Customer-supplied controller or Postscript
language interpretation device (if any) manufactured by or for OEM Customer and
distributed by OEM Customer, which executes or operates with the Revised Object
and which is described in a particular Licensed System appendix.
1.17 "Other Adobe Software" means (a) the software both in source and/or
----------------------
object code form, and associated documentation, identified in a Reference Port
appendix, other than the Adobe Software, which Adobe provides to Peerless for
use only in conjunction with the Adobe Software as part of a Licensed System,
and (b) any changes to the Other Adobe Software which may be supplied by Adobe
to Peerless.
<PAGE>
1.18 "Peerless Development Agreement" means a Development Agreement entered
--------------------------------
into between Peerless and an OEM Customer regarding the development of Revised
Object by Peerless for the benefit of the OEM Customer.
1.19 "Peerless Modifications" means all modifications or additions made by
------------------------
Peerless to the Adobe Source in creating Revised Adobe Software pursuant to this
Agreement.
1.20 "PPD File" means a human readable, machine parseable, Postscript
----------
printer description file containing device-specific information as to how to
invoke the features of a particular Licensed System, as described in the
Postscript Printer Description File Specification (which specification is
available from Adobe and subject to change by Adobe, in its sole discretion,
from time to time).
1.21 "Reference Port" means a release of the Adobe Software, consisting of
----------------
source code and object code modules as defined in a Reference Port appendix.
ported to a controller platform and printer engine specified by Adobe, from
which Peerless develops Revised Object. A "Reference Port" refers to the
Reference Port Support Source and the object code version thereof, the
Unmodified Core and any Update to a Reference Port described in Exhibit F
---------
(Training and Support), which is provided to Peerless pursuant to this
Agreement.
1.21.1 "Reference Port Support Source" means those portions
-----------------------------
of the source code version of the Reference Port, supplied to Peerless on
agreed-upon media, as more specifically described in a Reference Port appendix
with the character "S" designating Adobe Source or some other form of
designation, which may be modified to adapt the Reference Port for use as part
of Licensed Systems.
1.21.2 "Unmodified Core" means those portions of the
---------------
Reference Port, as more specifically described in a Reference Port appendix with
the character "C" designating Unmodified Core or some other form of designation,
supplied to Peerless on agreed-upon media in binary object or linkable object
code form only, as determined by Adobe.
1.21.3 "Reference Port appendix" means any Reference Port
-----------------------
appendix added to this Agreement in a form similar to Exhibit G (Sample Format
---------
for Reference Port Appendix) hereto, pursuant to which Peerless is permitted to
use Reference Port Support Source to create Revised Object for use with a
Licensed System described in a Licensed System appendix.
1.21.4 "Reference System" means a compiled Reference Port,
------------------
together with the controller and printer engine that the Reference Port
supports, which is Identified in a Reference Port appendix.
1.22 "Revised Adobe Software" means collectively, the Revised Support
------------------------
Software and Unmodified Core which is intended to be implemented for use as part
of a Licensed System. All versions of the Revised Adobe Software shall be deemed
to be derivative works based upon the Adobe Software and shall be subject to all
provisions of this Agreement applicable to the Adobe Software.
1.22.1 "Revised Support Software" means the versions of any
------- ------- --------
portions of Reference Port Support Source that are modified, adapted or
translated by Peerless. "Revised Support Source" means the human readable source
code version of the Revised Support
<PAGE>
Software. "Revised Support Object" means the machine readable object code
version of the Revised Support Software.
1.22.2 "Revised Object" means the machine readable object
------- ------
code version of the Revised Adobe Software.
1.23 "Typeface" means a human readable set of character stylings, including
----------
letters of the alphabet, upper and/or lower case, the numerals 0-9 and
additional special characters and punctuation marks as may be offered by Adobe
in conjunction with such letters and numerals of one typeface design and
identified in a Reference Port appendix or Licensed System appendix. Each weight
or version of a single typeface design (such as Roman or Italic or in an
expanded or condensed form) marketed by Adobe as a separate typeface will be
considered a separate Typeface.
1.24 "Update" means update versions of a Reference Port, in source code
--------
form for Reference Port Support Source and in object code for Unmodified Core,
which include all changes, alterations, corrections and enhancements to such
Reference Port which Adobe makes generally available to Adobe Source licensees
receiving Adobe Support (as defined in Exhibit F (Training and Support)) for
---------
that particular Reference Port.
2. LICENSE GRANTS.
--------------
2.1 License to Use Reference Port Support Source and Adobe Support
--------------------------------------------------------------
Information. Subject to Peerless' compliance with the terms of this Agreement,
- ------------
Adobe hereby grants to Peerless a non-exclusive, non-transferable license to use
each version of the Reference Port Support Source and Adobe Support Information
solely at the Development Site for the sole purpose of designing, developing,
adapting, testing and maintaining Revised Support Software which is (a)
implemented as part of present or future Licensed Systems set forth in Licensed
System appendices and (b) is in conformance with the specifications set forth in
the Documentation.
2.2 Limitations on License to Peerless.
-----------------------------------
2.2.1 No Right to Sublicense. Peerless shall have no right
----------------------
to sublicense any rights under this Agreement to a third party, including any
rights to use Adobe Source. In addition, Peerless shall have no right to grant a
license to use or to grant any distribution rights to Revised Adobe Software or
Revised Object.
2.2.2 Changes to the Adobe Software. (a) In view of the
-----------------------------
desire of Peerless and Adobe to establish and maintain an industry standard
PostScript interpreter, Peerless shall not make, without the express written
permission of Adobe, any changes or add-ons to, enhancements in, or deletions
from, the Adobe Software (including Reference Port Support Source), if such
changes or enhancements would in any way (i) change the PostScript language
imaging model, syntax" semantics, or functionality of the Postscript language,
or (ii) change or disable use of Adobe's Type 1 font rendering code. Peerless
agrees not to distribute to third parties any version of the Revised Object
containing any symbol table information with respect to external variables or
procedure entry points.
2.2.3 Peerless Modifications. Peerless shall own the
----------------------
copyrights and patents in all of the Peerless Modifications, provided that any
Revised Object containing Peerless
<PAGE>
Modifications shall be subject to the terms and conditions of this Agreement.
Peerless grants to Adobe a license to authorize its OEM Customers to use and
distribute Peerless Modifications embodied in Revised Object.
2.2.4 No Other Font Rendering Code. Peerless agrees that
-----------------------------
the PostScript component of the Revised Object will contain font rendering
rasterizers that only Adobe may provide, and at a minimum the Revised Object
will contain the Initial Installation Font Programs, as specified in a Licensed
System appendix.
2.2.5 Marketing Coordination. In the event Peerless intends
----------------------
to engage in business discussions with a Restricted OEM Customer with respect to
Adobe Postscript software products, Peerless will advise Adobe that it plans to
engage in such discussions, and Peerless and Adobe will work together to
coordinate their sales efforts to such OEM Customer including joint sales calls.
2.3 No Other Rights. Peerless specifically acknowledges that, other than as
----------------
expressly set forth in Paragraph 2.1 (License to Use Reference Port Support
Source and Adobe Support Information) above, no rights to the Reference Port
Support Source versions are granted to it. Peerless agrees that It will not
attempt to reverse engineer the Font Programs or any portions of the Unmodified
Core or any portion of the Adobe Support Information provided to Peerless solely
in object code form during the term of this Agreement or thereafter.
2.4 License Grant to Adobe to Use Peerless Support Modifications and PPD
--------------------------------------------------------------------
Files.
------
2.4.1 License to Revised Support Source. Peerless shall
---------------------------------
make best efforts to provide to Adobe those portions of the Revised Support
Source which have been modified by Peerless to correct errors found in the
Reference Port Support Source supplied to Peerless by Adobe hereunder. Peerless
may, in its sole discretion, provide to Adobe any other Revised Support Source.
If, at any time, Peerless provides a Documentation Addendum, Revised Support
Source or any Peerless-revised source code derived from access to Adobe Support
Information to Adobe, except as provided in Paragraph 4.3 ("Peerless
-------------
Confidential Information"), Peerless shall be deemed to have granted to Adobe a
perpetual, worldwide, royalty-free, fully paid-up license to use, modify,
reproduce and distribute such Documentation Addendum, source code, and any
object code versions thereof, and the right to sublicense all such licensed
rights through multiple tiers of distribution.
2.4.2 PPD File License. Peerless hereby grants to Adobe a
----------------
perpetual, worldwide, royalty-free, fully paid-up license to use, modify,
reproduce and distribute any PPD Files and updates thereto which Peerless
creates, and the right to sublicense all such licensed rights through multiple
tiers of distribution.
2.5 Similar Products. Peerless acknowledges that Adobe develops and
----------------
acquires software related to the Postscript language; that existing or planned
software independently developed or acquired by Adobe may contain ideas and
concepts similar or identical to those in the Peerless Modifications; and that,
over time, Adobe's employees may gain certain familiarity with the general
concepts and ideas in the Peerless Modifications. Therefore, Peerless agrees
that except for restrictions imposed on Adobe in Paragraph 4.3 ("Peerless
-------------
Confidential Information") below for Peerless confidential information accepted
by Adobe, Adobe shall not be precluded from developing or acquiring software or
other products containing such ideas and concepts for any purpose, without
obligation to Peerless. Notwithstanding the foregoing,
<PAGE>
Adobe shall not have the right to decompile, disassemble, or reverse engineer
the Peerless Modifications.
3. DEVELOPMENT, DELIVERY, AND TESTING.
-----------------------------------
3.1 Adobe Deliverables and Reference Systems.
-----------------------------------------
3.1.1 Adobe Deliverables. Upon execution of this Agreement
------------------
and upon a mutually agreeable schedule, Adobe will provide Peerless with the
Adobe Deliverables set forth in Exhibit I (Adobe Deliverables). Upon agreement
---------
of both parties, and as described in Reference Port appendices to be added to
this Agreement in a form similar to Exhibit G (Sample Format for Reference Port
---------
Appendix), Adobe will supply Peerless with additional deliveries of Reference
Port(s) and accompanying Adobe Deliverables.
3.1.2 Reference System(s). Each Reference Port delivered to
-------------------
Peerless hereunder, when compiled, will execute only as part of the appropriate
Reference System, as identified in the applicable Reference Port appendix. Adobe
will supply the Reference Port and accompanying Adobe Deliverables. Peerless
will also use the Reference System to validate the functionality of the Licensed
System under development by Peerless by comparing the operation of the Licensed
System with that of the Reference System.
3.2 Peerless Development. It is intended that Peerless and an OEM Customer
---------------------
will enter into a Peerless Development Agreement providing the terms and
conditions of the development by Peerless of Revised Object for the benefit of
the OEM Customer and shall contain the minimum terms set forth in Exhibit J
---------
(Minimum Terms of Peerless Development Agreement). Adobe shall prepare the
relevant Licensed System appendix with information and advice from Peerless and
OEM Customer. In accordance with the peerless Development Agreement, Peerless
shall then be responsible for modifying the Reference Port Support Source to
create the Revised Support Source, to the extent permitted by Paragraph 2.1
-------------
("License To Use Reference Port Support Source and Adobe Support Information")
above; compiling and linking the foregoing to produce the Revised Object fully
adapted to Licensed Systems, suitable for distribution to End Users and adhering
to Adobe's standards for quality and functionality; and promptly merging with
the Revised Support Source any Updates which it receives as a result of its
decision to purchase support services as described in Exhibit F (Training and
---------
Support). Peerless may elect not to merge any such Update into the Revised
Support Source for a Licensed System that is undergoing development at the time
of delivery of such Update, provided Adobe is consulted and consents to the
decision to continue the development effort without including the Update. Adobe
hereby consents to the delivery by Peerless of interim versions of the Revised
Object and the Golden Master copy of the Revised Object to the OEM Customer in
accordance with the Licensed System appendix. Adobe shall have no responsibility
in connection with any such modifications, including the development and
bundling of the PPD Files with each Licensed System, except as expressly
provided in a Reference Port appendix.
3.3 Adobe Training. Adobe agrees to provide the training and technical
--------------
assistance described in Exhibit F (Training and Support) or in any Reference
---------
Port appendix.
3.4 Peerless Deliverables.
---------------------
<PAGE>
3.4.1 Revised Adobe Software. Peerless will promptly
----------------------
provide Adobe with two (2) copies of the machine readable version of the Revised
Object and any updated versions thereof in a timely manner as the updated
versions become available, and at Peerless' sole option, with two (2) copies of
the Revised Support Source (collectively, the "Peerless Deliverables") for
evaluation and testing in accordance with Exhibit H (Test Procedures).
---------
3.4.2 Loaned Equipment. Peerless shall loan Adobe all
----------------
necessary equipment as specified in the applicable Licensed System appendix in
order to permit Adobe to conduct adequate and thorough testing of such Peerless
Deliverables in accordance with Exhibit H (Test Procedures).
---------
3.4.3 PPD File. Peerless shall also create and deliver
--------
to Adobe two (2) master copies of the PPD File for each Licensed System at the
time Peerless provides the Revised Object to Adobe for testing pursuant to
Exhibit H (Test Procedures) and any updated version thereof in a timely manner
- ---------
following the availability of any updated version.
3.4.4 Documentation Addendum. Peerless will provide
----------------------
Adobe with a draft version of a Documentation Addendum for each Licensed System
and any updated versions in a timely manner following the availability of any
updated version. The contents of the Documentation Addendum and any updated
versions shall be reviewed and approved by Adobe for compliance with Adobe's
PostScript language standards before the Documentation Addendum is distributed
with a Licensed System. Peerless shall provide to OEM Customers a master copy of
the corresponding Documentation Addendum.
3.5 Technical Coordinators. Peerless and Adobe agree to designate a
-----------------------
technically qualified person (each, a Technical Coordinator) for each Reference
Port in each Reference Port appendix to serve as the primary contact for
information requests by the other party who, when so requested by the other
party hereto, shall use his or her best efforts to respond promptly after
receipt of such request.
3.6 Testing. Prior to the anticipated First Commercial Shipment of Revised
-------
Object by an OEM Customer, testing will be conducted in accordance with Exhibit
-------
H (Test Procedures). Upon successful completion of acceptance testing pursuant
- -
to Exhibit H Test Procedures), an OEM Customer shall have the right to
---------
distribute the Revised Object in accordance with the terms of the Adobe OEM
License Agreement.
4. PROPRIETARY RIGHTS; CONFIDENTIALITY.
-----------------------------------
4.1 Ownership. Adobe and its suppliers are the sole and exclusive owners of
----------
all rights, title and interest, including all trademarks, copyrights, patents,
trade names, trade secrets and other intellectual property rights to the Adobe
Support Information. Except for the rights expressly enumerated herein, Peerless
is not granted any rights to patents, copyrights, trade secrets, trade names,
trademarks (whether or not registered), or any other rights, franchises or
licenses with respect to the Adobe Support Information.
4.2 Confidentiality; Security. Peerless agrees to protect the Adobe Support
-------------------------
Information in accordance with Exhibit K (Secure Procedures for Handling Adobe
---------
Support Information) and Exhibit L (Additional Secure Procedures for Handling
---------
Adobe Restricted Information).
<PAGE>
4.3 Peerless Confidential Information. For the purpose of obtaining
---------------------------------
consulting or technical assistance from Adobe during the course of development
of a Licensed System, Peerless may desire to provide to Adobe, without granting
the license to Adobe described in Paragraph 2.4.1 ("License to Revised Support
---------------
Source") above, portions of source code that Peerless reasonably believes
contains Peerless confidential information and does not constitute revisions of
source code provided by Adobe to Peerless ("Peerless Independent Materials").
Adobe shall receive such Peerless Independent Materials (i) without receiving
the license described above as to the Peerless Independent Materials and (ii)
under confidentiality restrictions as long as Peerless notifies Adobe in writing
in advance of such planned delivery to Adobe, and Adobe Director of Adobe's
Systems Products Division Engineering grants approval of Adobe's receipt of such
information in writing and, in accordance with procedures specified by Adobe,
executes Peerless's materials release form, acknowledging receipt of the such
source code. Peerless must describe the content and purpose of such Peerless
Independent Materials in advance to Adobe. Adobe reserves the right to refuse
such delivery of such Peerless Independent Materials to prevent contamination of
Adobe employees.
5. LICENSE TO USE TRADEMARKS. Peerless shall prominently incorporate the Adobe
Trademarks and Adobe's PostScript logo in the form set forth in Adobe's then
current trademark manual in product literature, advertising and other marketing
materials used by Peerless in connection with this Agreement. The grant of a
license to Peerless to use Adobe Trademarks shall comply with all of the
conditions as described in Exhibit N (Additional Provisions Regarding Use of
---------
Trademarks). Peerless is not granted a license to use the Adobe Trademarks in
association with any Clone Product, as defined in Exhibit K (Secure Procedures
---------
for Handling Adobe Support Information).
6. PAYMENTS.
--------
6.1 Source License Fees. Peerless shall pay Adobe a source license tee of
-------------------
[*] for the initial delivery of a Reference Port and accompanying Adobe
Deliverables. Peerless shall pay a source license fee of [*] for each additional
Reference Port and accompanying Adobe Deliverables specified in a Reference Port
appendix attached hereto. Peerless shall pay the initial and additional source
license fees as follows: (a) [*] .
6.2 Royalty Payments. Adobe shall pay Peerless the royalties set forth in
----------------
Exhibit M (Royalty Payments) in connection with the distribution by an OEM
- ---------
Customer of Revised Object pursuant to an Adobe OEM License Agreement.
6.3 Reference Port Update Fees. The "Annual Fee" for support services as
---------------------------
described in Exhibit F (Training and Support) for the initial year shall be [*]
---------
per Reference Port or such other amount as specified in an applicable Reference
Port appendix and shall be payable within thirty (30) days of the Effective Date
of this Agreement or the Reference Port appendix, as applicable. The "Annual
Fee" for subsequent years during the term hereof shall be Adobe's then current
annual lee per Reference Port and shall be payable within thirty (30) days after
the anniversary date of this Agreement or the applicable Reference Port
appendix.
6.4 Per Copy License Fees for Use of Third Party Software. Peerless shall
------------------------------------------------------
Pay fees for use of any Third Party Software designated in Exhibit I (Adobe
---------
Deliverables) or in a Reference Port appendix ("Third Party Software") in
accordance with this Paragraph and any special terms set forth in such Reference
Port appendix. Peerless will not be required to pay Adobe an additional per copy
source license fee for the right to use the [*] provided that (i) the number of
[* Confidential Treatment Requested]
<PAGE>
users at a single Development Site concurrently accessing the [*] on one or more
CPU's shall not exceed [*] in number, (ii) use of the [*] is limited to one
Development Site, (iii) Peerless monitors the maximum number of copies of the
[*] being used concurrently on multiple CPU's at a single Development Site and
reports that number to Adobe upon request, and (iv) Peerless maintains
appropriate records to permit Adobe to verily the accuracy of the number of
multiple copies in concurrent use reported to Adobe by Peerless as required
under subitem (iii) above. For purposes of this Paragraph, the term "CPU" shall
mean a stand alone central processing unit or a protected cluster of computing
devices coupled together in a server environment with the [*] located only on
the server and with download capability to workstations, terminals or other such
computing devices on the system. In the event that Peerless' use of the Third
Party Software exceeds the limitation on the number of royalty-free copies as
specified above in this Paragraph or in a Reference Port appendix, Peerless
shall report such usage to Adobe hereunder and Peerless shall pay Adobe a source
license fee equal to the actual amount of the license fees payable by Adobe to
[*] in source code form (or to such other third party supplier of software
identified in a Reference Port appendix) directly resulting from Peerless' use
of the Third Party Software.
6.5 Taxes. In addition to any other payments due under this Agreement,
------
Peerless agrees to pay, and to indemnify and hold Adobe harmless from, any
sales, use, excise, import or export, value added or similar tax or duty not
based on Adobe's net income, including any penalties and interest, as well as
any costs associated with the collection or withholding thereof, and all
governmental permit fees, license fees and customs and similar fees levied upon
the delivery by Adobe of the Adobe Deliverables to Peerless hereunder, which
Adobe may incur in respect of this Agreement. If a resale certificate or other
certificate or document of exemption is required in order to exempt all or any
of the Adobe Software or other deliverables from any such tax liability,
Peerless will promptly furnish it to Adobe.
7. PERFORMANCE WARRANTY.
--------------------
7.1 Reference Port Warranties. Adobe warrants that for a period of ninety
--------------------------
(90) days from the date of delivery of a Reference Port to Peerless (hereinafter
the "Warranty Period"), the Reference Port Support Source and Unmodified Core
contained in a Reference Port will compile, assemble, and link in the
development environment (as specified from time to time by Adobe) to yield the
corresponding object code version of the Reference Port. Additionally, subject
to any exceptions specified by Adobe at the time of delivery, the object code
version of the Reference Port will execute substantially in accordance with the
Documentation (excluding any portions of the Documentation not applicable to the
specified Reference System) when used as part of the Reference System specified
in the Reference Port appendix. If Peerless reports to Adobe a failure of such
Reference Port to conform to the foregoing warranties during the applicable
Warranty Period, and provides such detail as Adobe may require to permit Adobe
to reproduce such failure, Adobe, at its expense, shall use reasonable
commercial efforts to modify or replace the Reference Port to correct such
failure within the time parameters specified in Paragraph 2(f) of Exhibit F
---------
(Training and Support).
7.2 Update Warranties. Adobe warrants that, for a period of ninety (90)
-----------------
days from the date of delivery of an Update to Peerless hereunder, subject to
Peerless' purchase of support services as described in Exhibit F (Training and
---------
Support) (the "Warranty Period"), the Reference Port Support Source and
Unmodified Core contained in an Update to a Reference Port will compile,
assemble, and link in the development environment (as specified from time to
time by Adobe) to yield the corresponding object code version of the Update.
Additionally,
[* Confidential Treatment Requested]
<PAGE>
subject to any exceptions specified by Adobe at the time of delivery, the object
code version of the Update will execute substantially in accordance with the
Documentation (excluding any portions of the Documentation not applicable to the
specified Reference System) as part of the applicable Reference System specified
in the Reference Port appendix. If Peerless reports to Adobe a failure of such
Update to conform to the foregoing warranties during the applicable Warranty
Period, and provides such detail as Adobe may require to permit Adobe to
reproduce such failure, Adobe, at its expense, shall use reasonable commercial
efforts to modify or replace the Update to correct such failure within the time
parameters specified in Paragraph 2(f) of Exhibit F (Training and Support).
---------
7.3 Other Adobe Software Warranties. Adobe warrants that if Other Adobe
-------------------------------
Software is provided to Peerless in source code form, for a period of ninety
(90) days from the date of delivery of the Other Adobe Software to Peerless
(hereinafter the /"/Warranty Period"), the source code version of the Other
Adobe Software will compile, assemble, and link in the development environment
(as specified from time to time by Adobe) to yield the corresponding object code
version of the Other Adobe Software. Additionally, subject to any exceptions
specified by Adobe at the time of delivery, the object code version of the Other
Adobe Software will execute substantially in accordance with the specifications
set forth in documentation identified in a Reference Port appendix when used in
conjunction with the applicable Reference Port as part of the applicable
Reference System. If Peerless reports to Adobe a failure of such Other Adobe
Software to conform to the foregoing warranties during the applicable Warranty
Period, and provides such detail as Adobe may require to permit Adobe to
reproduce such failure, Adobe, at its expense, shall use reasonable commercial
efforts to modify or replace the Other Adobe Software to correct such failure
within the time parameters specified in Paragraph 2(f) of Exhibit F (Training
---------
and Support). This warranty shall not apply to the Other Adobe Software if it
has been modified by Peerless or any third party.
7.4 Limitations on Warranties. Peerless acknowledges that the Adobe
--------------------------
Software and the Other Adobe Software delivered by Adobe to Peerless hereunder
will require adaptation by Peerless for compatibility with Peerless platforms
and configurations, which platforms and configurations will generally be
different from the development environment and Reference System specified by
Adobe. Peerless acknowledges that the Adobe Software and the Other Adobe
Software is of such complexity that it may have inherent defects, and agrees
that Adobe makes no other warranty, either express or implied, as to any matter
whatsoever. THE FOREGOING STATES ADOBE'S SOLE AND EXCLUSIVE WARRANTY TO PEERLESS
CONCERNING THE ADOBE SOFTWARE AND OTHER ADOBE SOFTWARE AND ADOBE'S SOLE AND
EXCLUSIVE OBLIGATION TO PEERLESS FOR BREACH OF WARRANTY. EXCEPT AS EXPRESSLY SET
FORTH ABOVE, THE ADOBE SUPPORT INFORMATION IS PROVIDED STRICTLY "AS IS." EXCEPT
FOR THE EXPRESS WARRANTIES STATED IN THIS AGREEMENT, ADOBE MAKES NO ADDITIONAL
WARRANTIES, EXPRESS, IMPLIED, ARISING FROM COURSE OF DEALING OR USAGE OF TRADE,
OR STATUTORY, AS TO THE ADOBE SOFTWARE, THE OTHER ADOBE SOFTWARE OR ANY OTHER
ADOBE SUPPORT INFORMATION, OR ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT ARE EXPRESSLY EXCLUDED. THIS IS A LIMITED WARRANTY AND IS THE
ONLY WARRANTY MADE BY ADOBE. PEERLESS SHALL NOT HAVE THE RIGHT TO MAKE OR PASS
ON, AND SHALL TAKE ALL MEASURES NECESSARY TO ENSURE THAT NEITHER IT NOR ANY OF
ITS AGENTS OR EMPLOYEES SHALL MAKE OR PASS, ON ANY EXPRESS OR IMPLIED WARRANTY
OR REPRESENTATION ON BEHALF OF ADOBE TO ANY OEM CUSTOMER, END USER, OR THIRD
PARTY.
<PAGE>
7.5 Peerless Warranty. During the period of ninety (90) days (the "Peerless
-----------------
Warranty Period") from the date of the acceptance of Revised Object by Adobe
pursuant to Exhibit H (Test Procedures), Peerless warrants that such Revised
---------
Object will perform substantially in accordance with the Documentation and any
of the specifications provided by Peerless to Adobe when used in conjunction
with the applicable Licensed System. Peerless shall, at Peerless' expense, use
reasonable commercial efforts to modify or replace the Revised Object to correct
such failure within the time parameters specified in Paragraph 2(f) of Exhibit F
---------
(Training and Support). All expenses associated with the return to Peerless of
such Revised Object and the delivery to Adobe of a repaired or replacement
implementation of the Revised Object shall be borne by Peerless. This warranty
shall not apply to Revised Object if it has been modified by Adobe or any third
party. THE FOREGOING WARRANTY STATES PEERLESS' SOLE AND EXCLUSIVE WARRANTY TO
ADOBE CONCERNING THE REVISED OBJECT AND PEERLESS' SOLE AND EXCLUSIVE OBLIGATION
TO ADOBE FOR BREACH OF WARRANTY. EXCEPT AS EXPRESSLY SET ABOVE, THE REVISED
OBJECT IS PROVIDED STRICTLY "AS IS". THE FOREGOING WARRANTY IS IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO ANY MATTER WHATSOEVER
AND, IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
8. PROPRIETARY RIGHTS INDEMNITY.
----------------------------
8.1 By Adobe. Adobe agrees to defend and otherwise hold Peerless harmless
---------
from any costs, damages, and reasonable attorneys' fees resulting from any
claims by third parties that the uses permitted hereunder of the Adobe Software
and the Adobe Trademarks infringe any U.S. patents, U.S. copyrights or
trademarks in U.S., Japan, Benelux, The Federal Republic of Germany, France,
Italy, the United Kingdom, Denmark, Ireland, Greece, Spain, Portugal, Sweden,
Norway, Finland, Switzerland, Australia, Austria, Belgium, Canada, Israel, the
Netherlands and New Zealand, provided that Peerless gives Adobe prompt written
notice of any such claim, tenders to Adobe the defense or settlement of such a
claim at Adobe's expense, and cooperates with Adobe, at Adobe's expense, in
defending or settling such claim. In no event shall Adobe's liability under this
Paragraph 8.1 with respect to trademark infringement in the enumerated countries
- -------------
(other than the U.S.) exceed [*]. If Adobe receives notice of an alleged
infringement or if Peerless' use of the Adobe Software shall be prevented by
permanent injunction, Adobe may, at its sole option and expense, procure for
Peerless the right to continued use of the Adobe Software or the Adobe
Trademarks as provided hereunder, modify the Adobe Software so that it is no
longer infringing and is substantially equivalent to the Adobe Software, replace
the Adobe Software with computer software of equal or superior functional
capability, or, in the case of trademark infringement, instruct Peerless to use
an alternative trademark proprietary to Adobe. THE RIGHTS GRANTED TO PEERLESS
UNDER THIS PARAGRAPH SHALL BE PEERLESS' SOLE AND EXCLUSIVE REMEDY AND ADOBE'S
SOLE OBLIGATION FOR ANY ALLEGED INFRINGEMENT OF ANY PATENT, COPYRIGHT,
TRADEMARK, OR OTHER PROPRIETARY RIGHT. ADOBE WILL HAVE NO LIABILITY TO PEERLESS
IF ANY ALLEGED INFRINGEMENT OR CLAIM OF INFRINGEMENT IS BASED UPON THE
MODIFICATION OF THE ADOBE SOFTWARE BY PEERLESS OR ANY THIRD PARTY OR USE OF THE
ADOBE SOFTWARE IN CONNECTION OR IN COMBINATION WITH EQUIPMENT, DEVICES, OR
SOFTWARE NOT DELIVERED BY ADOBE (IF SUCH INFRINGEMENT OR CLAIM COULD HAVE BEEN
AVOIDED BY THE USE OF THE UNMODIFIED ADOBE SOFTWARE WITH OTHER EQUIPMENT,
DEVICES OR SOFTWARE), OR THE USE OF ANY ADOBE SOFTWARE OTHER THAN AS PERMITTED
UNDER THIS
[* Confidential Treatment Requested]
<PAGE>
AGREEMENT OR IN A MANNER FOR WHICH IT WAS NOT INTENDED OR USE OF OTHER THAN THE
MOST CURRENT RELEASE OF THE ADOBE SOFTWARE (IF SUCH CLAIM WOULD HAVE BEEN
PREVENTED BY THE USE OF SUCH RELEASE).
8.2 By Peerless. Peerless agrees to defend and otherwise hold Adobe, its
------------
OEM Customers and their customers harmless from any costs, damages, and
reasonable attorneys' fees resulting from all claims by third parties arising
from the development of the Revised Object by Peerless, including, without
limitation, that the Revised Object infringes any U.S. patents or U.S.
copyrights; provided that Adobe gives Peerless prompt written notice of any such
claim, tenders to Peerless the defense or settlement of any such claim at
Peerless' expense, and cooperates with Peerless, at Peerless' expense, in
defending or settling such claim. PEERLESS WILL HAVE NO LIABILITY TO ADOBE WITH
RESPECT TO ANY CLAIM AS TO WHICH ADOBE IS LIABLE TO PEERLESS PURSUANT TO
PARAGRAPH 8.1 ("BY ADOBE") ABOVE.
9. TERM AND CANCELLATION.
---------------------
9.1 Term. The initial term of this Agreement is for five (5) years from the
-----
Effective Date, unless this Agreement is terminated for cause. This Agreement
may be renewed biannually on its anniversary date at the option of either party
(subject to the written consent of the other party), provided that (a) each
party has made all the payments required by this Agreement, and (b) there has
been no uncured breach of this Agreement.
9.2 Cancellation by Adobe for Cause. This Agreement shall terminate in the
-------------------------------
event of any material breach by Peerless which continues after thirty (30) days'
written notice of said breach (which notice shall, in reasonable detail, specify
the nature of the breach) by Adobe to Peerless.
9.3 Cancellation by Peerless for Cause. If any material breach under this
-----------------------------------
Agreement by Adobe continues after thirty (30) days' written notice of said
breach (which notice shall, in reasonable detail, specify the nature of the
breach) by Peerless to Adobe, Peerless may seek any damages arising under this
Agreement, and (a) continue this Agreement in full force and effect, or (b)
terminate this Agreement on written notice to Adobe.
9.4 Bankruptcy. In addition to any material breach of this Agreement, the
----------
application for, or adjudication in, bankruptcy by Peerless, the insolvency of
Peerless, or the dissolution of Peerless, shall terminate this Agreement.
9.5 Obligations on Cancellation, Termination, or Expiration. Upon
--------------------------------------------------------
cancellation, termination, or expiration of this Agreement:
9.5.1 Licenses Terminated. Subject to Paragraph 9.5.5 ("Continuing
------------------- ---------------
Support") below, the licenses granted pursuant to Paragraph 2.1 ("License to Use
-------------
Reference Port Support Source and Adobe Support Information") shall terminate
immediately.
9.5.2 Safeguarding of Proprietary Rights. Peerless shall continue to
----------------------------------
be responsible for safeguarding the proprietary rights of Adobe and Adobe's
suppliers in accordance with the terms of this Agreement after such
cancellation, termination, or expiration.
<PAGE>
9.5.3 Return or Destruction of Adobe Information. Subject to Paragraph
------------------------------------------- ---------
9.5.5 ("Continuing Support") below, Peerless will immediately discontinue use
- -----
of, and return or destroy all copies of, Adobe Support Information and other
Adobe proprietary information in its possession (including copies placed in any
storage device under Peerless' control). Upon Adobe's request, Peerless shall
warrant in writing to Adobe its return or destruction of all of Adobe's
proprietary information within thirty (30) days of cancellation, termination or
expiration.
9.5.4 Payment. The payment date of all moneys due to either party
--------
shall automatically be accelerated so that they shall become due and payable on
the effective date of termination, even if longer terms had been provided
previously. Further, Adobe's obligations to pay royalties to Peerless as set
forth herein shall survive any termination of this Agreement.
9.5.5 Continuing Support. Peerless shall have the right to retain two
------------------
(2) copies of the Revised Adobe Software and use such Revised Adobe Software to
the extent required for support and maintenance purposes only.
10. LIMITATION OF LIABILITY.
-----------------------
10.1 Adobe. NEITHER ADOBE NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES,
------
AFFILIATES, OR AGENTS SHALL BE LIABLE TO PEERLESS OR TO ANY THIRD PARTY FOR ANY
LOSS OF USE, LOSS OF GOODWILL, INTERRUPTION OF BUSINESS, OR FOR INDIRECT,
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST REVENUES OR
PROFITS) OR SIMILAR DAMAGES, WHETHER BASED ON TORT (INCLUDING WITHOUT
LIMITATION, NEGLIGENCE OR STRICT LIABILITY), CONTRACT, OR OTHER LEGAL OR
EQUITABLE GROUNDS, EVEN IF ADOBE HAS BEEN ADVISED OR HAD REASON TO KNOW OF THE
POSSIBILITY OF SUCH DAMAGES AND EVEN IN THE EVENT OF FAILURE OF EXCLUSIVE
REMEDIES WITH THE EXCEPTION THAT THE LIMITATION OF LIABILITY SET FORTH IN THIS
SECTION 10.1 SHALL NOT APPLY TO ANY BREACH BY ADOBE OF PARAGRAPH 2.5 ("SIMILAR
-------------
PRODUCTS") AND PARAGRAPH 4.3 ("PEERLESS CONFIDENTIAL INFORMATION"). THE
-------------
FOREGOING LIMITATION OF LIABILITY IS INDEPENDENT OF ANY EXCLUSIVE REMEDIES FOR
BREACH OF WARRANTIES SET FORTH IN THIS AGREEMENT.
10.2 Peerless. NEITHER PEERLESS NOR ANY OF ITS OFFICERS, DIRECTORS,
---------
EMPLOYEES, AFFILIATES, OR AGENTS SHALL BE LIABLE TO ADOBE OR TO ANY THIRD PARTY
FOR ANY LOSS OF USE, LOSS OF GOODWILL, INTERRUPTION OF BUSINESS, OR FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS
OR REVENUES) OR SIMILAR DAMAGES, WHETHER BASED ON TORT (INCLUDING WITHOUT
LIMITATION, NEGLIGENCE OR STRICT LIABILITY), CONTRACT, OR OTHER LEGAL OR
EQUITABLE GROUNDS, EVEN IF PEERLESS HAS BEEN ADVISED OR HAD REASON TO KNOW OF
THE POSSIBILITY OF SUCH DAMAGES AND EVEN IN THE EVENT OF FAILURE OF EXCLUSIVE
REMEDIES, WITH THE EXCEPTION THAT THE LIMITATION OF LIABILITY SET FORTH IN THIS
SECTION 10.2 SHALL NOT APPLY TO ANY BREACH BY PEERLESS OF THE TERMS OF
PARAGRAPHS 2.1 THROUGH 2.5 ("LICENSE GRANTS"), 4.1 ("OWNERSHIP"), 4.2
- -------------- --- --- ---
("CONFIDENTIALITY; SECURITY"), 5 ("LICENSE TO USE TRADEMARKS"), OR EXHIBITS J
- -
(MINIMUM TERMS OF PEERLESS DEVELOPMENT AGREEMENT), K (SECURE PROCEDURES FOR
-
HANDLING ADOBE SUPPORT INFORMATION), L (ADDITIONAL SECURE PROCEDURES FOR
-
HANDLING ADOBE RESTRICTED INFORMATION) AND N (ADDITIONAL PROVISIONS REGARDING
-
USE OF TRADEMARKS) TO PROTECT ADOBE'S PROPRIETARY RIGHTS IN
<PAGE>
THE POSTSCRIPT SOFTWARE, IN WHICH CASE, SUCH LIMITATION OF LIABILITY SHALL NOT
APPLY.
11. GENERAL
-------
11.1 Governing Law. This Agreement shall be governed in all respects by the
--------------
laws of the United States of America and the State of California as such laws
are applied to agreements entered into and to be performed entirely within
California between California residents. The parties agree that the United
Nations Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
11.2 Attorneys' Fees. In the event any proceeding or lawsuit is brought by
----------------
Adobe, its suppliers or Peerless in connection with this Agreement, the
prevailing party in such proceeding shall be entitled to receive its costs,
expert witness fees and reasonable attorneys' fees, including costs and fees on
appeal, as determined by the Court.
11.3 Forum. All disputes arising under this Agreement may be brought to the
------
Superior Court of the State of California in Santa Clara County or the Federal
District Court sitting in San Jose, California, as permitted by law. The
Superior Court of Santa Clara County and the Federal District Court silting in
San Jose, California shall each have nonexclusive jurisdiction over disputes
under this Agreement. Peerless consents to the personal jurisdiction of the
above courts.
11.4 Notices. All notices or reports permitted or required under this
-------
Agreement shall be in writing and shall be delivered by personal delivery,
telegram, telecopier, facsimile transmission, or registered mail, return receipt
requested, and shall be deemed given upon personal delivery, five (5) days after
deposit in the mail, or upon acknowledgment of receipt of electronic
transmission. Notices shall be sent to: (i) the contract representative
designated in the specific Reference Port appendix if the notice or report
relates to one or more specific Reference Ports, (ii) the signatory of this
Agreement at the address set forth at the end of this Agreement or such other
address as either party may specify in writing, and (iii) the party's General
Counsel at the address set forth at the end of this Agreement or such other
address as either party may specify in writing. Notices shall be effective upon
receipt unless otherwise specified in such notice or in this Agreement.
11.5 Injunctive Relief. Notwithstanding any other provisions of this
------------------
Agreement, breach of the proprietary rights provisions of this Agreement by
either party will cause the other party irreparable damage for which recovery of
money damages would be inadequate, and the owner of such proprietary rights
shall be entitled to obtain timely injunctive relief to protect the owner's
rights under this Agreement in addition to any and all remedies available at
law.
11.6 No Agency. Nothing contained herein shall be construed as creating any
----------
agency, partnership, or other form of joint enterprise between the parties.
11.7 Force Majeure. Neither party shall be liable hereunder by reason of
-------------
any failure or delay in the performance of its obligations hereunder (except for
the payment of money) on account of strikes, shortages, riots, insurrection,
fires, flood, storm, explosions, acts of God, war, governmental action, labor
conditions, earthquakes, material shortages, or any other cause which is beyond
the reasonable control of such party.
<PAGE>
11.8 Waiver. The failure of either party to require performance by the
------
other party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
11.9 Severability. In the event that any provision of this Agreement shall
-------------
be unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity shall not render this
Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
11.10 Headings. The paragraph headings appearing in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or extent of such paragraph, or in any way affect this
Agreement.
11.11 No Patent License.
------------------
11.11.1 Adobe Patents. As used herein, "Adobe Patent Right" means any
-------------
right arising under any United States or foreign patent now owned by, or later
issued or assigned to Adobe, applicable to the Adobe Software. Adobe covenants
that, to the extent that Peerless and its OEM Customers exercise the rights
expressly granted to Peerless, or which Peerless is authorized to grant to OEM
Customers herein, Adobe will not (i) assert any Adobe Patent Right against
Peerless, (ii) assert any Adobe Patent Right against OEM Customers of Peerless,
or (iii) require any additional fee or royalty from Peerless or OEM Customers
based upon any Adobe Patent Right. Except to the extent of such covenant not to
assert any Adobe Patent Right, nothing contained herein shall be construed as
conferring, by implication, estoppel, or otherwise, any license or right with
respect to any Adobe Patent Right.
11.11.2 Peerless Patents. As used herein, "Peerless Patent Right"
-------- -------
means any right arising under any United States or foreign patent issued or
assigned to Peerless and having a filing date after the inventor had access to
the Adobe Source in which (i) an inventor is (A) an employee of Peerless who has
had access to the Adobe Source or (B) an independent contractor who has had
access to the Adobe Source and has assigned patent rights in the claimed
invention to Peerless and (ii) the Adobe Source contributed to and is an
essential aspect of the claimed invention. Peerless agrees that it will not (i)
assert any Peerless Patent Right against Adobe, (ii) assert any Peerless Patent
Right against Adobe's sublicensees or customers who have, directly or
indirectly, purchased or licensed PostScript products from Adobe or its
sublicensees (which shall include other PostScript language compatible products
from Adobe such as Adobe Type Manager and Display PostScript products), or (iii)
require any fee or royalty from Adobe or such entities based upon any Peerless
Patent Right.
11.12 Assignment. Neither this Agreement nor any rights or obligations of
----------
Peerless hereunder may be assigned by Peerless in whole or in part without the
prior written approval of Adobe. For the purposes of this Paragraph, a change in
the persons or entities who control fifty percent (50%) or more of the equity
securities or voting interest of Peerless shall be considered an assignment of
Peerless' rights. Adobe's rights and obligations, in whole or in part, under
this Agreement may be assigned by Adobe; provided that Adobe shall remain
secondarily obligated and liable hereunder. Adobe may exercise full transfer and
assignment rights in any manner at
<PAGE>
Adobe's discretion and specifically may sell, pledge or otherwise transfer its
right to receive payments under this Agreement.
11.13 Export. Peerless agrees not to export or re-export any Adobe Support
-------
Information or any immediate product (including processes and services) produced
directly by use of Adobe Support Information without fully complying with all
United States laws and regulations. The provisions of this Paragraph shall
survive notwithstanding any cancellation, termination, or expiration of this
Agreement.
11.14 Full Power. Each party warrants that it has full power to enter into
----------
and perform this Agreement, and the person signing this Agreement on such
party's behalf has been duly authorized and empowered to enter into this
Agreement. Each party further acknowledges that it has read this Agreement,
understands it and agrees to be bound by it.
11.15 Confidential Agreement. Neither party shall make any public
-----------------------
announcement of, or otherwise disclose to a third party, the existence of
matters set forth in this Agreement, except as mutually agreed in writing or as
required by disclosure obligations arising under law.
11.16 Counterparts. This Agreement may be executed simultaneously in two or
-------------
more counterparts, each of which will be considered an original, but all of
which together will constitute one and the same instrument.
11.17 Entire Agreement. This Agreement, the Exhibits hereto, and any
-----------------
executed Reference Port appendices constitute the entire agreement between the
parties with respect to the subject matter hereof. This Agreement supersedes,
and the terms of this Agreement govern, any prior or collateral agreements
between the parties with respect to the subject matter hereof, any
communications, discussions, whether written or oral, including the Adobe OEM
License Agreement and any Licensed System appendices, which in all other
respects shall remain in full force and effect. No terms of any purchase order,
invoice, or similar document will be deemed to amend or supplement this
Agreement, even if it is accepted or signed by the receiving party. This
Agreement may only be changed by mutual agreement of authorized representatives
of all parties in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
Adobe: Peerless:
ADOBE SYSTEMS INCORPORATED PEERLESS SYSTEMS CORP.
By: By:
----------------------------------- ------------------------------------
Print Name: Stephen A. MacDonald Print Name: Thomas D. Blondi
--------------------------- ----------------------------
Title: Senior Vice President Title: VP Sales / Mktg.
-------------------------------- ---------------------------------
Date: September 18, 1992 Date: September 16, 1992
--------------------------------- ----------------------------------
Address: 1585 Charleston Road Address: 2629 Manhattan Beach Blvd.
PO Box 7900 Redondo Beach, CA 90278
Mountain View, CA 94039-7900
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF ADOBE SOFTWARE
(POSTSCRIPT SUPPORT SOURCE)
(1) "Adobe Software" shall include:
See those Items listed in Reference Port Appendix No. 1 dated September 11,1992.
(2) "Adobe Source" shall include the following source code and source
documentation:
See Reference Port Appendix No. 1 dated September 11,1992.
"Adobe Source" shall also include "Example Source", which shall consist of those
portions of the PostScript Software designated in the Reference Port appendices
which are supplied in source code form by Adobe to Peerless for the purpose of
demonstrating an example of software development that implements certain
functions which Peerless may wish to emulate in its own implementation of a
Licensed System. Example Source shall not be included within or as part of the
definition of a Reference Port.
(3) "Documentation" shall mean the PostScript Language Reference Manual, Second
Edition, as printed in English by Addison-Wesley, current as of April 1991
and any Adobe Supplement thereto, but shall not include any PostScript
Language Addendum.
<PAGE>
EXHIBIT B
---------
ADOBE TRADEMARKS
(POSTSCRIPT SUPPORT SOURCE)
Trademark Trademark Attribution
- --------- ---------------------
Adobe(TM) is a trademark of Adobe Systems
Incorporated which may be registered in
certain jurisdictions.
The Adobe Logo is a trademark of Adobe Systems
Incorporated which may be registered
in certain jurisdictions.
PostScript(TM) is a trademark of Adobe Systems
Incorporated which may be registered in
certain jurisdictions.
The PostScript Logo is a trademark of Adobe Systems
Incorporated which may be registered
in certain jurisdictions.
<PAGE>
EXHIBIT B-1
-----------
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee developed
entirely on his or her own time without using the employer's equipment,
supplies, facilities, or trade secret information except for those inventions
that either: (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or (2) Result from any work performed
by the employee for the employer. (b) To the extent a provision in an employment
agreement purports to require an employee to assign an invention otherwise
excluded from being required to be assigned under Subdivision (a), the provision
is against the public policy of this state and is unenforceable."
<PAGE>
EXHIBIT C
---------
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed
to return, any computer programs (including without limitation source and object
code versions) devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Peerless Systems Corporation, its subsidiaries, affiliates,
successors or assigns or any other relevant third party described in Paragraph
1c of the Peerless Systems Corporation Proprietary Information Agreement
(together, the "Company").
I further certify that I have complied with all the terms of Company's
Proprietary Information Agreement signed by me, including the reporting of any
inventions and original works of authorship (as defined therein), conceived or
made by me (solely or jointly with others) covered by that agreement.
I further agree that, in compliance with Company's Proprietary Information
Agreement, I will preserve as confidential all trade secrets, confidential
knowledge, data or other proprietary information relating to products,
processes, know-how, designs, formulas, developmental or experimental work,
computer programs, databases, other original works of authorship, customer
lists, business plans, financial information or other subject matter pertaining
to any business of Company or any of its clients, consultants or licensees.
I acknowledge my duty, pursuant to the Company's Proprietary Information
Agreement, to notify all of my future and prospective employers of the existence
of that Agreement and recognize Company's right to do the same. I further
acknowledge my duty, which shall continue under that Agreement until one (1)
year from today, to advise Company in writing before entering into any competing
or conflicting commercial activity.
Date:
-------------------------
- ------------------------------- -------------------------------------
Employee Signature Type/Print Employee Name
<PAGE>
EXHIBIT C-2
-----------
PEERLESS SYSTEMS CORPORATION
PROPRIETARY INFORMATION AGREEMENT
(Employee/Independent Contractor)
In consideration of my hiring by Peerless Systems Corporation ("Company") and
the compensation now and hereafter paid to me, I agree to the following:
1. Maintaining Confidential Information
----------- ------------------------
a) Company Information. I agree at all times, both during and after
-------------------
the termination of my employment for any reason whatsoever (whether with or
without cause), to hold in strictest confidence, and not to use or to
disclose or make accessible to any person or entity, without the prior
written authorization of an executive officer of Company, any past, present
or future trade secrets, confidential knowledge, data or other proprietary
information relating to products, processes, know-how, designs, formulas,
developmental or experimental work, computer programs, data bases, other
original works of authorship, customer lists, employee information, business
plans, financial information or other subject matter pertaining to any
business of Company or any of its affiliates, clients, consultants,
licensees or licensors (collectively, "Company Information"). I understand
that Company Information shall be solely owned by Company, its successors
and assigns, and that I may use Company Information solely for the benefit
of Company as directed by Company. I agree not to reproduce or remove from
Company's premises any notes, data, reference materials, sketches, drawings,
memoranda, documentation or records. I agree to take whatever steps are
necessary to preserve the confidentiality of any and all Company Information
I have received or do receive by virtue of my employment with Company.
b) Former Employer Information. I agree that I will not, during my
---------------------------
employment with Company, use or disclose any confidential or proprietary
information or trade secrets of my former or concurrent employers or
companies, if any, and that I will not bring onto the premises of Company
any unpublished document or any property belonging to my former or
concurrent employers or companies, if any, unless consented to in writing by
said employers or companies.
c) Third Party Information. I recognize that Company has received and
------------------------
in the future will receive from third parties their confidential or
proprietary information subject to a duty on Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I understand and agree that such information is the sole property
of such third parties and that I owe Company and such third parties, both
during the tern of my employment and thereafter, a duty to hold all such
confidential or proprietary information in the strictest confidence and not
to disclose it to any person or entity ( except as necessary in carrying out
my work for Company consistent with Company's agreement with such third
party) or to use it for the benefit of anyone other than for Company or such
third party (consistent with Company's agreement with such third party)
without the express written authorization of an executive officer of Company
and the governing body of such third party.
d) Exceptions. My obligations under this Section shall not apply
-----------
to information which I can demonstrate by clear and convincing evidence is
or becomes generally known other than through my acts in violation of this
Agreement.
<PAGE>
2. Disclosing and Assigning Inventions and Original Works
-------------------------------------------------------
a) Prior Inventions and Original Works. I have attached hereto, as
-----------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets which were made by me prior to
my employment with Company, which belong to me alone or jointly with others,
which relate to Company's proposed business, products or research and
development, and which are not assigned to Company if "none" is stated on
Exhibit A, I therefore represent that there are no such inventions, works of
authorship, developments, improvements or trade secrets.
b) Inventions and Original Works Assigned to Company. I agree that I
-------------------------------------------------
will promptly make full written disclosure to Company, will hold in trust
for the sole right and benefit of Company, and I hereby assign to Company
all my right, title, and interest in and to any and all inventions (and
patent rights with respect thereto), original works of authorship (including
an copyrights with respect thereto), developments, improvements or trade
secrets which I may solely or jointly conceive or develop or reduce to
practice, or cause to be conceived or developed or reduced to practice,
during the period of time I am in the employ of Company.
c) Exception to Assignments. I understand that the provisions of this
------------------------
Agreement requiring assignment to Company do not apply to any invention made
by an employee or Company which qualifies fully under the provisions of
Section 2870 of the California Labor Code (as set forth in Exhibit B
hereto). I will advise Company promptly in writing of any inventions that I
believe meet the criteria of Section 2870 of the California Labor Code. I
will at that time provide to Company in writing all evidence necessary to
substantiate that belief. I understand that Company will keep in confidence
and will not disclose to third parties without my consent any Confidential
Information disclosed in writing to Company relating to inventions that
qualify fully under the provisions of Section 2870 of the California Labor
Code. I understand that the provisions of Section 2870 of the California
Labor Code may not apply to me if I am an independent contractor and not an
employee of Company.
d) Works for Hire. I acknowledge that all original works of
---------------
authorship which are made by me (solely or jointly with others) within the
scope of my employment and which are protectible by copyright are "works
made for hire," as that term is defined in the United States Copyright Act
(17 USCA, Section 101) and that I am an employee as defined under that Act.
I further agree from time to time to execute written transfers to Company of
ownership of specific original works of authorship (and all copyrights
therein) made by me (solely or jointly with others) which may, despite the
preceding sentence, be deemed by a court of law not to be works made for
hire, and which are being assigned by me to Company pursuant to this
Agreement in such form as is acceptable to Company in its reasonable
discretion.
e) Maintenance of Records. I agree to keep and maintain adequate
----------------------
and current written records of all inventions, original works of authorship,
trade secrets or development developed or made by me (solely or jointly with
others) during the term of my employment with Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by Company. The records will be available to and remain the sole
property of Company at all times.
f) Inventions Assigned to the United States. I agree to assign to the
----------------------------------------
United States government all my right, title, and interest in and to any and
all inventions, original works of authorship, developments, improvements or
trade secrets whenever such full title is required to
<PAGE>
be in the United States by a contract between Company and the United States
or any of its agencies.
g) Obtaining Letters Patent and Copyright Registrations. I agree
-----------------------------------------------------
to assist Company to obtain United States or foreign letters patent and
copyright registrations (and to execute any transfers of ownership of
letters patent as reasonably requested by Company) covering inventions and
original works of authorship assigned hereunder to Company. Such obligation
shall continue beyond the termination of my employment, but Company shall
compensate me at a reasonable rate for time actually spent by me at
Company's request on such assistance after such termination. If Company is
unable for any reason whatsoever, including my mental or physical
incapacity, to secure my signature to apply for or to pursue any application
for any United States or foreign letters patent or copyright registrations
(or on any document transferring ownership thereof) covering inventions or
original works of authorship assigned to Company under this Agreement, I
hereby irrevocably designate and appoint Company and its duly authorized
officers and agents as my agent and attorney in fact, to act for and in my
behalf and stead to execute and file any such applications and documents and
to do all other lawfully permitted acts to further the prosecution and
issuance of letters patent or copyright registrations or transfers thereof
with the same legal force and effect as if executed by me. This appointment
is coupled with an interest in and to the inventions and works of authorship
and shall survive my death or disability. I hereby quit claim to Company any
and all claims of any nature whatsoever which I now or may hereafter have
for infringement of any patents or copyright resulting from or relating to
any such application for letters patent or copyright registrations assigned
hereunder to Company.
3. Conflicting Employment
----------------------
I agree that, during the term of my employment with Company, I will not
engage in any other employment, occupation, consulting or other commercial
activity directly related to the business in which Company is now involved
or becomes involved during the term of my employment, nor will I engage in
any other activities that conflict with my obligations to Company.
I further agree that, during the one (1) year immediately succeeding
the term of my employment with Company, I will promptly advise Company, in
writing, upon entering into any competing or conflicting commercial
activity.
4. Returning Company Documents
---------------------------
I agree that, at the time of leaving the employ of Company (or at any
prior time at the request of Company), I will deliver to Company (and will
not keep in my possession or deliver to anyone else) any and all computer
programs (including without limitation source and object code versions),
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, flow charts, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any
aforementioned items belonging to Company, its successors or assigns. In the
event of the termination of my employment, I agree to sign and deliver the
"Termination Certification" attached hereto is Exhibit C.
5. Customer Lists and Employees
----------------------------
I agree that I shall not for a period of six (6) months immediately
following the termination of my relationship with Company for any reason,
whether with or without cause, either directly or indirectly: (1) call on,
solicit, or take away any of the customers of Company on whom I called
<PAGE>
or with whom I became acquainted during the period of my employment with
Company, either for myself or for any other person or entity, or 2) solicit
or take away, or attempt to solicit or take away any employees of Company,
either for myself or for any other person or entity. I understand and agree
that, to the extent that Company's employee and customer lists and related
information constitute trade secrets, my duties hereunder shall continue for
the six month period described above or for as long as such information
remains a trade secret, whichever period is longer.
6. Representations
---------------
I agree to execute any proper oath or verify any proper document
required to carry out the terms of this Agreement. I represent that my
performance of all the terms of this Agreement and of my employment with
Company will not breach any agreement to keep in confidence proprietary
information acquired by me in confidence or in trust prior to my employment
by Company. I have not entered into, and I agree I will not enter into,
either during or after the termination of my employment with Company, any
oral or written agreement In conflict herewith. I further agree to notify
all of my present, future and prospective employers of the existence of this
Agreement and recognize Company's right to do the same.
7. Injunctive Relief
-----------------
I agree that it would be difficult to measure the damage to Company
from any breach by me of the covenants set forth in paragraphs 1, 2, 3, 4, 5
or 6 herein, that injury to Company from any such breach would be impossible
to calculate, and that money damages would therefore be an inadequate remedy
for any such breach. Accordingly, I agree that if I breach paragraphs 1, 2,
3, 4, 5 and 6 or any of them, Company shall be entitled, in addition to all
other remedies it may have, to immediate injunctions or other appropriate
orders to restrain any such breach and/or to direct me to pay to Company all
gross receipts generated by any such breach without showing or proving any
actual damage to Company.
8. No Effect on Right to Terminate
-------------------------------
I acknowledge that, unless otherwise specified in a writing separate
from this Agreement, my employment or other work relationship with Company
is based on the understanding that Company or I may terminate such
relationship at any time, for any reason, with or without cause. I further
acknowledge that nothing in this Agreement is intended as or constitutes a
limitation on the right of either Company or myself to terminate such
relationship at will.
9. Independent Contractor
----------------------
If I am an independent contractor engaged by Company to perform
services for Company rather than an employee, I agree that the term
"employment" as used herein shall mean and refer to my engagement by Company
to perform services as an independent contractor.
10. General Provisions
------------------
a) Governing Law. This Agreement will be governed by the laws of the
-------------
State of California.
<PAGE>
b) Entire Agreement. This Agreement sets forth the entire agreement and
----------------
understanding between Company and me relating to the subject matter herein
and merges all prior discussions between us. No modification of or amendment
to this Agreement, nor any waiver of any rights under this Agreement, will
be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement. This Agreement is not
intended to limit any rights that Company may have under any other agreement
or at law with respect to inventions, original works of authorship, trade
secrets or other proprietary rights.
c) Enforceability. If any provision of this Agreement shall be
---------------
determined, under applicable law, to be overly broad in duration,
geographical coverage, substantive scope, or otherwise, such provision shall
be deemed narrowed to the broadest term permitted by applicable law and
shall be enforced as so narrowed. If any provision of this Agreement
nevertheless shall be unlawful, void, or unenforceable, it shall be deemed
severable from and shall in no way affect the validity or enforceability of
the remaining provisions of this Covenant.
d) Successors and Assigns. This Agreement will be binding upon my
-----------------------
heirs, executors, administrators and other legal representatives and will be
for the benefit of Company, its successors, and its assigns.
e) Expenses. The prevailing party in any action or proceeding between
---------
myself and Company arising out of or related to this Agreement shall be
entitled to recover from the other party all of its costs and expenses,
including without limitation reasonable attorney's fees, incurred in
connection with such action or any appeal of such action.
Date: Peerless Systems Corp. "Hired Party"
----------------
By: By:
--------------------- --------------------------
<PAGE>
EXHIBIT C-3
-----------
NOTICE REGARDING CONFIDENTIALITY
(POSTSCRIPT SUPPORT SOURCE)
1. Peerless Systems Corp. ("Peerless") is in possession of
certain Adobe Support Information of Adobe Systems Incorporated ("Adobe")
which Peerless has received pursuant to the Third Party Development and
License Agreement between Peerless and Adobe dated_______ 1992 ("License
Agreement").
2. To further the purposes of the License Agreement, and in
consideration of the disclosure to Recipient of proprietary information of
Adobe, including internal source code, interface specifications, and related
source documentation for the PostScript software and related Adobe
information, all of which is of a confidential nature and which contains
valuable trade secrets, know-how, and proprietary information of Adobe (the
"Adobe Support Information"), Recipient agrees to comply with the terms
hereof regarding confidentiality of information.
3. Recipient agrees not to use the Adobe Support Information for
any purpose except for the specific purposes which Peerless or Adobe
authorize in writing. Recipient agrees not to disclose the Adobe Support
Information to any person at any time except to employees of Adobe and to
the Designated Third Parties listed below who have entered into this form of
a Confidentiality Agreement. Recipient agrees to use his or her best efforts
to prevent any unauthorized use or disclosure of the Adobe Support
Information, and to promptly notify Adobe of any such unauthorized use of
which Recipient learns.
4. All materials including, without limitation, programs,
recorded information, documents, drawings, models, apparatus, sketches,
designs, and lists furnished to Recipient by Peerless or Adobe which are
designated in writing to be the property of Adobe will remain the property
of Adobe and will be returned to Adobe promptly at its request, together
with any copies or modifications thereof.
5. Recipient acknowledges that Adobe is a party to this
Agreement, and that unauthorized use or disclosure of the Adobe Support
Information will result in irreparable and continuing damage to Adobe for
which there will be no adequate remedy at law. If Recipient fails to comply
with the terms of this Agreement, Adobe and/or Peerless shall be entitled to
equitable relief to protect its interests, inducing but not limited to
injunctive relief, in addition to any other rights and remedies provided by
law.
6. This Agreement will be governed in all respects by the laws
of the State of California as such laws are applied to agreements entered
into and to be performed entirely within California between California
residents. If any provision of this Agreement is held to be invalid, the
parties agree that such invalidity will not affect the validity of the
remaining portions of this Agreement, and agree to substitute for the
invalid provision a valid provision which most closely approximates the
intent and economic effect of the invalid provision. Recipient will not
assign or transfer any rights or obligations under this Agreement without
the prior written consent of Adobe. This Agreement contains the entire
understanding of the parties regarding the matters set forth herein. This
Agreement may be modified only by a writing signed by all parties. The
<PAGE>
waiver by Adobe of a breach of any provision of this Agreement by Recipient
will not operate or be interpreted as a waiver of any other or subsequent
breach by Recipient.
7. The effective date of this Agreement shall be
-------------------------
RECIPIENT: PEERLESS SYSTEMS CORP.
By: By:
------------------------------- --------------------------------
Print Name: Print Name:
----------------------- -------------------------
Date: Date:
----------------------------- -------------------------------
ADOBE SYSTEMS INCORPORATED: DESIGNATED THIRD PARTIES:
1585 Charleston Road
PO Box 7900 #1
Mountain View, CA 94039-7900 ----------------------------------
Name
By:
---------------------------------- ------------------------------------
(Date Confidentiality Agreement)
Print Name: #2
-------------------------- ----------------------------------
Date: Name
------------------------------- -------------------------------
<PAGE>
EXHIBIT D
---------
DEVELOPMENT SITE
(POSTSCRIPT SUPPORT SOURCE)
Peerless' use and storage of the Adobe Support Information shall be restricted
to the following development site:
Name of Development Site: Address:
------------------------- --------
Peerless Systems Corp. 2629 Manhattan Beach Blvd.
Redondo Beach, California 90278
<PAGE>
EXHIBIT E
---------
RESTRICTED OEM CUSTOMERS
------------------------
[*]
[* Confidential Treatment Requested]
<PAGE>
EXHIBIT F
---------
TRAINING AND SUPPORT
(POSTSCRIPT SUPPORT SOURCE)
1. Training.
--------
a. Adobe agrees to permit up to a combined total of twelve (12) Authorized
Employees and Authorized Contractors of Peerless to attend an Adobe-provided
Adobe Source training class for up to two (2) days during the term of this
Agreement at no additional charge (other than the travel and living expenses
described below).
b. If Peerless and Adobe agree that Adobe should provide any additional
training, technical, or development assistance, Peerless shall pay Adobe, at
Adobe's then current standard hourly rates, for time expended by Adobe personnel
in providing such training, technical, or development assistance. Peerless shall
also bear all reasonable travel and living expenses of Adobe personnel who
provide services or training at an Peerless site outside of the greater San
Francisco Bay Area.
2. Support.
-------
a. Support Services. If Peerless purchases the support services for a particular
----------------
Reference Port and pays the applicable Annual Fee, set forth in Exhibit M
---------
(Royally Payments), Adobe shall provide Peerless with the Adobe Support
(as defined in Paragraph 2(d) (General Description of Adobe Support) below)
commencing upon the date of this Agreement or the applicable Reference Port
appendix. Adobe Support shall include delivery to Peerless of Updates of that
Reference Port.
b. Discontinuance. Adobe Support may, at Adobe's option, be discontinued if
--------------
Peerless fails to pay in a timely manner any Annual Fee referred to in Exhibit M
---------
(Royalty Payments). The foregoing services, if discontinued, may be reinstated
by Peerless, at any time during the term hereof, upon Peerless' payment to Adobe
of an Annual Fee for each intervening year for which such payment was not made.
The same provision for reinstatement shall apply in the event that Peerless
chooses to begin purchasing Adobe Support in the second or any subsequent year
following the year in which Peerless received the initial delivery of that
particular Reference Port from Adobe hereunder.
c. Modifications Resulting from Updates. Any modifications to the Revised Adobe
------------------------------------
Software necessitated by the release of an Update of a Reference Port to
Peerless hereunder shall be the sole responsibility of Peerless, and Adobe shall
have no responsibility to assist Peerless in such effort except to test the
modified Revised Object in accordance with the provisions of Exhibit H (Test
---------
Procedures).
d. General Description of Adobe Support. "Adobe Support" means (i) the delivery
------------------------------------
of Updates of a Reference Port and (ii) the problem resolution services
described below with respect to Problems (as defined below) in the Reference
Port.
e. Description of Problem Resolution Services Provided by Adobe.
------------------------------------------------------------
<PAGE>
(1) Product Problem Reports (PPRs). Peerless shall submit to Adobe, by
------------------------------
electronic mail, facsimile, or personal delivery, Product Problem Reports
("PPR") in the form attached hereto as Attachment 1 (Product Problem Report) to
------------
identify any Problems (as defined in Paragraph 2(e)(2) (Classification of
Problems) below). Adobe may modify the form of PPR from time to time and shall
provide the new form to Peerless.
(2) Classification of Problems. "Problem" means any problem in the Reference
--------------------------
Port which causes the Reference Port (including the Unmodified Core) not to
execute as part of the designated Reference System or otherwise not to operate
substantially in accordance with the Documentation or any other problem that
Peerless discovers in the Reference Port or the Adobe Support Information.
Peerless will use its reasonable business judgment to classify Problems in
accordance with the classifications set forth below in the PPR which Peerless
submits to Adobe.
<PAGE>
ATTACHMENT 1
------------
PRODUCT PROBLEM REPORT
Attached Product Problem Report
<PAGE>
September 10, 1992
========================================================================
PRODUCT PROBLEM REPORT TEMPLATE
========================================================================
Title: OEM internal tracking no. - short one line title of problem
- -----
A single line, short description of the problem. This line may be prefixed by an
OEM's internal problem tracking code for cross reference purposes.
Severity: 4-0
- --------
OEM's proposed severity code. The severity code is based on a general
understanding of the nature and effect of the reported problem. Adobe maintains
the right to alter the severity code submitted by the OEM after consulting with
the OEM. The severity code is based on the following general considerations:
4 - most severe, no work-around, must be fixed
3- fairly severe, difficult to work-around, must be fixed
2- easy work-around, should be fixed in a subsequent release
1- cosmetic or minor problem
0- enhancement or request for design change
Priority: A-C
- --------
OEM's requested priority for resolving the reported problem. This will help
Adobe's Co-development engineering support personnel when prioritizing the OEM's
support needs. The priority code is based on the following general
considerations:
A - move to the top of the priority queue - may result in priority B and C
items being delayed
B - respond to when not working on priority A issues
C - as time permits
Date: date report sent to Adobe
- ----
Name: OEM's project name
- ----
The OEM's project name. This is most applicable if the OEM has multiple ongoing
projects with Adobe.
Version: PostScript/documentation version, date
- -------
The version of PostScript interpreter in question. For documentation, the
document's date should also be included.
Contact: contact at OEM company/e-mail/phone number
- -------
<PAGE>
The primary contact for technical communications at the OEM's site. Include the
person's name and appropriate method of contact
Description: multi-line detailed description of the issue/problem
- -----------
A detailed description of the problem or issue. There is no set limit to the
length of the description which may include small sections of C language code or
PostScript language code. If it becomes necessary to send multiple pages of C or
PostScript language code, these should be transferred electronically by UNIX
UUCP file transfer and referenced in the Files entry below.
To facilitate replication of the reported problem, the following additional
information should also be supplied:
Host computer,
Operating system, application, driver and their respective version numbers,
Exact error message text,
Front panel configuration,
Communications protocol in use (i.e. serial, baud rate, etc.)
Files: list of files that have been UUCP"d to Adobe
- -----
List of files referenced in the above Description of problem section.
========================================================================
<PAGE>
EXHIBIT G
---------
SAMPLE FORMAT FOR REFERENCE PORT APPENDIX
(POSTSCRIPT SUPPORT SOURCE)
I. Description of Reference Port.
II. Description of Reference System.
IlI. Schedule for Delivery of Adobe Deliverables.
IV. Description of Adobe Screening Test Suite.
V. Description of Additional Development Materials.
VI. Description of Other Adobe Software and Related
Documentation.
VII. Training and Technical Support.
VIII. Font Programs.
IX. Technical Coordinators.
<PAGE>
EXHIBIT H
---------
TEST PROCEDURES
(POSTSCRIPT SUPPORT SOURCE)
1. Adobe Screening Test Suite. Adobe shall provide Peerless with a special
--------------------------
version, if any, of the Adobe Screening Test Suite to be utilized by Peerless in
testing each Licensed System in accordance with the milestones set forth in the
applicable Licensed System appendix.
2. Peerless Testing. Prior to submission of each Revised Object to Adobe for
----------------
testing in accordance with the terms hereof, Peerless shall verify that the
Revised Object satisfies all tests in the Adobe Screening Test Suite (or such
subset thereof as is specified in the applicable licensed System appendix). The
First Commercial Shipment of a Licensed System, and any updated version thereof,
shall not be permitted until acceptance by Adobe of the Peerless Deliverables.
To permit testing by Adobe of the final release version of the Revised Object,
Peerless shall, at Adobe's option, in accordance with a mutually agreeable
schedule, provide Adobe with a comprehensive report of the test results of such
Peerless testing which will include all printer output and test results of the
Adobe Screening Test Suite, output samples thereof, and a reproduction release
of the Peerless Deliverables.
3. Adobe Testing.
-------------
(a) Adobe shall be entitled to test the machine readable version of the Revised
Object and, if approved, the Revised Support Source for each Licensed System
prior to First Commercial Shipment and prior to First Commercial Shipment of a
Licensed System containing an engineering change order (ECO) or prior to
effectiveness of a field change order (FCO) affecting such Revised Object for a
Licensed Systems previously approved by Adobe.
(b) Peerless shall notify Adobe at least ninety (90) days in advance of the
estimated date of delivery of the Peerless Deliverables to Adobe for testing.
Subsequently, Peerless shall give Adobe at least thirty (30) days' advance
notice of its anticipated delivery of the Peerless Deliverables for testing, and
provided Peerless meets such timetable, Adobe shall have thirty (30) days, or
such other period as specified in an applicable Licensed System appendix,
following Peerless' delivery of the Peerless Deliverables (and all necessary
Loaned Equipment) to do the following: (i) to test the quality of the Peerless
Deliverables for conformity with the Adobe Screening Test Suite developed by
Adobe and, at Adobe's option, with any other tests and procedures or any updated
or enhanced versions of the Adobe Screening Test Suite, to verify that Peerless
has not modified the Adobe Software beyond the Scope of modifications permitted
by Paragraph 2.1 (License to Use Reference Port Support Source and Adobe Support
Information) of the Agreement, and (ii) to verify that the overall quality of
the Peerless Deliverables complies with the quality level for Adobe products, as
reasonably determined by Adobe from time to time.
(c) Adobe shall conduct the initial testing of the final release version of the
Revised Object free of charge. Adobe shall inform Peerless of the results of
such testing and, if Adobe is unable to accept the Revised Object, the basis for
a finding of nonconformity or failure of the Revised Object to conform to the
criteria specified above. In the event that the Peerless Deliverables do not
conform to the above criteria, Peerless shall use reasonable effort to promptly
correct any
<PAGE>
nonconformity and resubmit the same for retesting by Adobe. This process shall
continue until Adobe accepts the Peerless Deliverables.
(d) Thereafter, if Peerless modifies the Peerless Deliverables, Peerless shall
retest the Peerless Deliverables pursuant to Paragraph 2 (Peerless Testing)
above and resubmit the same as modified to Adobe for testing pursuant to this
Paragraph.
(e) Should the modified Peerless Deliverables not conform to Adobe's acceptance
criteria, as described above, Peerless shall use reasonable effort to promptly
correct any nonconformity and resubmit the same for retesting by Adobe.
(f) Peerless shall, within a commercially reasonable time following Adobe's
acceptance of Peerless Deliverables, update pre-production units shipped for
beta or evaluation purposes prior to First Commercial Shipment.
4. Adobe Retesting Waived. Under certain circumstances such as, for example,
----------------------
when Peerless makes modifications to the Peerless Deliverables to correct a
minor non-conformance or to implement a minor feature enhancement for its
customers, Adobe may request and Peerless shall provide Adobe with the
comprehensive test results from Peerless' testing of the modified Peerless
Deliverables using the Adobe Screening Test Suites. If Adobe determines from its
review of the test results that the modified Peerless Deliverables meet all of
the tests in the Adobe Screening Test Suite and if it is able to verify to its
satisfaction that the overall quality of the modified Peerless Deliverables
complies with Adobe's quality standards, Adobe may, in its sole discretion,
waive the requirement for its retesting of the Peerless Deliverables. If
requested by Adobe, Peerless shall supply Adobe with a declaration signed by an
authorized representative of Peerless attesting to the accuracy of such test
results supplied to Adobe hereunder.
<PAGE>
EXHIBIT I
---------
ADOBE DELIVERABLES
(POSTSCRIPT SUPPORT SOURCE)
The Adobe Deliverables for the initial or any subsequent Reference Port shall
consist of: one (1) master copy of the Reference Port, Documentation, Adobe
Screening Test Suite and the documentation of the Adobe Screening Test Suite, as
described In the Reference Port appendix and one (1) master copy of the
Reference Port in object code form suitable for execution on a Reference System
including the appropriate controller and printer engine required to that the
compiled object code version of the Reference Port executes as part of the
Reference System in accordance with the warranty provisions set forth in
Paragraph 7.1 ("Reference Port Warranties") of the Agreement.
- --------- ---
<PAGE>
EXHIBIT J
---------
MINIMUM TERMS OF
PEERLESS DEVELOPMENT AGREEMENT
Any Peerless Development Agreement shall contain the following provisions:
1. Peerless and the OEM Customer shall acknowledge and agree that Peerless has
no right to grant a license to use of distribution rights to the Revised Object
and that only Adobe has such right.
2. Peerless and the OEM Customer shall acknowledge and agree that Adobe shall
not provide any warranty, proprietary rights indemnification, or support
services to the OEM Customer regarding the Revised Object developed by Peerless
and the Licensed System appendix shall note no such warranty, indemnification or
support services from Adobe.
3. Peerless and the Customer shall acknowledge and agree that prior to any
distribution of the Revised Object by the OEM Customer, Adobe must test and
accept the Revised Object per the terms of the Agreement between Adobe and
Peerless.
<PAGE>
EXHIBIT K
---------
SECURE PROCEDURES FOR HANDLING ADOBE SUPPORT INFORMATION
(POSTSCRIPT SUPPORT SOURCE)
1. Authorized Employees. Peerless agrees that it will not (a) disclose all or
--------------------
any portion of the Adobe Support Information to third parties, with the
exception of authorized employees ("Authorized Employees") and authorized
contractors ("Authorized Contractors") (subject to Peerless' having obtained
authorization for use of such contractors in accordance with Paragraph 7 (Prior
Approval of Contractors) below) (i)who require access thereto for a purpose
authorized by this Agreement and (ii) who have signed the appropriate employee
or contractor agreement substantially in the form attached as Exhibit C-1
-----------
(Employee Nondisclosure Agreement) or Exhibit C-2 (Contractor Agreement), as
-----------
applicable and (iii) who sign a notice of confidentially in the form attached to
Exhibit C-3 (Notice Regarding Confidentiality) prior to the initial access to
- -----------
Adobe Support Information.
2. Adobe Support Information.
-------------------------
a. Peerless shall ensure that all Adobe Support Information received from Adobe,
and copies made thereof, will be properly marked or otherwise appropriately
identified as Adobe Support Information before being made available to
Authorized Employees and Authorized Contractors hereunder.
b. Peerless shall ensure that the same degree of care is used to prevent the
unauthorized use. dissemination. or publication of the Adobe Support Information
as Peerless uses to protect its own confidential information of a like nature,
but in no event shall the safeguards for protecting such Adobe Support
Information be less than a reasonably prudent business would exercise under
similar circumstances. Peerless shall take prompt and appropriate action to
prevent unauthorized use or disclosure of Adobe Support Information by the
Authorized Employees and Authorized Contractors.
c. Authorized Employees and Authorized Contractors shall be instructed not to
copy Adobe Support Information on their own, and not to dispose Adobe Support
Information to anyone not authorized to receive it.
d. Adobe Support Information shall be handled, used, and stored solely at the
Development Site.
3. Trade Secrets. The techniques, algorithms, and processes contained in the
-------------
Adobe Software and Font Programs which have been developed, acquired, or
licensed by Adobe, or any modification or extraction thereof, constitute trade
secrets of Adobe and/or its suppliers, and will be used by Peerless only in
accordance with the terms of this Agreement. Peerless will take all measures
reasonably required to protect the proprietary rights of Adobe and its suppliers
in the Adobe Support Information and will promptly notify Adobe of any lost or
missing items and take all reasonable steps to recover such items.
4. Marketing of Clone Products. If at any time during the term of this
---------------------------
Agreement Peerless chooses to market a product having page description
capabilities that are substantially
<PAGE>
compatible with the PostScript Language ("Clone Product"), it may do so,
provided however, that Adobe may in its sole discretion, and without liability
to Peerless, terminate this Agreement effective sixty (60) days after notice of
termination, except that this right of Adobe to terminate this Agreement shall
not apply to the marketing of any Clone Product which Peerless has entered into
agreement for the development or licensing of prior to the Effective Date. In
the event of such termination, Peerless shall return all copies and portions of
copies of Reference Port Support Source and all other Adobe Support Information
and comply with all of its obligations upon termination of the Agreement as set
forth in Paragraph 9 (Term and Cancellation) of the Agreement.
5. Clone Product Development. The terms of Paragraph 4 (Marketing of Clone
-------------------------
Products) above do not preclude Peerless from developing a Clone Product;
however, if Peerless engages in such Clone Product development during the term
of this Agreement, it shall ensure that there is no sharing of design documents
or schematics supplied by Adobe, the Reference Port Support Source or other
information based upon or derived from the Reference Port Support Source, or
other portions Of Adobe Support Information, or any facilities or personnel with
access to any of the above, with such Clone Product development. Peerless shall
ensure that all Authorized Employees and Authorized Contractors who have had
previous access to Adobe Support Information will be precluded for a period of
twelve (12) months after their latest access to such Adobe Support Information,
including Reference Port Support Source, from being employed in any Clone
Product Development. "Employment in any Clone Product development" shall be
defined as having direct access to, or producing any specifications,
documentation, or source code for, components of a Clone Product. Peerless shall
further ensure that each such employee or contractor shall, concurrent with the
commencement of work on such Clone Product development within Peerless, sign a
written affirmation to Peerless on a form provided by Peerless which states that
each such employee or contractor (a) has neither retained nor had access for a
minimum period of twelve (12) months to any Adobe Support Information, and (b)
will not utilize, or facilitate use of, any Adobe Support Information in such
Clone Product development. This prohibition relating to Clone Product
development shall apply equally to raster-output devices, to display or screen
output devices, or to any other peripheral devices.
6. Obligations Survive Termination. The provisions of Paragraph 5 (Clone Product
-------------------------------
Development) above shall survive the termination, cancellation or expiration of
the Agreement.
7. Prior Approval of Contractors. Notwithstanding the provisions in this Exhibit
-----------------------------
permitting Authorized Contractors to have access to Adobe Support Information,
Peerless may not permit a contractor to come into contact with Adobe Support
Information or engage in the development of Licensed System products hereunder
unless Peerless has first obtained such authorization in writing from Adobe.
Adobe, in its sole discretion, may withhold such approval in the event that a
contractor (or contractor's employer) is engaged in Clone Product development,
either for its own benefit or for the benefit of a third party, or if Adobe
believes that the contractor may be engaged in similar product development, and
Peerless cannot assure Adobe to its satisfaction that contractor, while engaged
in supporting such development activities, will be able to refrain from
commingling or sharing any portion of the Adobe Support Information with any
such Clone Product development.
8. Proprietary Notices. In order to protect Adobe's copyright and other
-------------------
ownership interests, Peerless agrees that as a condition of its rights
hereunder, each copy of the Adobe Support Information, or any portion thereof or
documentation therefor, shall contain a valid copyright
<PAGE>
notice and any other proprietary notices, including the copyright notices of
Adobe's suppliers, which appear on or in the Adobe Support Information and
documentation delivered to Peerless hereunder or as Adobe may require from time
to time. Presence of a copyright notice does not constitute an acknowledgment of
publication.
9. Font Programs. Peerless agrees to hold any unencrypted outline information
-------------
relating to the Font Programs in confidence, disclosing such information only to
Authorized Employees and Authorized Contractors having a need to use such
information as permitted by this Agreement, and to take all reasonable
precautions to prevent disclosure of such information to other parties.
10. Proprietary Rights Audit. During the term of the Agreement and for a period
------------------------
of eighteen (18) months thereafter, Adobe or its authorized representatives
shall have access to such portion of Peerless' records and premises to allow
Adobe to determine whether Peerless is substantially in compliance with this
Exhibit K and Paragraph 4 ("Proprietary Rights; Confidentiality") of the
- --------- -----------
Agreement in no event shall audits be made hereunder more frequently than once a
year. Such access shall be (a) during Peerless' regular business hours, (b)
arranged so that, to the extent possible, Peerless' regular business activities
are minimally disrupted and (c) under the terms of a confidentiality agreement
acceptable to Peerless and executed by the individual(s) conducting such audit.
If such audit reveals that Peerless is not substantially in compliance with its
obligations to protect Adobe's proprietary rights, Peerless shall pay the
reasonable costs of such audit. Otherwise, Adobe shall pay the costs of such
audit. Such payment will not preclude Adobe from exercising any right which It
may have under the Agreement. Peerless shall promptly correct any deficiencies
discovered in the course of the audit.
<PAGE>
EXHIBIT L
---------
ADDITIONAL SECURE PROCEDURES FOR HANDLING
ADOBE RESTRICTED INFORMATION
(POSTSCRIPT SUPPORT SOURCE)
1. Adobe Restricted Information means any portion of Adobe Support Information
----------------------------
that is designated as such in a Reference Port appendix or otherwise in writing
by Adobe. The provisions of this Exhibit L shall apply to such Adobe Restricted
---------
Information in addition to the provisions of Exhibit K (Secure Procedures for
---------
Handling Adobe Support Information).
2. Adobe Restricted Information.
----------------------------
a. Adobe will identify as such all Adobe Restricted Information when supplied to
Peerless either by marking the Adobe Restricted Information that is provided to
Peerless or by designating those portions of the Adobe Support Information which
are Adobe Restricted Information in a Reference Port appendix or in some other
written form. Once identified by Adobe as containing Adobe Restricted
Information, any information based upon or derived from such Restricted
Information, whether in oral or written form, shall be treated by Peerless as
Adobe Restricted Information. Peerless shall ensure that all such Adobe
Restricted Information received from Adobe, and copies made thereof, will be
properly marked or otherwise appropriately identified as Adobe Restricted
Information before being made available to Authorized Employees and Authorized
Contractors hereunder.
b. Peerless agrees that it will not (i) reproduce any portion of any
documentation, source code or hard copy printouts thereof included in Adobe
Restricted Information, in any form or medium. without Adobe's prior written
permission except as necessary for designing, developing, adapting, testing, and
maintaining Revised Support Software and for archival storage: (ii) allow hard
copy printouts of any portion of source code Included in Adobe Restricted
Information to exist except within the secured area as described in Paragraph 5
(Secure Computer System) below; (iii) store or otherwise use source code
included in Adobe Restricted Information except as provided in Paragraph 5
(Secure Computer System) below; (iv) use Adobe Restricted Information for any
purpose not specifically authorized in this Agreement; or (v) handle, use, and
store Adobe Restricted Information except at the Development Site and in
accordance with the security procedures set forth below.
c. Peerless shall establish a set of procedures, as submitted to and approved by
Adobe, or comply with the procedures in Paragraphs 3 (Peerless Log) through 6
(Development Site) of this Exhibit L, which shall govern the handling, use, and
---------
storing of Adobe Restricted Information.
d. All copies of Adobe Restricted Information must be kept in a locked drawer,
cabinet, or room at all times when not in use.
3. Peerless Log. Peerless shall maintain a log listing all Authorized Employees
------------
and Authorized Contractors who have had access to Adobe Restricted Information.
Peerless agrees to comply with Adobe's requests, from time to time, to provide
Adobe with copies of the list and updates thereto and of all such
Confidentiality Agreements entered into by Peerless with its Authorized
<PAGE>
Employees and Authorized Contractors and not previously provided to Adobe.
Peerless guarantees the compliance of all such Authorized Employees and
Authorized Contractors with their obligations under such Notices Regarding
Confidentiality. Peerless agrees not to provide access to Adobe Restricted
Information to any employee or contractor for the purpose of using such Adobe
Restricted Information to develop any product other than Revised Adobe Software.
Peerless shall advise all Authorized Employees and Authorized Contractors of
their responsibilities under their confidentiality agreement, both at the time
such person's access to Adobe Restricted Information commences and at the time
such access ceases.
4. Access to Written Adobe Restricted Information. Access to any written Adobe
----------------------------------------------
Restricted Information shall be controlled through the following procedures:
b. Secure Computer System Security Provisions.
------------------------------------------
(1) Access to Adobe Restricted Source which is installed on the Secure Computer
System will be limited to (a) Peerless' Authorized Employees and Authorized
Contractors. and (b) the SSA for the purposes of system maintenance and backups.
(2) All such individuals included above shall have signed a confidentiality
agreement in the form attached as Exhibit C-3 (Notice Regarding
-----------
Confidentiality).
(3) Access to the Secure Computer System will be controlled by password
identification. Passwords will be issued and controlled by the SSA.
(4) Backups of Adobe Restricted Source will be administered by the SSA and will
be securely archived within the controlled access site containing the Secure
Computer System or at a site approved in writing by Adobe. All backup tapes
containing Adobe Restricted Source shall be labeled "Peerless Confidential" and
shall be subject to Peerless' maximum security measures. Network system
maintenance shall be conducted under the supervision of the SSA by Authorized
Employees and Authorized Contractors.
(5) Adobe Restricted Source which is delivered to Peerless will be transported
to the Peerless SSA by one of the following methods: (a) on magnetic media by a
mutually agreed upon carrier, or (b) transmitted by a phone line to a call-back
modem inked to Peerless' Secure Computer System and located within Peerless'
secured site. Such modem shall normally be disconnected and locked-away with
access controlled by the SSA.
(6) Revised Object from Adobe Restricted Source will be made available for use
at other Development Site(s) located outside of the secured area for the purpose
of linking with other software related to development of a Licensed System.
Transfer of such Revised Object from the secured area will occur through
physical transport on magnetic media and will be managed by the SSA. All
unneeded symbol tables. etc. will be removed from the Revised Object prior to
transfer.
(7) Revised Object may be rendered into EPROMS outside of the Development Site
when necessary and in accordance with the terms of the Adobe OEM License
Agreement.
6. Development Site.
----------------
<PAGE>
If more than one Development Site is listed in Exhibit D (Development Site),
Peerless will maintain a separate Secure Computer System at each such site which
has access to Adobe Restricted Information. Each site will have its own SSA
directly responsible to an officer of Peerless.
7. Competitive Product Development. An employee or contractor who has had access
-------------------------------
to Adobe Restricted Information shall be subject to a twelve (12) month
prohibition against employment in any Competitive Product development measured
from the latest access to Adobe Support Information. A "Competitive Development"
is defined as any product having page description capabilities which are not
substantially compatible with the PostScript language or products having
facilities for rendering outline fonts other than Adobe's Type 1 font
technology. "Employment in any Competitive Product development" is defined as
having direct access, to or producing any specifications, documentation or
source code for, components of a Competitive Product.
<PAGE>
EXHIBIT M
---------
ROYALTY PAYMENTS
(POSTSCRIPT SUPPORT SOURCE)
1. Royalties Payable to Peerless Adobe shall pay to Peerless. royalty equal to
-----------------------------
[*].
2. Terms of Payment of Royalties.
-----------------------------
(a) All royalties due hereunder shall be paid within thirty (30) days after the
date royalties are received from the OEM Customer.
(b) To ensure compliance with the terms of this Agreement. Peerless shall have
the right to have an inspection and audit of all the relevant accounting and
sales books and records of Adobe conducted by an independent certified public
accountant reasonably acceptable to both parties whose fee is paid by Peerless
and shall be conducted during regular business hours and in such a manner as not
to interfere with normal business activities. In no event shall audits be made
hereunder more frequently than once a year. If such inspections should disclose
any under reporting, the delinquent party shall promptly pay the other party
such amount, together with interest thereon at the rate of 1-1/2% per month or
the highest interest rate allowed by law, whichever is lower, from the date on
which such amount became due, and shall pay the reasonable costs of such audit
if the underreporting is greater than five percent (5%).
(c) All payments shall be in United States dollars. Payment to Peerless shall be
made by wire transfer directly to:
Name of Bank: [*]
Address: [*]
Contact:
Account Number: [*]
Routing Number: [*]
[*]
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT N
---------
ADDITIONAL PROVISIONS REGARDING USE OF TRADEMARKS
1. Ownership and Use of Trademarks. Peerless agrees that it will use the
-------------------------------
applicable Adobe Trademarks on all copies, advertisements, brochures, manuals
and other appropriate uses made in the promotion of this Agreement Peerless
acknowledges that Adobe and its suppliers retain exclusive ownership of all
trademark and copyright rights to the Adobe Trademarks, logos, and product
names.
2. Proper Use of Trademarks. When using the Adobe Trademarks, including
------------------------
logotypes, Peerless shall display the appropriate legend, for example: "Adobe
and PostScript are trademarks of Adobe Systems Incorporated." Peerless shall
also display the appropriate symbol(TM) or (C) adjacent to these trademarks. Use
of the Adobe Trademarks will be in accordance with the most current version of
Adobe's Trademark Manual. Peerless agrees not to use any other trademark or
service mark in connection with any of the Adobe Trademarks without Adobe's
prior written approval.
3. Quality Standards. Peerless agrees to maintain quality satisfactory to Adobe
-----------------
in any products or services it supplies in connection with the Adobe Trademarks.
Peerless agrees to cooperate with Adobe in facilitating Adobe's monitoring of
the nature and quality of such products and services, and to supply Adobe with
specimens of use of the Adobe Trademarks upon request.
4. Infringement Proceedings. Peerless agrees to notify Adobe of any unauthorized
------------------------
use of the Adobe Trademarks by others promptly as it comes to Peerless'
attention. Adobe shall have the sole right and discretion to bring infringement
or unfair competition proceedings involving the Adobe Trademarks.
<PAGE>
EXHIBIT 10.8
REFERENCE PORT APPENDIX NO. 2
DATED FEBRUARY 11, 1993
----------------
TO THE
THIRD PARTY DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
PEERLESS SYSTEMS CORP. AND
ADOBE SYSTEMS INCORPORATED
This Reference Port Appendix sets forth additional and different terms and
conditions particular to the Reference Port described below and shall be
incorporated by reference into the Third Party Development and License Agreement
("Agreement") between Peerless Systems Corp. ("OEM") and Adobe Systems
Incorporated ("Adobe") effective as of September 18, 1992. Such different or
additional terms are applicable only to the Reference Port described below and
in no way alter the terms and conditions applicable to other Reference Ports
incorporated into the Agreement by addition of a Reference Port Appendix. All
terms used in this Appendix shall retain the same meaning as defined in the
Agreement and such definitions are incorporated herein by reference.
I. Description of Reference Port
This description of Adobe's Amethyst Am29000 Reference Port release for
PostScript Level 2 version 1.3 (2013) is subject to change as the Adobe
Software evolves. Each Reference Port delivery will include a detailed list
of the modules provided in that delivery.
A. Adobe Software Deliverables - Group 1
1. Adobe Unmodified Core Components (in object form only)
[*]
2. Adobe-Modified JMI C EXECUTIVE Operating System Components (in
object form)
[*]
3. Adobe Reference Port Support Source
[*]
4. Example Source
[*]
5. Utility Programs (Development tools in executable (object) format)
[*]
B. Adobe Software Deliverables - Group 2
[* Confidential Treatment Requested]
<PAGE>
1. Support Source for the Adobe-modified [*]:
[*]
C. Adobe Software Deliverables - Group 3
1. Adobe Reference Port Support Source for the [*]
[*]
II. Description of Reference System
This description of Adobe's Amethyst Am29000 Reference System Release for
PostScript Level 2 version 1.3 (2013) is subject to change as the Adobe Software
evolves. Each Reference System delivery will include a detailed list of the
modules provided in that delivery.
A. Development Environment Information
The currently specified development environment is a Sun SPARCstation2
running SunOS 4.1.1 using the EPI tools. Version numbers of tools and of
SunOS are subject to change as new versions are released. Currently, Adobe
is using the following tool versions:
[*]
B. Hardware Deliverables
The Reference System is composed of a Canon RX 8ppm duplex 2-tray 300 DPI
laser beam engine connected to an Adobe Amethyst controller which uses the
AMD 29000 microprocessor. A set of ROMs containing the compiled Reference
Port will also be provided.
III. Schedule for Delivery of Adobe Deliverables
Description of Deliverable Schedule
(1) Adobe and OEM execute the Agreement. ASAP
(2) OEM pays to Adobe the Source License
Fee and Reference Port Support Fee No later than
(1) + 30 days
(3) Adobe provides to OEM initial
documentation delivery. (1) + 1 week
(4) Adobe provides to OEM initial delivery of
the No earlier than Reference Port and
Reference System. No earlier than
2/15/93
IV. Description of Adobe Screening Test Suite
[* Confidential Treatment Requested]
<PAGE>
The Adobe Screening Test Suite is a series of tests to be used by OEM to
determine whether OEM Licensed Systems conform to Adobe's PostScript
language specifications [*]. The tests include [*]. The current Adobe
Screening Test Suite operates on a [*].
Adobe may customize the test suite for a particular product from a generic
Adobe test suite. The customization process, if any, depends upon the [*].
V. Technical Support
Adobe shall provide forty (40) hours of technical support for this
Reference Port.
VI. Coded Font Programs
A. Roman Coded Font Programs
(1) Roman Initial Installation Coded Font Programs:
Adobe will provide the graphic characters specified in ISO 8859-1:
1987, Latin alphabet No. 1, or symbol characters where appropriate,
for the following Roman Initial Installation Coded Font Programs,
which OEM shall bundle with all Licensed Systems unless otherwise
specified in the applicable Licensed System Appendix:
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
<S> <C> <C>
Courier (Public Domain)
Courier Bold (Public Domain)
Courier Oblique (Public Domain)
Courier Bold Oblique (Public Domain)
Helvetica Linotype-Hell AG and/or its Subsidiaries
Helvetica Bold Linotype-Hell AG and/or its Subsidiaries
Helvetica Oblique Linotype-Hell AG and/or its Subsidiaries
Helvetica Bold Oblique Linotype-Hell AG and/or its Subsidiaries
Helvetica Narrow Linotype-Hell AG and/or its Subsidiaries
Helvetica Narrow Bold Linotype-Hell AG and/or its Subsidiaries
Helvetica Narrow Oblique Linotype-Hell AG and/or its Subsidiaries
Helvetica Narrow Bold
Oblique Linotype-Hell AG and/or its Subsidiaries
Symbol (Public Domain)
Times Roman Linotype-Hell AG and/or its Subsidiaries
Times Bold Linotype-Hell AG and/or its Subsidiaries
Times Italic Linotype-Hell AG and/or its Subsidiaries
Times Bold Italic Linotype-Hell AG and/or its Subsidiaries
</TABLE>
(2) Roman Additional Coded Font Programs:
Adobe will provide the graphic characters specified in ISO 8859-1:
1987, Latin alphabet No. 1, or symbol characters where appropriate,
for the following Roman Additional Coded Font Programs:
[* Confidential Treatment Requested]
<PAGE>
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
<S> <C> <C>
Helvetica Condensed Linotype-Hell AG and/or its Subsidiaries
Helvetica Condensed Bold Linotype-Hell AG and/or its Subsidiaries
Helvetica Condensed Oblique Linotype-Hell AG and/or its Subsidiaries
Helvetica Condensed Bold
Oblique Linotype. Hell AG and/or its Subsidiaries
ITC Avant
Garde Gothic Book International Typeface Corporation
ITC Avant
Garde Gothic Book Oblique International Typeface Corporation
ITC Avant
Garde Gothic Demi International Typeface Corporation
ITC Avant
Garde Gothic Demi Oblique International Typeface Corporation
ITC Bookman Light International Typeface Corporation
ITC Bookman Light Italic International Typeface Corporation
ITC Bookman Demi International Typeface Corporation
ITC Bookman Demi Italic International Typeface Corporation
New Century
Schoolbook Roman Public Domain
New Century
Schoolbook Italic Public Domain
New Century
Schoolbook Bold Public Domain
New Century
Schoolbook Bold Italic Public Domain
Palatino Roman Linotype-Hell AG and/or its Subsidiaries
Palatino Italic Linotype-Hell AG and/or its Subsidiaries
Palatino Bold Linotype-Hell AG and/or its Subsidiaries
Palatino Bold Italic Linotype-Hell AG and/or its Subsidiaries
ITC Zapf Dingbats International Typeface Corporation
ITC Zapf ChanceryMedium
Italic International Typeface Corporation
</TABLE>
Adobe agrees to license to OEM additional Roman Coded Font Programs
and character sets which Adobe makes generally available for license
to Adobe's OEMs on Adobe's then-standard terms and conditions if so
requested by OEM.
<PAGE>
VII. Technical Coordinators.
----------------------
For Adobe: For OEM:
Name: Jennifer McCormack Name: Jeffrey Horowitz
----------------------------- -----------------------------
Title: Project Manager Title: Manager, R&D Projects
---------------------------- ----------------------------
Phone: (415) 962-3877 Phone: (310) 536-0908
---------------------------- ----------------------------
Fax: (415) 961-3769 Fax: (310) 536-0058
----------------------------- ------------------------------
IN WITNESS WHEREOF, OEM and Adobe have caused this Reference Port Appendix
No. 2 to be executed by their duly authorized representatives.
ADOBE PEERLESS
ADOBE SYSTEMS INCORPORATED PEERLESS SYSTEMS CORP.
By: By:
------------------------------------- -------------------------------
Printed Printed
Name: S.A. MacDonald Name:
---------------------------------- -----------------------------
Title: Sr. Vice President Title:
---------------------------------- ----------------------------
Date: April 23, 1993 Date:
---------------------------------- ----------------------------
<PAGE>
EXHIBIT 10.9
AMENDMENT NO. 1
TO
THIRD PARTY DEVELOPMENT AND LICENSE AGREEMENT
AND REFERENCE PORT APPENDIX NO. 2
BETWEEN
PEERLESS SYSTEMS CORPORATION
AND ADOBE SYSTEMS INCORPORATED
Effective Date: November 29, 1993
-----------------
This Amendment No. 1 to the Third Party Development and License Agreement,
effective September 18, 1992 (the "Agreement") and Reference Port Appendix No. 2
("Appendix No. 2") to the Agreement effective February 11, 1993 is by and
between Adobe Systems Incorporated, ("Adobe") and Peerless Systems Corporation,
("OEM").
WHEREAS, Adobe and OEM wish to amend the Agreement to remove all
references to Adobe Restricted Information to further the purposes of the
partnership through increasing their ability to exchange information for product
development;
NOW, THEREFORE, the parties agree to modify and amend the Agreement and
Appendix No. 2 to the Agreement to as follows:
A. Adobe and OEM hereby agree to modify the Agreement as follows:
1. Paragraph 4.2 ("Confidentiality; Security") is hereby deleted
--------- ---
in its entirety and replaced by the following:
"Peerless agrees to protect the Adobe Support Information in
accordance with Exhibit K (Secure Procedures for Handling Adobe
---------
Support Information)."
2. Exhibit L ("Additional Secure Procedures for Handling Adobe
------- -
Restricted Information") is hereby deleted in its entirety. Exhibit L
---------
shall now be considered as intentionally left blank.
3. Adobe represents that it has not delivered any Adobe
Restricted Information to OEM under the Agreement, Reference Port
Appendix No. 1 or Reference Port Appendix No. 2.
B. Adobe and OEM hereby agree to modify Appendix No. 2 to the Agreement as
follows:
1. Section 1(C) ("Adobe Software Deliverable - Group 3"). The
------------
term "Restricted interfaces" is hereby deleted from Paragraph I(C)(1)
-----------------
("Adobe Reference Port Support source for the Marking Component") and
replaced with "System interfaces".
<PAGE>
C. All other terms and conditions of the Agreement and Appendix No. 2 to the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement and Appendix No. 2 to the Agreement to be signed by their duly
authorized representatives.
Adobe: OEM:
ADOBE SYSTEMS INCORPORATED PEERLESS SYSTEMS CORPORATION
By: By:
--------------------------------- --------------------------------
Name: S.A. MacDonald Name: William S. Wood
------------------------------- ------------------------------
Title: Sr. Vice President Title: Vice President
----------------------------- -----------------------------
Date: 11/29/93 Date: 11/10/93
------------------------------- ------------------------------
<PAGE>
EXHIBIT 10.10
PCL DEVELOPMENT AND LICENSE AGREEMENT
This PCL Development and License Agreement ("Agreement") is made by and between
PEERLESS SYSTEMS CORPORATION, a California corporation with its principal place
of business located at 2381 Rosecrans Avenue, El Segundo, California 90245
("Peerless"), and ADOBE SYSTEMS INCORPORATED, a California corporation with its
principal place of business located at 1585 Charleston Road, Mountain View,
California 94039 ("Adobe"). This Agreement is effective as of June 14, 1993 (the
"Effective Date").
RECITALS
A. Peerless is in the business of developing and/or sublicensing proprietary
computer software programs and products.
B. Adobe desires to obtain from Peerless, and Peerless desires to grant
Adobe, a license to distribute and to sublicense certain of Peerless' computer
software programs.
AGREEMENT
1. DEFINITIONS.
-----------
1.1 "Adobe Intermediary" shall mean any third party authorized by Adobe
or any sublicensee hereunder to grant licenses with respect to the Licensed
Object Code or Object Derivative to third parties other than End Users.
1.2 "Adobe Object Licensee" shall mean any third party that acquires
from Adobe or an Adobe Intermediary a license to distribute some or all of the
Licensed Object Code or Object Derivative to End Users.
1.3 "Adobe PCL5E" shall mean the Adobe PostScript Version 2015 based
PCL5E described in Exhibit A (PostScript 2015 Based PCL5E Specifications).
---------
1.4 "Adobe Printer Environment" shall mean (i) a printer operating
environment developed by Adobe that is wed by one or more Page Description
Languages or (ii) a PostScript language interpreter.
1.5 "Adobe Products" shall mean any products, including without
limitation hardware products or software packages, which are (i) marketed under
Adobe's own name and trademarks or (ii) manufactured by or for Adobe.
1.6 "Adobe Source Licensee" shall mean any third party that acquires
from Adobe a sublicense to use some or all of the Licensed Source Materials
pursuant to Section 2.1(iv) hereof.
---------------
<PAGE>
1.7 "Adobe Sub-licensee" shall mean any Adobe Intermediary, Adobe
Object Licensee or Adobe Source Licensee.
1.8 "Acceptance Date" with respect to the Licensed Software shall mean
the earliest to occur of (i) acceptance of the Licensed Software pursuant to the
terms of Section 4 (Acceptance); or (ii) the date Adobe first commercially ships
---------
a revenue bearing release of Licensed Object Code or an Object Derivative, which
has met Adobe's quality assurance testing.
1.9 "Authorized Independent Contractor" shall mean an independent
contractor engaged by Adobe to provide services to Adobe provided such
independent contractor has executed a written agreement in substantially the
form attached hereto as Exhibit B (Independent Contractor Agreement).
---------
1.10 "Development Schedule" shall mean the milestone schedule, attached
to this Agreement as Exhibit C (Development Schedule), for the performance of
---------
the parties' development obligations with respect to the Adobe PCL5E.
1.11 "End User" shall mean a customer who acquires the Licensed Object
Code or Object Derivatives for its ordinary and customary business purposes and
not for further distribution.
1.12 "Enhancements" shall mean any modifications, updates, enhancements
and changes to, and any new versions of, the Hewlett-Packard PCL, other than
Generation Changes or PCL Color Products, that Hewlett-Packard has implemented
in a printer that is commercially available and that are either documented in
generally available Hewlett-Packard documentation or, if undocumented, are
verified by standard industry test suites and are used in one or more
applications that generate data for a commercially available Hewlett-Packard
printer.
1.13 "Generation Changes" shall mean any modifications, updates,
enhancements and changes to, and any new versions of, the Hewlett-Packard PCL,
other than PCL Color Products, that Hewlett-Packard identifies with a new
release or version name, and shall only include such modifications, updates,
enhancements and changes or new versions that Hewlett-Packard has implemented in
a printer that is commercially available and that are either documented in
generally available Hewlett-Packard documentation or, if undocumented, are
verified by standard industry test suites and are used in one or more
applications that generate data for a commercially available Hewlett-Packard
printer. By way of example, PCL5 and PCL5E are each Generation Changes, while
the changes to PCL5 required to operate with the HP Laser Jet IlIP and lIlsi are
Enhancements.
1.14 "Genoa Test Suite(s)" shall mean the software test programs known
as HP LaserJet IV ATS and HP Laser Jet W (PCL5E) CET and ATS, developed and
licensed by Genoa Technology, Inc., that are intended to test software emulators
of the same specification as Adobe PCL5E.
<PAGE>
1.15 "Licensed Software" shall mean (i) Adobe PCL5E, (ii) any PCL
computer programs developed subsequent to the Effective Date by Peerless to
implement Enhancements, Generation Changes or PCL Color Products (all such
versions are hereinafter referred to as "New PCL Products"), and (iii) any
changes, alterations, corrections or enhancements to the Licensed Software
supplied by Peerless to Adobe pursuant to the terms of this Agreement. As used
herein, unless the context otherwise requires, Licensed Software shall include
the source code, object code and related documentation.
1.16 "Licensed Object Code" shall mean machine-readable object code for
the Licensed Software.
1.17 "Licensed Software Derivative" shall mean any derivative work of
the Licensed Software (as defined in the U.S. Copyright Act) and any work that
is based upon, derives from, or incorporates all or any portion of the Licensed
Software, including modified and enhanced versions thereof, whether created by
Peerless, Adobe or any Adobe Source Licensee.
1.18 "Licensed Source Materials" shall mean the source code listing and
all other delivered items embodying the source code (in whole or in part) for
the Licensed Software.
1.19 "New PCL Release" shall mean a release of a New PCL Product which
contains substantial or material Enhancements or that is a Generation Change or
a PCL Color Product.
1.20 "Object Derivative" shall mean machine-readable object code for any
Licensed Software Derivative.
1.21 "PeerlessPage" shall mean the proprietary software operating system
program owned and licensed by Peerless.
1.22 "Peerless Test Suite(s)" shall mean the software test programs
developed by Peerless, if any, that are intended to test Adobe PCL5E.
1.23 "PCL Color Products" shall mean any modifications, updates,
enhancements and changes to, and any new versions of, the Hewlett-Packard PCL
that permit the Hewlett-Packard PCL to operate with color printers, and shall
only include such modifications, updates, enhancements and changes or new
versions that Hewlett-Packard has implemented in a printer that is commercially
available and that are either documented in generally available Hewlett-Packard
documentation or, if undocumented, are verified by standard industry test suites
and are used in one or more applications that generate data for a commercially
available Hewlett-Packard printer
1.24 "Test Suites" shall mean the Genoa Test Suites and the Peerless
Test Suites.
2. Grant of Licenses.
-----------------
<PAGE>
2.1 Peerless hereby grants to Adobe a non-exclusive, world-wide
license:
(i) To reproduce and use for internal development purposes the
Licensed Source Materials (but limited by the access and confidentiality
provisions of Section 7 (Ownership, Title, and Proprietary Rights)).
---------
(ii) To reproduce, use, distribute and sublicense the Licensed
Object Code (other than for use in the Adobe Printer Environment), either
directly or through one or more Adobe Intermediaries, solely to Adobe Object
Licensees and End Users.
(iii) To authorize Adobe Intermediaries to sublicense all of
the rights granted to Adobe in the Licensed Object Code (other than for use in
the Adobe Printer Environment) in accordance with Subsection 2.1 (ii) above.
------------------
(iv) Subject to Section 2.3 and Section 2.4 below, to
----------- -----------
sublicense the Licensed Source Materials solely to Adobe Source Licensees for
use for internal development purposes by such Adobe Source Licensees.
2.2 Peerless hereby grants to Adobe an exclusive, world-wide license:
(i) To reproduce, use, distribute and sublicense the Licensed
Object Code for use in the Adobe Printer Environment, either directly or through
one or more Adobe Intermediaries, solely to Adobe Object Licensees and End
Users.
(ii) To authorize Adobe Intermediaries to sublicense all of the
rights granted to Adobe in the Licensed Object Code for use in the Adobe Printer
Environment in accordance with subsection 2.2(i) above.
----------------
2.3 This license includes the right of Adobe to create Licensed
Software Derivatives and to reproduce, use, distribute and sublicense the
machine-executable form of any such Licensed Software Derivatives and the right
of Adobe to authorize Adobe Source Licensees to create Licensed Software
Derivatives and to reproduce, use, distribute and sublicense the machine-
executable form of the Licensed Software and any such Licensed Software
Derivatives, provided, however, that:
(i) all Licensed Software Derivatives shall be distributed
only in the form of Object Derivatives and only as permitted in Section 2.1 and
-----------
Section 2.2 with respect to the Licensed Object Code; and
- -----------
(ii) all copies of such Object Derivatives shall be subject to
the payment obligations of Section 8 (Payments) hereof .
---------
2.4 Adobe shall have the right to sublicense the Licensed Source
Materials and the source code for any Licensed Software Derivatives to an Adobe
Source Licensee (with no
<PAGE>
further rights granted to such Adobe Source Licensee to sublicense), provided
that such Adobe Source Licensee also has a license to Adobe Printer Environment
source code or support source code, such Adobe Source Licensee agrees to use the
Licensed Source Materials solely to create Object Derivatives for use in the
Adobe Printer Environment, Adobe pays Peerless the fee specified in Section 8
---------
(Payments) and Adobe enters into a license agreement with such Adobe Source
Licensee containing the minimum terms and conditions set forth in Exhibit D
---------
(Minimum Terms of Source Sub-license). Adobe agrees that it will only sublicense
the Licensed Source Materials or the source code for any Licensed Software
Derivatives to (i) entities who distribute page description software bundled
with a printer engine, (ii) licensees of Adobe's Configurable PostScript
Interpreter (CPSI) who ship CPSI with output devices and (iii) other parties if
Adobe has obtained the prior written approval of Peerless to sublicense to such
other parties, which approval will not be unreasonably withheld. Peerless shall
have the right to withhold such approval if the proposed sublicensee is a direct
competitor of Peerless and offers products and services similar to the products
and services of Peerless.
2.5 Adobe shall have the right to sublicense reproduction of the
Licensed Object Code or Object Derivatives to an Adobe Sub-licensee, provided
Adobe enters into a license agreement with such Sub-licensee containing the
minimum terms and conditions set forth in Exhibit E (Minimum Terms of Object
---------
Reproduction Sub-license).
2.6 In the event Adobe or any Adobe Sub-Licensee distributes the
Licensed Object Code or Object Derivative on magnetic or optical media rather
than silicon chip(s) media, Adobe will take reasonable steps to ensure that each
such copy of the Licensed Object or Object Derivatives distributed by Adobe or
any Adobe Sub-Licensee is accompanied by a copy of an End User Agreement
containing the minimum terms and conditions set forth in Exhibit F (Minimum
---------
Terms and Conditions of End-User License) hereto. The End User Agreement may be
a written agreement signed by the customer or a written agreement in the package
containing the Licensed Object or Object Derivatives or the end user
documentation therefor that the customer accepts by opening the package.
2.7 In the event that Adobe corrects Identified Non-Conformities
pursuant to Section 4 (Acceptance), Adobe grants to Peerless a non-exclusive,
---------
perpetual, worldwide license:
(i) To reproduce and use for internal development purposes the
source code for such corrections (provided that Peerless limits access to and
maintains the confidentiality of this source code to the same extent as it does
for its own source code).
(ii) To reproduce, use, distribute and sublicense the object
code for such corrections.
(iii) To authorize third parties to sublicense all of the rights
granted to Peerless in accordance with subsection 2.7 (ii) above.
------------------
(iv) To sublicense the source code for such corrections to
third parties solely for internal development purposes by such third parties,
provided that such third parties have also
<PAGE>
licensed Peerless PCL source code from Peerless or a Peerless authorized
sublicensee and have agreed to limit access to and maintain the confidentiality
of the source code for such corrections to the same extent as for the Peerless
PCL source code.
3. Development.
-----------
3.1 Adobe PCL5E.
-----------
(i) Development Responsibilities. The Development Schedule
----------------------------
sets forth the responsibilities of the parties with respect to the development
of Adobe PCL5E. Development tasks are shown in the column entitled "Task." The
party or parties responsible for a particular task are shown in the same row as
that task under the column entitled "Responsibility." The date upon which a
particular task is to be completed is shown in the same row as that task under
the column entitled "Date." Each party agrees to complete the tasks for which it
is responsible as shown on the Development Schedule and to provide any
deliverables in connection with those tasks on the relevant dates set forth on
the Development Schedule. The parties agree that any delay by a party in
completing a task upon which tasks of the other party are contingent will extend
the completion date for such other tasks on a one-for-one basis for each day of
delay (contingency of tasks is indicated in the Development Schedule by defining
the date upon which the contingent task is to be completed as the completion of
a prior milestone plus some number of days).
(ii) Design Review. Upon delivery by Peerless to Adobe of the
-------------
specifications for Adobe PCL5E under milestone 6 of the Development Schedule,
Peerless and Adobe shall commence a joint design review of such specifications
and shall use their best efforts to reach mutual agreement upon the final form
of such specifications within fifteen (15) days after such delivery. If the
parties are unable to reach mutual agreement within such period, they shall
continue to use best efforts to reach mutual agreement upon the final form of
such specifications until they have reached such mutual agreement and any
completion dates in the Development Schedule contingent on completion of the
design review milestone will be extended on a one-for-one basis for each day of
delay in completion of the design review milestone beyond such fifteen (15) day
period.
(iii) Specification Changes. The final specifications for Adobe
---------------------
PCL5E as determined by the design review process under milestone 6 of the
Development Schedule may not be changed without the prior approval of both
parties, which approval will not be unreasonably withheld.
3.2 Other Licensed Software.
-----------------------
(i) Parallel Implementations. In the event that Peerless
------------------------
undertakes the development of New PCL Products subsequent to the Effective Date,
Peerless will concurrently develop parallel implementations of each such New PCL
Product in the then-current Adobe
<PAGE>
printer operating environment (which currently is Version 2015 and which in the
future will consist of successors to Version 2015) and the PeerlessPage
environment; provided, however, that (x) prior to commencing development of the
Adobe implementation, Peerless shall notify Adobe of its intention to do so and
shall not proceed to develop the Adobe implementation if Peerless is notified by
Adobe within ten (10) business days after Adobe's receipt of such notice that
Adobe waives Peerless' obligation to develop that implementation, and (y) the
obligation under this Section 3.2(i) will terminate if, commencing in the sixth
--------------
(6th) year after the Effective Date, Adobe has paid to Peerless under this
Agreement less than [*] (including royalties, source code access fees, support
fees or any other amounts and without taking into account any recoupment or
offset) during the year ending with the calendar quarter immediately preceding
the calendar quarter in which Peerless commences the development of each New PCL
Product. Peerless will use a hardware/development platform chosen by Adobe for
the Adobe implementation, provided that this platform must be based upon a
microprocessor acceptable to Peerless. Peerless will deliver such implementation
to Adobe as follows:
(a) If the New PCL Product does not require changes
to the then-current Adobe printer operating environment, Peerless will deliver
to Adobe (i) an engineering (alpha) release of the product in the then-current
Adobe printer operating environment within thirty (30) days of the delivery of
the PeerlessPage version to Peerless QA, (ii) a pre-production (beta) release of
the product in the then-current Adobe printer operating environment within
thirty (30) days of Peerless' first pre-production release, and (iii) a final
release of the product in the then-current Adobe printer operating environment
within thirty (30) days of the completion of the final release of the Peerless
product.
(b) If the New PCL Product requires changes to the
then-current Adobe printer operating environment, Peerless will concurrently
determine what changes need to be made to both the then-current Adobe printer
operating environment and the PeerlessPage environment, and will promptly notify
Adobe of the required changes and the PeerlessPage based internal development
schedule. If Adobe delivers to Peerless a functioning then-current Adobe printer
operating environment, modified based upon the changes identified by Peerless,
at or prior to the time that Peerless completes the necessary modifications to
the PeerlessPage environment, Peerless will comply with the delivery schedule
set forth in Section 3.2(i)(a). Delay in Adobe's delivery of the functioning
-----------------
modified environment will extend Peerless' delivery schedule on a one-for-one
basis for each day of delay.
(ii) Withholding Royalty Payments. In the event that Peerless
fails to meet its obligations under Section 3.2(i), Adobe shall be entitled to
--------------
either (a) withhold payment of all royalties due to Peerless under this
Agreement until such time as Peerless makes the agreed upon deliveries, at which
time Adobe will bring Peerless current as to all unpaid royalties, or, (b) after
Adobe has given written notice to Peerless of such failure and Peerless has not
cured such failure within five (5) business days after receipt of such notice,
to treat Peerless' failure as a withdrawal under Section 3.2(iii), to use the
----------------
Licensed Source Materials to undertake development of the Adobe implementation
of the New PCL Product and to pay royalties to Peerless for such implementation
in accordance with Section 8.2(i) (as if such implementation was Adobe Enhanced
-------------
PCL for purposes of Section 8.2).
------------
[*Confidential Treatment Requested]
<PAGE>
(iii) Generation Changes. In the event that Peerless withdraws
------------------
from developing Licensed Software that implements Generation Changes, for any
reason, Adobe shall be entitled to use the Licensed Source Materials to create
software implementing such Generation Changes (the "Adobe Enhanced PCL"). Any
revenue bearing Adobe Enhanced PCL shipped within eighteen (18) months after
Peerless' withdrawal shall bear reduced royalties in accordance with Section 8
---------
(Payments). For purposes of this Agreement Peerless shall be deemed to have
withdrawn from developing Licensed Software implementing Generation Changes if,
within thirty (30) days after Peerless receives the Hewlett-Packard
documentation for such Generation Changes, Peerless does not commit to Adobe
that Peerless will develop Licensed Software that implements those Generation
Changes. If Peerless has committed to Adobe that Peerless will develop Licensed
Software that implements Generation Changes, Peerless will provide Adobe with a
good faith estimate of the schedule for such development within ninety (90) days
after Peerless receives the Hewlett-Packard documentation for such Generation
Changes.
(iv) Enhancements. Adobe shall have the right to request that
------------
Peerless provide it with Licensed Software implementing Enhancements at any time
and from time to time during the term of this Agreement, and Peerless shall have
thirty (30) days to accept or reject such request and to negotiate a mutually
agreeable schedule within which to provide such Enhancements. Should Peerless
indicate to Adobe that Peerless is unwilling or unable to deliver such
Enhancements to Adobe in accordance with a mutually agreeable schedule, then
Adobe shall have the right to use the Licensed Source Materials to create
software implementing such Enhancements itself and to pay to Peerless reduced
royalties in accordance with Section 8 (Payments).
---------
3.3 PCL Color Products. Adobe shall have the right to request that
------------------
Peerless provide it with software implementing PCL Color Products at any time
and from time to time during the term of this Agreement, and Peerless shall have
sixty (60) days to accept or reject such request and to negotiate a mutually
agreeable schedule within which to provide such software. Along with its
request, Adobe shall provide Peerless with a good faith estimate, and the basis
for this estimate, of the number of units of software implementing the
particular PCL Color Product that Adobe believes it will ship during the first
two (2) years such software is available to Adobe. It is Adobe's intent that it
will not make such formal request without having at least one potential or
existing customer who has expressed a verbal intention to develop a PCL Color
Product. If at any time thereafter Adobe does not have at least one (1)
potential or existing customer who has expressed a verbal intention to develop a
PCL Color Product, Adobe agrees to relieve Peerless of its obligation to develop
the PCL Color Product until such time as Adobe provides Peerless with another
formal request pursuant to this section. Should Peerless indicate to Adobe that
Peerless is unwilling or unable to deliver such software to Adobe in accordance
with a mutually agreeable schedule, then Adobe shall have the right to use the
Licensed Source Materials to create software implementing such PCL Color
Products itself (the 'Adobe Enhanced Color PCL") and to pay to Peerless reduced
royalties in accordance with Section 8 (Payments).
---------
4. Acceptance.
----------
<PAGE>
4.1 Upon completion of a final production version of Adobe PCL5E that
operates in accordance with the specifications described in Exhibit A
---------
(PostScript 2015 Based PCL5E Specifications) as determined by all Test Suites,
Peerless shall deliver to Adobe such software and the additional deliverables
described in Exhibit G (Other Deliverables).
---------
4.2 Adobe shall have a period of forty-five (45) days following
delivery of such software or any subsequent New PCL Release provided by Peerless
pursuant to this Agreement (the "Acceptance Test Period") to conduct testing to
verify that such software operates in accordance with the specifications
described in Exhibit A PostScript 2015 Based PCL5E Specifications) (or mutually
---------
agreed upon specifications for any New PCL Releases). During the Acceptance Test
Period, Adobe shall provide Peerless at least once per week a written report of
any specification non-conformities identified by Adobe ("Weekly Non-Conformity
Report"), and not later than the last day of the Acceptance Test Period, Adobe
shall deliver to Peerless a comprehensive list of all specification non-
conformities identified by Adobe during such period, with a suggested priority
for correcting such specification non-conformities ("Comprehensive Non-
Conformity Report").
4.3 If, by the end of the Acceptance Test Period, Peerless has
corrected all specification non-conformities identified by Adobe in the
Comprehensive Non-Conformity Report (the "Identified Non-Conformities") and
Adobe has confined the corrections, the software shall be deemed to have been
accepted by Adobe as of the end of such period.
4.4 If, by the end of the Acceptance Test Period, Peerless has not
corrected all Identified Non-Conformities, Peerless shall have a period of
seventy (70) days to correct all Identified Non-Conformities and to deliver a
revised version of the software incorporating such corrections to Adobe. Adobe
shall have a period of forty-five (45) days following delivery of such version
(the "Correction Test Period") to conduct testing to verify that all Identified
Non-Conformities have been corrected. During the Correction Test Period, Adobe
shall provide Peerless at least once per week a written report of any Identified
Non-Conformities that Adobe determines have not been corrected, and not later
than the last day of the Correction Test Period, Adobe shall deliver to Peerless
a comprehensive list of all Identified Non-Conformities that Adobe has
determined have not been corrected, with a suggested priority for correcting
such remaining Identified Non-Conformities ("Comprehensive Correction Test
Report").
4.5 If at the end of the Correction Test Period, there are still
Identified Non-Conformities that have not been corrected by Peerless, Adobe may
elect either to give Peerless additional time to correct some or all of the
Identified Non-Conformities or to use the Licensed Source Materials to itself
undertake correction of some or all of the Identified Non-Conformities. Adobe
shall notify Peerless of any remaining Identified Non-Conformities and of its
election within ten (10) days after the end of the Correction Test Period. In
the event Adobe elects to use the Licensed Source Materials to itself undertake
correction of such Identified Non-Conformities, Adobe shall be compensated by
Peerless in accordance with Section 8 (Payments).
---------
<PAGE>
4.6 If Adobe does not notify Peerless pursuant to Section 4.5 within
-----------
ten (10) days after the end of the Correction Test Period, the software shall be
deemed to have been accepted by Adobe as of the end of the Correction Test
Period.
4.7 Adobe and Peerless acknowledge that they will use the Genoa Test
Suites to test Adobe PCL5E and that they are likely to use test suites developed
and licensed by Genoa Technology, Inc. to test New PCL Releases. The Genoa Test
Suites include and the future Genoa Technology, Inc. test suites are likely to
include a Comprehensive Evaluation Test (CET). Adobe and Peerless acknowledge
that the CET shall only be used to determine whether Adobe PCL5E or New PCL
Releases operate in accordance with the relevant specifications in a mutually
agreed to manner, which agreement will not be unreasonably withheld by either
party.
5. Training, Additional Services and Maintenance Support.
-----------------------------------------------------
5.1 Peerless shall provide Adobe with the following technical
assistance in connection with the rights granted hereunder:
(i) In connection with each delivery of licensed Software,
Peerless shall provide mutually acceptable training for Adobe's technical
personnel (up to a maximum of [*] individuals), at Peerless' chosen facilities.
Peerless shall provide one (1) qualified Peerless employee at Peerless' expense
to conduct such training.
(ii) Upon Adobe's reasonable request from time to time,
Peerless may provide other training services, at the rate of [*] entitled to
attend such sessions. Such training shall be at a location and time mutually
satisfactory to both parties. Adobe shall pay the reasonable travel, meal and
lodging expenses incurred by Peerless' personnel in the course of such training
if Peerless' personnel travel outside of the greater Los Angeles metropolitan
area to provide such training obligations .
5.2 Subject to payment of the annual fee specified in Section 8
(Payment), Peerless shall provide to Adobe during each one (1) year term of
support coverage the following support services:
(a) Extended warranty which provides Adobe with the same level
of support provided to Adobe under the original warranty provisions, as
described in Section 9 (Warranty); and
---------
(b) The right to receive corrections to the Licensed Software.
6. License Fees and Payment.
------------------------
6.1 In consideration of the licenses granted herein, Adobe shall pay
Peerless as set forth in Exhibit H (Manner of Payment; Audit Rights).
---------
[*Confidential Treatment Requested]
<PAGE>
6.2 Adobe shall pay any and all taxes and assessments, now existing
or hereafter assessed, of any kind and/or nature, by whomever payable,
including, without limitation, sales, use, and value added taxes, on or relating
to the possession, ownership, license, purchase, sale or use of the Licensed
Software by, to, or for Adobe; provided, however, that Peerless shall pay any
and all taxes as may be assessed on its net income arising out of any payments
made to Peerless under this Agreement.
7. Ownership, Title, and Proprietary Rights.
----------------------------------------
7.1 Adobe acknowledges that as between Peerless and Adobe, Peerless
is the sole owner of any and all right, title, and interest in and to the
Licensed Software and each and every embodiment thereof and all proprietary
rights therein, including without limitation copyrights, patents and trade
secrets. This sole right of ownership includes any and all modifications,
corrections, updates, changes, improvements, derivatives, and enhancements to
the Licensed Software as may be furnished by Peerless pursuant to this
Agreement. Notwithstanding the foregoing, however, Adobe shall own all
improvements, modifications, and/or enhancements to the Licensed Software made
by it in its discretion, and Adobe or its Adobe Source Licensees shall own all
improvements, modifications and/or enhancements to the Licensed Software made by
Adobe or such Adobe Source Licensees, subject in all cases to Peerless'
exclusive ownership of and rights in the underlying Licensed Software and copies
thereof. All ownership of all parties will include ownership of related
copyrights, patent rights, trade secrets, and proprietary and confidential
information.
7.2 Without limiting the provisions of Section 7.4 hereof, Adobe
-----------
shall take the following specific precautions with respect to any and all
Licensed Source Materials: (i) restrict access to the Licensed Source Materials
only to Adobe's employees or Authorized Independent Contractors who require
access thereto for a purpose authorized by this Agreement, (ii) clearly identify
by written legend affixed thereto each medium which contains the Licensed Source
Materials as containing confidential and proprietary property, (iii) limit the
supply of such media to the minimum number reasonably necessary for use by
Adobe, (iv) make it a condition of any such disclosure of the Licensed Source
Materials to any employee or Authorized Independent Contractor that such
employee or Authorized Independent Contractor agrees that he will hold the
source materials and any part thereof in confidence and protect the proprietary
rights of Peerless therein (and unless for good cause shown to Peerless before
such disclosure, such condition shall be in writing signed respectively by the
employee or Authorized Independent Contractor, which may be Adobe's standard
non-disclosure form), and (v) take such other precautions as Adobe normally
takes with its employees and Authorized Independent Contractors who handle
Adobe's source code for comparable software. In addition to the foregoing
obligations, Adobe will store or otherwise use on secure computer systems (as
defined in Exhibit I (Secure Computer System) hereto) the Licensed Source
---------
Materials (and all copies thereof).
7.3 Adobe shall cause to be reproduced in all copies of all or any
portion of the Licensed Software, Peerless' copyright notice in the following
form: "Copyright (C) 199__ Peerless Systems Corporation All Rights Reserved."
From time to time, Peerless shall inform
<PAGE>
Adobe of any change in such notices, including changes in the copyright date.
Adobe shall display and require the Adobe Sub-licensees to display any such
changes in the copyright date, and Adobe, at its option, shall display and
require the Adobe Sub-licensees to display any other such changes in such
notices.
7.4 Due to the unique and proprietary nature of the Licensed
Software, Adobe acknowledges that there may be no adequate remedy at law for
breach of Adobe's obligations under this Agreement. Upon any such breach,
Peerless shall be entitled to seek appropriate injunctive relief against Adobe,
in addition to whatever remedies at law Peerless may have.
7.5 Except as provided herein, this Agreement gives neither party any
rights in or to any product developed by, or the trade secrets, patents,
copyrights, or proprietary rights of, the other party.
8. Payments.
--------
8.1 Milestone Payments. Upon completion of each milestone shown on
------------------
the Development Schedule, Adobe shall pay to Peerless the amount shown on the
Development Schedule for that milestone under the column entitled "Payment."
Notwithstanding the foregoing sentence:
(i) In the event that Adobe falls to deliver deliverables
required by the Development Schedule on the date specified in the Development
Schedule and Peerless, through no fault of its own, is unable to meet any
milestone delivery dates which are specified as contingent on such deliverable
as a result of such Adobe-caused delays (contingency of tasks is indicated in
the Development Schedule by defining the date upon which the contingent task is
to be completed as the completion of a prior milestone plus some number of
days), Adobe is obligated to make the milestone payments to Peerless on the
Target Dates specified in the Development Schedule; provided, however, that in
no event shall Adobe be required to make the payments associated with milestones
13 and 14 shown on the Development Schedule until such milestone is actually
met.
(ii) In the event that Peerless fails to deliver deliverables
required by the Development Schedule on the dates specified in the Development
Schedule, other than as a result of a failure of Adobe to deliver deliverables
required by the Development Schedule on the dates specified in the Development
Schedule, Adobe shall be entitled to withhold all subsequent milestone payments
until it receives the delayed deliverables.
8.2 Object Royalties. Adobe shall pay Peerless for each copy of
----------------
Licensed Object or Object Derivative shipped or delivered by Adobe or any Adobe
Sub-Licensee to an End User an amount equal to either [*]. Notwithstanding the
foregoing sentence:
(i) In the event that Adobe develops Adobe Enhanced PCL
pursuant to Section 3.2(iii) and commercially ships revenue bearing copies of
----------------
such Adobe Enhanced PCL within the first eighteen (18) months after Peerless'
withdrawal from development pursuant to Section
-------
[*Confidential Treatment Requested]
<PAGE>
3.2(iii). Adobe shall, for the fifteen (15)month period after first commercial
- --------
shipment of each such Adobe Enhanced PCL product, pay Peerless for each copy of
Licensed Object or Object Derivative for such Adobe Enhanced PCL product shipped
or delivered by Adobe or any Adobe Sub-Licensee an amount equal to either [*].
In the event that Peerless withdraws from development pursuant to Section
-------
3.2(iii), Adobe shall owe Peerless no royalties for any copies of Licensed
- --------
Object or Object Derivative for any Adobe Enhanced PCL that is first
commercially shipped by Adobe after the eighteen (18) month period following
such withdrawal.
(ii) In the event that Adobe develops Enhancements pursuant to
Section 3.2(iv), Adobe shall pay Peerless for each copy of Licensed Object or
Object Derivative shipped or delivered by Adobe or any Adobe Sub-Licensee to an
End User that contains such Enhancements an amount equal to either [*].
(iii) In the event that Peerless develops Licensed Software
implementing PCL Color Products ("Peerless Color Products") and provides Adobe
with the Adobe version of such Peerless Color Products pursuant to Section
-------
3.2(i), Adobe shall pay Peerless for each copy of Licensed Object or Object
- ------
Derivative for such Peerless Color Products shipped or delivered by Adobe or any
Adobe Sub-Licensee an amount equal to [*] of the Average Customer Price. The
"Average Customer Price" shall be calculated as follows:
(a) The Average Customer Price shall be the weighted
average percentage royalty payable to Peerless pursuant to all Peerless licenses
for the first Peerless Color Product introduced by Peerless after the Effective
Date that are entered into by Peerless not later than one year from the date
Peerless first enters into such a license (not including this Agreement), or the
first four such licenses for such Peerless Color Product, whichever first
occurs.
(b) For purposes of calculating the Average Customer
Price, the percentage royalty payable to Peerless pursuant to each license for
the first Peerless Color Product shall be the royalty owed to Peerless under
such license expressed as a percentage of the suggested retail price of the
printer product with which the licensed Peerless Color Product is shipped.
(c) For purposes of calculating the Average Customer
Price, the average percentage royalty payable to Peerless pursuant to the
relevant licenses shall be weighted by the number of copies of the first
Peerless Color Product that each licensee projects it will sell in the first
year of its license with Peerless.
(d) By way of example only, suppose Peerless enters
into three licenses for PCL5C not later than one year from the date Peerless
first enters into such a license. In this example, Licensee 1 pays a royalty to
Peerless of [*] of its suggested retail list price and projects sales during the
first year of 100,000 units; Licensee 2 pays a royalty to Peerless of [*] of its
suggested retail list price and projects sales during the first year of 50,000
units; and Licensee 3 pays a royalty to Peerless of [*] of its suggested retail
list price and projects sales during the first year of 40,000 units. In this
example, the Average Customer Price
[*Confidential Treatment Requested]
<PAGE>
for purposes off this Agreement would be [*] of the suggested retail list price
of printer products, and Adobe would pay [*] of this Average Customer Price,
which is equal to [*] of the suggested retail list price of the printer products
of Adobe or Adobe's licensees.
(e) Recognizing that Adobe and its licensees may
initiate shipments of a Peerless Color Product before the Average Customer Price
can be determined, the parties agree that until an Average Customer Price can be
determined as set forth herein, Adobe shall pay Peerless an amount equal to [*]
of the percentage royalty reflected on Peerless' then current standard price
list for the first Peerless Color Product. As soon as an Average Customer Price
has been determined, the amount payable by Adobe shall be adjusted retroactively
to the Average Customer Price, with Adobe entitled to recoup overpayments on a
dollar for dollar basis from future royalties payable to Peerless under this
Agreement.
(iv) In the event that Adobe develops Adobe Enhanced Color PCL
pursuant to Section 3.3 and commercially ships revenue bearing copies of such
-----------
Adobe Enhanced Color PCL within the first eighteen (18) months after Peerless
rejects Adobe's request to Peerless to develop software implementing PCL Color
Products pursuant to Section 3.3 or the sixty (60) day period referenced therein
-----------
expires without the parties having reached a mutually agreeable schedule within
which Peerless will provide such software, Adobe shall, for the fifteen (15)
month period after first commercial shipment of each such Adobe Enhanced Color
PCL product, pay Peerless for each copy of Licensed Object or Object Derivative
for such Adobe Enhanced Color PCL product shipped or delivered by Adobe or any
Adobe Sub-Licensee an amount equal to either [*]. In the event that Adobe
develops Adobe Enhanced Color PCL pursuant to Section 3.3 and commercially ships
-----------
revenue bearing copies of such Adobe Enhanced Color PCL after the first eighteen
(18) months following Adobe's request to Peerless to develop software
implementing PCL Color Products pursuant to Section 3.3. Adobe shall owe
-----------
Peerless no royalties for any copies of Licensed Object or Object Derivative for
any such Adobe Enhanced Color PCL.
(v) For the purpose of this Section 8.2, references to the
-----------
"suggested retail price" of Adobe or an Adobe Sub-licensee shall mean Adobe's or
the Adobe Sub-licensee's suggested retail price for sales made in the United
States of America, notwithstanding that the actual retail sales for which
royalties are owed to Peerless under this Section 8.2 occurred outside of the
-----------
United States of America. Similarly, for the purpose of this Section 8.2,
-----------
references to the "net receipts" of an Adobe Sub-licensee shall mean, for
royalty bearing products sold in the United States of America, the actual net
receipts earned in connection with the sale of those products, and, for royalty
bearing products sold outside of the United States of America, the net receipts
that would have been earned if those products had been sold at the prices that
the Adobe Sub-licensee was then selling the same products in the United States.
(vi) In the event that Adobe has a royalty model in any of its
agreements with any Adobe Sub-licensee other than a suggested retail price
royalty model or a net receipts royalty model, Adobe and Peerless will mutually
agree to the royalty owed to Peerless under this Agreement. It is the intention
of the parties that such mutually agreed to royalty will yield a
[*Confidential Treatment Requested]
<PAGE>
substantially similar economic result as the suggested retail price and the net
receipts royalty models.
8.3 Source Code Access Fees. In the event a copy of the Licensed
-----------------------
Source Materials or any portion thereof is delivered by Adobe to any Adobe
Source Licensee as permitted hereunder, Adobe shall pay to Peerless the
following amounts:
(i) if such delivery is the first such delivery of Licensed
Source Material to a particular Adobe Source Licensee, Adobe shall pay to
Peerless the sum of [*] by no later than the forty-fifth (45th) day following
Adobe's delivery of the Licensed Source Materials to such Adobe Source Licensee.
(ii) if such delivery is other than the first such delivery of
Licensed Source Material to a particular Adobe Source Licensee and the Licensed
Source Material delivered includes source code not previously delivered to the
Adobe Source Licensee for Licensed Software implementing Generation Changes,
Adobe shall pay to Peerless the sum of [*] by no later than the forty-fifth
(45th) day following Adobe's delivery of the Licensed Source Materials to such
Adobe Source Licensee.
(iii) If such delivery is other than the first such delivery of
Licensed Source Material to a particular Adobe Source Licensee and subsection
----------
8.3(ii) does not apply, Adobe shall not be required to pay to Peerless any sum
- ------
in connection with such delivery.
(iv) On the fifth anniversary of the Effective Date and every
fifth anniversary thereafter, the license fees set forth in subsections 8.3(i)
and (ii) shall be adjusted proportionate to any change in the Consumer Price
- --------
Index for Urban Wage Earners and Clerical Workers - Los Angeles (published by
the United States Department of Labor, Bureau of Labor Statistics) during the
preceding five year period.
8.4 Non-Conformity Correction Fees. if Adobe elects to correct
------------------------------
Identified Non-Conformities in Adobe PCL5E or a particular New PCL Release
pursuant to Section 4.5, Adobe shall be entitled to [*].
-----------
8.5 Support Fees. Adobe shall pay to Peerless the following fees in
------------
order to be entitled to obtain the support services set forth in Section 5.2:
-----------
(i) If Adobe has paid to Peerless pursuant to this Agreement
at least [*] (including royalties, source code access fees; support fees or any
other amounts and without taking into account any recoupment or offset) during
the prior year, Adobe shall not be required to pay any fees in order to obtain
the support services set forth in Section 5.2
-----------
(ii) If Adobe has paid to Peerless pursuant to this Agreement
at least [*] but less than [*] (including royalties, source code access fees,
support fees or any other amounts and without taking into account any recoupment
or offset) during the prior year, Adobe may elect to obtain the support services
set forth in Section 5.2 by paying to Peerless [*] per year for each
----------
[*Confidential Treatment Requested]
<PAGE>
Product Family for which support is desired. For purposes of this Section 8.5,
-----------
"Product Family" shall include all Licensed Software emulating a particular
Hewlett-Packard named version of Hewlett-Packard PCL and any Enhancements made
to that version (e.g., PCL5 and Enhancements made to PCL5 to allow it to operate
with the HP Laser Jet IIIP and IIIsi are all members of a single Product
Family).
(iii) If Adobe has paid to Peerless pursuant to this Agreement
less than [*] (including royalties, source code access fees, support fees or any
other amounts and without taking into account any recoupment or offset) during
the prior year, Adobe may elect to obtain the support services set forth in
Section 5.2 by paying to Peerless [*] per year for each Product Family for
- -----------
which support is desired.
8.6 Pre-paid Royalties. All amounts paid to Peerless by Adobe
------------------
pursuant to Section 8.1 (Milestone Payment) are non-refundable, pre-paid
-----------
royalties ("Pre-paid Royalties") that will be recouped by Adobe as follows:
(i) From the Effective Date until June 30, 1994, Adobe will
have no right to recoup the Pre-paid Royalties.
(ii) From July 1, 1994 until May 9, 1997, Pre-paid Royalties
will be recouped by Adobe at the rate of [*] on the dollar from all royalties
and source code access fees due from Adobe to Peerless under this Agreement.
(iii) Beginning on May 10, 1997, Pre-Paid Royalties will be
recouped by Adobe at the rate of [*] on the dollar from all royalties and source
code access fees due to Peerless under this Agreement, the Third Party
Development and License Agreement dated September 18, 1992 (the "Third Party
Development Agreement") between the parties and any other agreements between
Adobe and Peerless.
(iv) In the event that Adobe terminates this Agreement pursuant
to Section 12.2 below, Adobe will be entitled to recoup the Pre-paid Royalties
------------
paid by Adobe through the date of termination, less Peerless' cost for
development of Licensed Software (which shall include reasonable support
expenses incurred subsequent to acceptance of any Licensed Software) through the
thirtieth (30th) day after Peerless receives notice of such termination (not to
exceed [*] from royalties due under the Third Party Development Agreement and
any other agreements between Adobe and Peerless; provided, however, that Adobe
shall not be entitled to recoup any Pre-paid Royalties against the Third Party
Development Agreement until July 1, 1994. Within fifteen (15) days after the end
of each calendar quarter, Peerless will provide to Adobe a written report
listing the development expenses incurred by Peerless during that calendar
quarter and the basis for such expenses, in such detail as shall be mutually
acceptable to the parties.
8.7 No royalty shall accrue for shipments of the Licensed Object or
Object Derivatives by Adobe to Adobe Intermediaries, or for use of Licensed
Object or Object Derivatives within
[*Confidential Treatment Requested]
<PAGE>
Adobe or Adobe Sub-Licensees, for internal, non-productive use, including but
not limited to field testing for purposes of test, evaluation, demonstration or
development of applications.
8.8 Payment of amounts due pursuant to this Section 8 (Payments) with
---------
respect to each copy of Licensed Object Code or Object Derivative shall be paid
to Peerless by no later than the thirtieth (30th) day of Adobe's fiscal quarter
immediately following the fiscal quarter of Adobe in which any of the following
events occurs:
(i) with respect to any copies marketed and distributed by any
Adobe Object Licensee for which the Adobe Object Licensee is obligated to remit
payment to Adobe or an Adobe Intermediary, the date Adobe receives payment from
the Adobe Object Licensee or Adobe Intermediary with respect to such copy; and
(ii) with respect to any copies marketed and distributed by any
Adobe Object Licensee for which the Adobe Object Licensee has no obligation to
remit payment to Adobe or an Adobe Intermediary, the date the Adobe Object
Licensee ships or delivers such copy to a third party.
In the event Adobe receives only a partial payment from any Adobe Object
Licensee or Adobe Intermediary, Peerless shall be entitled to its pro rata share
of any such partial payment based on the number of copies for which Adobe has
received payment. Adobe shall use reasonable commercial efforts to collect all
sums owed to it by Adobe Sub-licensees with respect to the Licensed Software.
Royalties accrue as provided above and are subject to adjustment for Adobe's or
any Adobe Sub-Licensee's commercially reasonable return policy for such units to
the extent units are returned and Adobe or any Adobe Sub-licensee has granted
refunds to its customers on such units.
9. Warranty.
--------
9.1 For a period of [*] after the Acceptance Date for Adobe PCL5E and
any subsequent New PCL Product (the "Warranty Period"), Peerless warrants that
the material of the software disks and the documentation for such version will
be free from physical defects in materials or workmanship; and that the programs
are properly recorded on the disks; and that the documentation is substantially
correct and complete and contains all the information which Peerless reasonably
deems necessary for use of the supplied items; and that the software functions
substantially as described in the supplied documentation. If the materials Adobe
receives are damaged in shipment or fail to comply with the warranties described
in the preceding sentence during the limited Warranty Period, Adobe is to send
the defective item to Peerless at its authorized repair center within the
Warranty Period, and Peerless will promptly replace the defective item.
9.2 During the relevant Warranty Period for each release of the
Licensed Software, Peerless further warrants to Adobe that the source code for
each version of the Licensed Software will compile, assemble and link in the
development environment identified in the specifications for such version to
yield the corresponding object code portion of the Licensed
[*Confidential Treatment Requested]
<PAGE>
Software and that the object code portion of the Licensed Software will execute
in the execution environment identified in the specifications for such software
substantially in accordance with the specifications for such version. The
specifications for Adobe PCL5E are contained in Exhibit A (PostScript 2015 Based
---------
PCL5E Specifications) to this Agreement. If Adobe reports to Peerless a failure
of such Licensed Software to conform to the foregoing warranties during the
Warranty Period, and provides such detail as Peerless may reasonably require to
permit Peerless to reproduce such failure, Peerless shall promptly modify or
replace the Licensed Software to correct such failure.
9.3 In addition, during the Warranty Period, Peerless warrants that the
Licensed Software will pass the mutually agreed to test suites, which in the
case of Adobe PCL5E are the Test Suites, as well as and to the extent that the
actual printer emulated by the Licensed Software passes the same test suites. In
the event that Adobe discovers a failure to pass the Test Suites under the terms
of this paragraph then Adobe will provide to Peerless a detailed written
description of the exact problem and provide such detail as Peerless may
reasonably require to permit Peerless to reproduce such failure. Peerless shall
promptly modify or replace the Licensed Software to correct such failure.
9.4 At all times Adobe shall be solely responsible for supporting its
own use of the Licensed Software, as well as the use of the Licensed Software by
Adobe Sub-licensees and end-users that acquire Licensed Object Code or Object
Derivatives from Adobe or from any Adobe Object Licensee.
9.5 The warranties set forth in this Section 9 (Warranty) shall not
---------
apply to any defects or problems caused in whole or in part by (i) any defect in
any portion of any hardware or equipment, (ii) the failure of any portion of any
other hardware or equipment to function in accordance with applicable
manufacturer's specifications, (iii) any modification or enhancement made to the
Licensed Software by Adobe or any Adobe Sub-licensee or any third person or
entity other than Peerless, (iv) any software program, hardware, firmware,
peripheral or communication device used in connection with the Licensed
Software, or (v) use of the Licensed Software other than in accordance with
documentation provided to and accepted by Adobe.
9.6 THE FOREGOING REMEDIES CONSTITUTE ADOBE'S SOLE AND EXCLUSIVE
REMEDIES FOR BREACH OF WARRANTY FOR THE LICENSED SOFTWARE. ANY WARRANTIES AND
REMEDIES ARE FOR ADOBE'S EXCLUSIVE BENEFIT AND ARE NON-TRANSFERABLE. THIS IS A
LIMITED WARRANTY AND IS THE ONLY WARRANTY MADE BY PEERLESS. PEERLESS EXPRESSLY
DISCLAIMS ANY AND ALL OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND/OR FITNESS FOR A
PARTICULAR PURPOSE. PEERLESS DOES NOT WARRANT THAT THE LICENSED SOFTWARE WILL BE
ERROR-FREE OR OPERATE WITHOUT INTERRUPTION. PEERLESS DOES NOT MAKE BY VIRTUE OF
THIS AGREEMENT, AND HEREBY EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY
TO ANY ADOBE SUB-LICENSEE, END-USER, CUSTOMER OR THIRD PARTY
<PAGE>
WITH RESPECT TO THE LICENSED SOFTWARE OR ANY PORTION THEREOF, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. ADOBE SHALL NOT HAVE THE RIGHT TO MAKE OR PASS ON OR ATTEMPT
TO MAKE OR PASS ON, ANY SUCH WARRANTY OR REPRESENTATION ON BEHALF OF PEERLESS TO
ANY ADOBE SUB-LICENSEE, END-USER, CUSTOMER OR THIRD PARTY.
10. Indemnification.
---------------
10.1 Peerless warrants that it has sufficient right, title, and interest
in and to the Licensed Software to enter into and to perform its obligations
under this Agreement free from infringement of any rights of third parties.
Subject to the limitations of this Section 10 (Indemnification), Peerless will
----------
indemnify Adobe against copyright, patent or trade secret infringement on the
following terms:
Peerless shall, at its expense, defend Adobe and hold Adobe harmless from
and against any suit, claim, or proceeding brought against Adobe alleging that
any use of the Licensed Software (in whole or in part), as delivered by
Peerless, infringes any patent, copyright or trade secret of any third party,
and any and all damages arising out of any such claim, including any court
costs, attorney's fees, and reasonably related litigation expenses, provided
that Adobe (i) promptly notifies Peerless in writing of any such suit, claim, or
proceeding and tenders the defense thereof to Peerless, (ii) allows Peerless to
direct the defense of and/or handle such suit, claim, or proceeding at Peerless'
expense, (iii) gives Peerless all information and assistance reasonably
necessary to defend the same at Peerless' expense, and (iv) does not enter into
any settlement of the suit, claim or proceeding without Peerless' prior written
consent. Following notice of any such suit, claim, or proceeding described in
this section or Peerless' reasonable belief that such a claim may occur,
Peerless shall have the option to procure for Adobe at Peerless' expense the
right or license to use the Licensed Software as furnished hereunder, or to
replace or modify the Licensed Software to render same non-infringing, provided,
however, that any replacement and/or modification shall meet the specifications
of the Licensed Software.
10.2 Notwithstanding the foregoing, however, Peerless shall not be
liable to Adobe in any manner for any claim described in Section 10.1 if Adobe
------------
or any Adobe Sub-licensee has combined or modified the Licensed Software for use
with Adobe's, any Adobe Sub-licensee's or others' equipment, software or
technology and such claim would have been avoided in the absence of such
combination or modification. At its own expense, Adobe shall defend and hold
Peerless harmless from and against any suit, claim or proceeding brought against
Peerless (i) alleging that use of such combination infringes any patent,
copyright or trade secret of any third party, or (ii) relating to the use,
performance, quality, condition, service, maintenance or support of Adobe's
products containing the Licensed Software, in whole or in part, except for
claims described in Section 10.1, and any and all damages arising out of any
such claim, including any court costs, attorneys' fees and reasonably related
litigation expenses, provided that Peerless (a) promptly notifies Adobe in
writing of any such suit, claim, or proceeding and tenders the defense thereof
to Adobe, (b) allows Adobe to direct the defense of and/or handle such suit,
<PAGE>
claim, or proceeding at Adobe's expense, (c) gives Adobe all information and
assistance reasonably necessary to defend the same at Adobe's expense, and (d)
does not enter into any settlement of the suit, claim or proceeding without
Adobe's prior written consent.
10.3 The rights and remedies provided under this Section 10
----------
(Indemnification) constitute Adobe's sole and exclusive remedies against
Peerless, its affiliates, agents, employees, and officers for any and all
liability obligations whatsoever arising out of or relating to any suit, claim
or proceeding alleging that the Licensed Software infringes any patents,
copyrights, trade secrets or other proprietary rights of any third party.
11. Limitation of Remedies.
----------------------
11.1 EXCEPT FOR LIABILITIES RESULTING DIRECTLY FROM (A) ADOBE'S
INTENTIONAL OR GROSSLY NEGLIGENT VIOLATION OF SECTIONS 2.1, 2.2, 2.3, 2.4, 2.5,
2.6, 7.2 OR 12.5(iii) HEREOF OR (B) EITHER PARTY'S INTENTIONAL OR GROSSLY
NEGLIGENT VIOLATION OF THE INTELLECTUAL PROPERTY RIGHTS OF THE OTHER PARTY,
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY'S TOTAL LIABILITY OF ALL KINDS ARISING
OUT OF OR RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORUM AND REGARDLESS OF
WHETHER ANY ACTION OR CLAIM IS BASED IN CONTRACT, TORT OR OTHERWISE, EXCEED THE
SUM OF [*]. THE FOREGOING LIMITATION OF LIABILITY SHALL NOT OPERATE TO LIMIT
AMOUNTS ACTUALLY DUE AND PAYABLE PURSUANT TO THE EXPRESS TERMS OF THIS
AGREEMENT, SUCH AS ROYALTY PAYMENTS OR LICENSE FEES.
11.2 NEITHER PARTY NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES,
AFFILIATES, OR AGENTS SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD PARTY
FOR ANY LOSS OF USE, LOSS OF GOODWILL, INTERRUPTION OF BUSINESS, OR FOR
INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST REVENUES
OR PROFITS) OR SIMILAR DAMAGES, WHETHER BASED ON TORT (INCLUDING WITHOUT
LIMITATION, NEGLIGENCE OR STRICT LIABILITY), CONTRACT, OR OTHER LEGAL OR
EQUITABLE GROUNDS, EVEN IF THE PARTY HAS BEEN ADVISED OR HAD REASON TO KNOW OF
THE POSSIBILITY OF SUCH DAMAGES AND EVEN IN THE EVENT OF FAILURE OF EXCLUSIVE
REMEDIES.
12. Term and Termination.
--------------------
12.1 The initial term of this Agreement shall be for twenty (20) years,
and shall be deemed automatically renewed for successive additional one (1) year
terms unless Adobe notifies Peerless in writing to the contrary prior to the
expiration of the then current term, provided (i) Adobe pays Peerless in timely
fashion all moneys owed hereunder and (ii) neither party terminates or has
terminated this Agreement for cause. Notwithstanding the foregoing, beginning at
least one hundred eighty (180) days prior to the end of each five (5) year
period from the Effective Date (each such ending date to be referred to in this
Section 12.1 as the "Ending Date"), the parties will negotiate in good faith a
- ------------
new royalty schedule for all Licensed Object Code and Object Derivatives that
are first commercially shipped by Adobe during the
[*Confidential Treatment Requested]
<PAGE>
five (5) year period commencing eighteen (18) months after the Ending Date. In
the event the parties cannot reach agreement on such royalty schedule in
accordance with the prior sentence, the then-current royalty schedule will
remain in effect for the ensuing five (5) year period.
12.2 Adobe shall be entitled to terminate this Agreement upon thirty
(30) days written notice to Peerless at any time, with or without cause, prior
to the first shipment by Adobe of a royalty bearing product containing Licensed
Software.
12.3 This Agreement may be terminated by either party at any time during
the initial or renewal terms for cause and only upon written notice to the other
party. "Cause" shall mean a breach of a material obligation by a party and such
party's subsequent failure to cure such breach within the period allowed
hereunder. Material obligations include, but are not limited to, the following
events: (i) if Adobe defaults in payment of any amount when due under the
provisions of Section 8 (Payments); (ii) if a party fails to comply strictly
---------
with the provisions of Section 7 (Ownership, Title, and Proprietary Rights);
---------
(iii) if either party becomes unable to carry on its ordinary course of business
or ceases active conduct of its business operations; or (iv) if a petition or
other document seeking relief under any United States or foreign bankruptcy law
is filed by or against a party and is not discharged with prejudice within sixty
(60) days thereafter. In the event a material obligation is breached, the
breaching party shall have thirty (30) days after receipt of notice of such
breach from the non-breaching party to cure the default, or if the default
cannot be cured within thirty (30) days, to take all steps necessary to promptly
bring about such a cure. if the default is cured within the respective time
period, or if the default cannot be cured within such time period, if the
defaulting party has taken all steps necessary to promptly bring about such a
cure, the termination notice shall be void; if the default is not so cured,
termination shall be effective, as applicable, on the thirty-first (31st) day
after the termination notice is received. A party's rights under this section
are not exclusive and are without prejudice to that party's other rights and
remedies hereunder.
12.4 Peerless acknowledges that Adobe and/or Adobe Sub-licensees are
currently, and will in the future, develop and acquire other software for their
own products, and that existing or planned software independently developed or
acquired by Adobe and/or Adobe Sub-licensees may contain ideas and concepts
similar or identical to those in the Licensed Software. Peerless further
acknowledges that, over time, Adobe's and/or Adobe Sub-licensee's employees will
gain familiarity with the general concepts and ideas in the Licensed Software.
Peerless agrees that Adobe's and/or Adobe Sub-licensee's access to Licensed
Software source code, and use of that source code to create Licensed Software
Derivatives, does not preclude Adobe and/or Adobe Sub-licensees from
independently developing or acquiring software which is not derivative in
nature, but which contains ideas and concepts similar to those in the Licensed
Software. Furthermore, nothing herein shall preclude Adobe and/or Adobe Sub-
licensees from marketing such independently developed or acquired, non-
derivative software products to others, including users of Licensed Software
object code, and from retaining the revenues, or any portion thereof, derived
from the marketing of such products.
12.5 Upon expiration or termination of this Agreement:
<PAGE>
(i) Payment by Adobe for all sums then owed to Peerless shall
be accelerated so as to be due immediately;
(ii) Adobe shall return to Peerless any and all copies, or
parts thereof, in any form (source code, object code, documentation and/or all),
in whole or in part, of the Licensed Software in its possession, except that
Adobe shall be entitled to keep a reasonable number of copies of the Licensed
Source Materials to enable Adobe to meet its support obligations to its
customers after the termination date. Adobe shall not use the Licensed Source
Materials for any other purpose;
(iii) Adobe shall cease all use, manufacture, duplication, and
distribution of all or any part of the Licensed Software in any form, including
without limitation all Licensed Software Derivatives, except that Adobe may
distribute all units containing Licensed Object Code or Object Derivatives (in
whole or in part) then in its inventory, provided further, however, that Adobe
shall remain obligated to remit to Peerless in accordance with the terms of
Section 8 (Payments) hereof all amounts which will be owed Peerless from sales
- ---------
or licenses of such Adobe inventory;
(iv) Termination of this Agreement shall not affect sublicenses
to Adobe Sub-licensees in effect at the time of termination, and Adobe shall
remain obligated to Peerless with respect to those sublicenses to the same
extent as if this Agreement had not been terminated, including the obligation to
remit to Peerless in accordance with the terms of Section 8 (Payments) hereof
---------
all amounts which will be owed Peerless from sales or licenses made pursuant to
such sublicenses. It is understood and agreed that Peerless will not assume or
be liable for any obligations of Adobe pursuant to such sublicenses;
(v) Termination of this Agreement shall not affect end user
sublicensees of Licensed Object Code and Object Derivatives existing as of the
date of termination or subsequently distributed pursuant to Section 12.5(iii)
-----------------
and (iv) above;
--
(vi) Adobe shall promptly deliver a written statement signed by
a duly authorized officer stating that it has complied, and in the circumstances
described in Sections 12.5(ii), (iii) and (iv) above, will comply, with the
----------------- ----- ----
foregoing obligations.
12.6 Sections 2.7, 6 (License Fees and Payment), 7 (Ownership, Title and
Proprietary Rights), 8 (Payments), 9 (Warranty), 10 (Indemnification), 11
(Limitation of Remedies), 12 (Term and Termination), 15 (Export Controls), 16
(Terms of Agreement Confidential), 17 (Notices), 18 (Assignment and Delegation),
19 (Governing Law) and 20 (Miscellaneous) shall survive termination.
13. Excusable Delays and Failures. Each party shall be excused for failures or
-----------------------------
delays in performing its obligations under this Agreement to the extent that
such delay or failure results from any cause beyond the control of such party,
including, but not limited to, delays or failures
<PAGE>
caused by the other party, acts of God, strikes or other labor disturbances,
government laws or regulations not existing at the time this Agreement is
executed, public disorder, and catastrophes of fire or explosion. In any
circumstance described in the immediately preceding sentence, the affected party
shall undertake reasonable efforts to discharge its obligations hereunder. Any
failure or delay justified under this Section 13 (Excusable Delays and Failures)
shall extend the time for performance of the affected obligation by a period of
time equal to the length of time the condition excusing performance has lasted;
provided, however, that should such delay continue for greater than three (3)
months, the party not seeking excuse from performance on account of such
condition shall, without penalty, have the right to terminate this Agreement.
14. Miscellaneous Services and Obligations.
-------------------------------------
14.1 The Peerless Test Suites are provided to Adobe hereunder by
Peerless solely for the purpose of testing the Licensed Software. Adobe agrees
it shall not use the Peerless Test Suites to test any of Adobe's own products or
any products of third parties. Adobe further agrees not to provide or disclose
the Peerless Test Suites to any third party, except for an Authorized
Independent Contractor for a purpose authorized by this Agreement.
14.2 Within ninety (90) days after the first customer shipment date
under the agreement between Peerless and [*] or the agreement between Peerless
and [*], Adobe and Peerless will use best efforts to enter into an agreement
which will allow both parties to commence Phase 2 of the Third Party Development
Agreement. Such agreement shall provide that Peerless is entitled to retain [*]
of the Adobe royalties it collects as a result of licensing Adobe products in
Phase 2; provided, however, that during any period in which Adobe is entitled to
recoup its Pre-paid Royalties under Section 8.4 (Pre-paid Royalties) of this
-----------
Agreement against Phase 2 royalties, Peerless shall retain only [*] of the Adobe
royalties it collects as a result of licensing Adobe products in Phase 2, with
the remaining [*] to be credited against the Pre-paid Royalties.
15. Export Controls. Adobe shall comply with, and shall require all of its
---------------
Adobe Sub-licensees to comply with, any and all export regulations, rules and
orders now in effect or as may be issued from time to time by the Office of
Export Administration of the United States Department of Commerce or any other
Federal governmental authority which has jurisdiction relating to the export of
the Licensed Software from the United States of America or relating to any
product(s) in which the Licensed Software is, will be, or may be incorporated by
Adobe. Adobe shall, and shall require all Adobe Sub-licensees to, use or
distribute the Licensed Software only in countries authorized for such use or
distribution by the United States of America and not ship any product produced
directly by use of the Licensed Software to any unauthorized destination.
16. Terms of Agreement Confidential. Except as otherwise expressly provided
-------------------------------
herein, the terms and conditions of this Agreement, including Section 8
---------
(Payments) hereof, shall remain confidential, and neither party shall disclose
the terms and conditions of this Agreement to any third party. The foregoing
shall not be deemed to prohibit any disclosure required by applicable statute or
valid regulation of any competent governmental authority or with any rules or
[*Confidential Treatment Requested]
<PAGE>
regulations promulgated by the National Association of Securities Dealers, Inc.,
provided that in such event, the party required to make such disclosure shall,
if reasonably practical, consult in advance with the other party regarding such
disclosure. Further, the foregoing shall not be deemed to prohibit any
disclosure to a party's attorneys or accountants or any disclosure in connection
with any litigation between the parties to this Agreement. Further, the
foregoing shall not be deemed to prohibit any disclosure reasonably required for
the purposes of obtaining financing and/or investment capital, provided such
disclosure is made pursuant to a reasonable non-disclosure agreement.
17. Notices. All notices under this Agreement shall be in writing and shall be
-------
addressed to the respective person at the address set forth on the signature
page hereof or at such other address as such party may specify in writing from
time to time. All notices shall be by certified or registered mail, first class
postage prepaid, by courier delivery, or by facsimile transmission, signed by a
duly authorized representative of a party, and shall be effective three (3) days
after deposit in the mail or otherwise upon actual receipt.
18. Assignment and Delegation. This Agreement shall be binding upon and inure
-------------------------
to the benefit of the parties' respective successors and assigns. Either party
shall have the right to assign or transfer this Agreement or any interest herein
(including without limitation rights and duties of performance) only to an
entity (i) which owns more than fifty percent (50%) of such party's issued and
outstanding voting stock (ii) in which such party owns more than fifty percent
(50%) of the issued and outstanding voting stock, (iii) which acquires all or
substantially all of such party's operating assets, or (iv) into which such
party is merged or reorganized pursuant to any plan of merger or reorganization.
Any other assignment of this Agreement or any rights or obligations hereunder
shall require the prior written consent of the other party hereto, which such
party may withhold in its sole discretion.
19. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the internal laws of the State of California applicable to
contracts wholly executed and wholly to be performed therein. Any action or
proceeding brought by Adobe or Peerless against the other arising out of or
related to this Agreement may be brought in a state or federal court of
competent jurisdiction located in the County of Santa Clara, California, and
Peerless hereby submits to the in personam jurisdiction of such courts for
purposes of any such action or proceeding.
20. Miscellaneous.
-------------
20.1 This Agreement constitutes the entire understanding and agreement
between Peerless and Adobe with respect to the transactions contemplated herein
and supersedes any and all prior or contemporaneous oral or written
communications with respect to the subject matter hereof, all of which are
merged herein, other than that certain Master Agreement for Mutual Disclosure of
Information dated March 24, 1992 between the parties. It is expressly understood
and agreed that no employee, agent or other representative of either party has
any authority to bind the other party with regard to any statement,
representation, warranty or other expression unless the same is specifically set
forth or incorporated by reference herein. It is
<PAGE>
expressly understood and agreed that, there being no expectations to the
contrary between the parties hereto, no usage of trade or other regular practice
or method of dealing between the parties hereto shall be used to modify,
interpret, supplement or alter in any manner the express terms of this Agreement
or any part hereof. This Agreement shall not be modified, amended or in any way
altered except by an instrument in writing signed by both of the parties hereto.
20.2 No terms of any purchase order, invoice, or similar document will
be deemed to amend or supplement this Agreement, even if it is accepted or
signed by the receiving party.
20.3 Unless otherwise provided herein, no remedy made available to
either party by any of the provisions of this Agreement is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
20.4 No waiver of any provision of this Agreement or any rights or
obligations of either party hereunder shall be effective, except pursuant to a
written instrument signed by the party or parties waiving compliance, and any
such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.
20.5 The relationship between Peerless and Adobe created hereby is that
of Licensor and licensee, and nothing contained herein shall be deemed or
construed as creating a joint venture or partnership between Peerless and Adobe.
Neither party is by virtue of this Agreement authorized as an agent or legal
representative of the other party. Neither party is granted any right or
authority to assume or to create any obligation or responsibility, express or
implied, on behalf of or in the name of the other party or to bind the other
party in any manner. Further, it is not the intention of this Agreement or of
the parties hereto to confer a third party beneficiary right of action upon any
person or entity whatsoever, and nothing set forth herein shall be construed so
as to confer upon any person or entity other than the parties hereto a right of
action either under this Agreement or in any manner whatsoever .
20.6 The captions used herein are for convenience only and shall not be
deemed to be a part of this Agreement or used to construe any of the provisions
hereof.
20.7 This Agreement may be executed in one or more counterparts each of
which shall constitute one and the same instrument.
20.8 In the event that any provisions hereof is found invalid or
unenforceable pursuant to judicial decree or decision, the remainder of this
Agreement shall remain valid and enforceable according to its terms. WITHOUT
LIMITING THE FOREGOING, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND
EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY,
DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES, IS INTENDED BY THE PARTIES TO
BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE ENFORCED AS SUCH.
<PAGE>
20.9 The prevailing party in any action or proceeding between Peerless
and Adobe arising out of or related to this Agreement shall be entitled to
recover its reasonable attorneys' fees and costs incurred in connection
therewith.
20.10 All communications hereunder shall be in the English language, or
accompanied by an English translation. In the event of any dispute as to the
interpretation or translation of any provision of this Agreement, the English
translation shall govern.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
duly authorized representatives on the date below.
Peerless: Adobe:
PEERLESS SYSTEM CORPORATION ADOBE SYSTEMS INCORPORATED
2381 Rosecrans Avenue 1585 Charleston Road
El Segundo, CA 90245 Mountain View, CA 94039
__________________________. __________________________.
Authorized Signature Authorized Signature
Thomas D. Blondi Stephen A. MacDonald
__________________________. __________________________.
Print Name Print Name
VP Sales & Marketing Senior Vice President
__________________________. __________________________.
Title Title
Date: 6/11/93 Date: 6/14/93
--------- ----------
The Exhibits to this Agreement are:
Exhibit A PostScript 2015 Based PCL5E Specifications
Exhibit B Independent Contractor Agreement
Exhibit C Development Schedule
Exhibit D Minimum Terms of Source Sub-license
Exhibit E Minimum Terms of Object Reproduction Sub-license
Exhibit F Minimum Terms and Conditions of End-User License
Exhibit G Other Deliverables
Exhibit H Manner of Payment and Audit Rights
Exhibit I Secure Computer System
<PAGE>
EXHIBIT A
---------
POSTSCRIPT 2015 BASED PCL5E SPECIFICATION
General
- -------
Adobe PCL5E will conform with Hewlett Packard PCL5E as defined in the following
Hewlett Packard documents:
PCL5 Printer Language Technical Reference Manual
------------------------------------------------
PCL5 Comparison Guide
---------------------
Printer Job Language Technical Reference Manual
-----------------------------------------------
In addition, Adobe PCL5E will conform to those undocumented features of Hewlett
Packard PCL5E that are verified by standard industry test suites and that, as
part of the design review process, the parties mutually agree should be
implemented in Adobe PCL5E, which agreement will not be unreasonably withheld.
To the extent that Hewlett Packard printers do not conform with the above
documentation, Adobe PCL5E may not exactly emulate a particular Hewlett Packard
printer or software revision. Adobe PCL5E will not abort operation or lose
subsequent input in the presence of abnormal or illegal input.
Floating Point
- --------------
The HPGL portion of Adobe PCL5E will be configured for use without floating
point hardware support.
PJL
- ---
The Printer Job Language (PJL) component of PCL5E differs from platform to
platform depending on the options available on the platform. Adobe PCL5E will
handle all PJL commands. If a platform lacks an option that may be selected by
PJL, the PJL command processor in the Adobe PCL5E will consume any commands
pertaining to this option but will do nothing.
The PJL unsolicited status command, USTATUS, in Adobe PCL5E depends upon system
support to provide output at the requested time intervals.
Font Support
- ------------
<PAGE>
Adobe PCL5E does not include a font rasterizer or font data. Adobe PCL5E
requires a LaserJet 4 compatible font rasterizer and font data. Font selection
and appearance will match or conform to the Hewlett Packard products only to the
extent that the font rasterizer and font data supplied by Adobe do so.
Adobe PCL5E will be able to use the Adobe font system to the extent determined
in the design review.
Standard LaserJet 4 fonts include 45 scalable typefaces and one bitmap. The
bitmap is line printer. The scalables include:
Courier, Courier Bold, Courier Italic, Courier Bold Italic
CG Time, CG Times Bold, CG Times Italic, CG Times Bold Italic
CG Omega, CG Omega Bold, CG Omega Bold Italic
Coronet
Clarendon Condensed
Univers Medium, Univers Bold, Univers Medium Italic, Univers Bold Italic
Univers Medium Condensed Italic, Univers Bold Condensed Italic
Antique Olive, Antique Olive Bold, Antique Olive Italic
Garamont Antiqua, Garamond Halbfett, Garamond Kursiv, Garamond Kursiv Halbfett
Marigold
Albertus Medium, Albertus Extra Bold
Arial, Arial Bold, Arial Italic, Arial Bold Italic
Times New, Times New Bold, Times New Italic, Times New Bold Italic
Symbol
Wingdings
Letter Gothic, Letter Gothic Bold, Letter Gothic Italic
<PAGE>
Exhibit B
---------
CONSULTING AGREEMENT
This consulting agreement ("Agreement") is entered into on the date written
below by and between Adobe Systems, Incorporated, 1585 Charleston Road, Mountain
View California 94043 ("Adobe") and____________________________________
("CONSULTANT").
Adobe desires to retain CONSULTANT as an independent contractor to perform
services for Adobe from time to time and CONSULTANT is willing to perform such
services, on the basis set forth more fully below.
In consideration of the mutual promises contained herein Adobe and CONSULTANT
agree as follows:
1. Services. CONSULTANT agrees to perform the services described in any
--------
Project Assignment pursuant hereto in a workmanlike manner according to the
schedule of work set forth therein. A copy of the form of Project Assignment is
attached hereto as Exhibit A. CONSULTANT agrees not to perform similar services
---------
during the term of this agreement for any other manufacturer or seller of
services or software directly competitive with software or services manufactured
or sold by Adobe unless Adobe gives prior written consent.
2. Payment for Services. Adobe shall pay CONSULTANT the fee set forth in the
--------------------
Project Assignment for the performance of the Services, together with
reimbursement for CONSULTANT's direct costs, as provided therein.
3. Relationship of Parties. CONSULTANT shall perform the services under the
-----------------------
general direction of Adobe, but CONSULTANT shall determine, in CONSULTANT'S sole
discretion, the manner and means by which the services are accomplished, subject
to the express condition that CONSULTANT shall at all times comply with
applicable law. CONSULTANT is an independent contractor and CONSULTANT is not an
agent or employee of Adobe, and has no authority whatsoever to bind Adobe by
contract or otherwise.
4. Adobe Rules. CONSULTANT shall observe the working hours, working rules and
-----------
holiday schedules of Adobe while working on Adobe's premises.
5. Employment Taxes and Benefits. CONSULTANT acknowledges and agrees that it
-----------------------------
shall be the obligation of CONSULTANT to report as income all compensation
received by CONSULTANT pursuant to this agreement and CONSULTANT agrees to
indemnify Adobe and hold it harmless to the extent of any obligation imposed on
Adobe to pay any withholding taxes, social security, unemployment or disability
insurance or similar items, including the interest and penalties thereon, in
connection with any payments made to CONSULTANT by Adobe pursuant to this
agreement.
6. Inventions. All designs, artwork, software programs, brochures, manuals,
----------
products, procedures, drawings, notes, documents, information, materials,
discoveries and inventions (hereafter "Designs and Inventions") made, conceived
or developed by CONSULTANT
<PAGE>
alone or with others which result from or relate to the Services, or which
CONSULTANT may receive from Adobe while performing the Services, shall be the
sole property of Adobe. Adobe shall have the sole right to determine the method
of protection for any such Designs and Inventions, including the right to keep
the same as trade secrets, to file and execute patent applications thereon, to
use and disclose the same without prior patent application, to file
registrations for copyright or trademark thereon in its own name, or to follow
any other procedure that Adobe deems appropriate. CONSULTANT agrees (i) to
disclose promptly in writing to Adobe all such Designs and Inventions, (ii) that
Adobe has a power of attorney to apply for in CONSULTANT's name, and to execute
any applications and/or assignments reasonably necessary to obtain any patent,
copyright, trademark or other statutory protection for such Designs and
Inventions in Adobe's name as Adobe deems appropriate. These obligations to
disclose, assist, and execute shall survive termination of this agreement. At
Adobe's option, it shall be entitled to use the name of CONSULTANT in
advertising and other materials.
7. Confidentiality. CONSULTANT agrees to hold Adobe's Confidential
---------------
Information in strict confidence and not to disclose such Confidential
Information to any third parties. For purposes hereof, "Confidential
Information" shall include all confidential and proprietary information
disclosed by Adobe including but not limited to software source code, technical
and business information relating to Adobe's current and proposed products,
research and development, production, manufacturing and engineering processes,
costs, profit or margin information, finances, customers, suppliers, marketing
and production, personnel and future business plans. "Confidential Information"
also includes proprietary or confidential information of any third party who may
disclose such information to Adobe or CONSULTANT in the course of Adobe's
business. The above obligations shall not apply to Confidential Information
which is already known to the CONSULTANT at the time it is disclosed, or which
before being divulged either (a) has become publicly known through no wrongful
act of the CONSULTANT; (b) has been rightfully received from a third party
without restriction on disclosure and without breach of this agreement; (c) has
been independently developed by the CONSULTANT; (d) has been approved for
release by written authorization of Adobe; (e) has been disclosed pursuant to a
requirement of a governmental agency or of law.
8. Termination. This agreement shall commence on the date first written below
-----------
and shall continue until terminated as follows:
(a) Either party may terminate the agreement in the event of a
breach by the other party of any of its obligations contained
herein if such breach continues uncured for a period of ten
(10) days after written notice of such breach to the other
party;
(b) Either party may terminate this agreement upon written notice
to the other party if either party is adjudicated bankrupt,
files a voluntary petition of bankruptcy, makes a general
assignment for the benefit of creditors, is unable to meet
its obligations in the normal course of business as they fall
due or if a receiver is appointed on account of insolvency;
(c) Either party may terminate this agreement for its convenience
upon ten (10) days written notice to the other if there is no
outstanding Project Assignment.
Upon the termination of this agreement for any reason, each party shall be
released from all obligations and liabilities to the other arising after the
date of such termination, except
<PAGE>
that any termination shall not relieve CONSULTANT or Adobe of their obligations
under Paragraphs 5, 6, 7, and 9, nor shall any such termination relieve
CONSULTANT or Adobe from any liability arising from any breach of this
agreement.
9. General
-------
(a) Pre-existing obligations. CONSULTANT represents and warrants that
------------------------
CONSULTANT is not under any pre-existing obligation or
obligations inconsistent with the provisions of this agreement.
(b) Assignment. The rights and liabilities of the parties hereto
----------
shall bind and inure to the benefit of their respective
successors, executors and administrators, as the case may be,
provided that, as Adobe has contracted for CONSULTANT's services,
CONSULTANT may not assign or delegate its obligations under this
agreement either in whole or in part without the prior written
consent of Adobe.
(c) Equitable relief. Because the Services are personal and unique
----------------
and because CONSULTANT shall have access to and become acquainted
with the confidential information of Adobe, CONSULTANT agrees
that Adobe shall have the right to enforce this agreement and any
of its provisions by injunction, specific performance or any
other equitable relief without prejudice to any other rights and
remedies that Adobe may have for the breach of this agreement.
(d) Attorney's Fees. If any action at law or in equity is necessary
---------------
to enforce the terms of this agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs and
expenses in addition to any other relief to which such prevailing
party may be entitled.
(e) Governing law; Severability. This agreement shall be governed by
---------------------------
and construed in accordance with the laws of the State of
California. If any provision of this agreement is for any reason
found by a court of competent jurisdiction to be unenforceable,
the remainder of this agreement shall continue in full force and
effect.
(f) Complete understanding; modification. This agreement constitutes
------------------------------------
the full and complete understanding and agreement of the parties
hereto and supersedes all prior understandings and agreements.
Any waiver, modification or amendment of any provision of this
agreement shall be effective only if in writing and signed by the
parties thereto.
(g) Notices. Any notices required or permitted hereunder shall be
-------
given to the appropriate party at the address specified below or
at such other address as the party shall specify in writing .
Such notice shall be deemed given upon personal delivery to the
appropriate address or sent by certified or registered mail,
three days after the date of mailing.
IN WITNESS WHEREOF, the parties hereto have signed this agreement as of the date
written below.
Adobe Systems Incorporated Consultant
1585 Charleston Road Address
Mountain View ,CA 94043
Date:__________________ Date:________________
By:_______________________ By:____________________________
Title:__________________
<PAGE>
EXHIBIT A
---------
Project Assignment # _______
under Consulting Agreement Dated________
Project:
- --------
CONSULTANT shall render such services as Adobe may from time to time request in
connection with __________ including, without limiting the generality of the
foregoing:
(1) ______________________________________________________
Schedule of Work
- ----------------
The work will commence on ___________________and end on ______________________.
Fees and Reimbursement
- ----------------------
A. Fee: $__ per hour.
B. Reimbursement for the following, as approved in advance by Adobe:
1. Outside services at cost
2. Direct charges at cost
3. Travel and subsistence at cost:
CONSULTANT shall invoice Adobe semi-monthly for services and expenses and
shall provide such reasonable receipts or other documentation of expenses
as Adobe might require including copies of time records.
Payment terms: net ____ days from receipt of invoice. Adobe will be Invoiced
on the 15th and last day of the month.
C. Maximum Chargeable on this project, including all items in paragraphs A and
B above, is $_____________.
Assignment of Copyright:
- ------------- ---------
For good and valuable consideration, the undersigned sells, assigns and
transfers to Adobe Systems Incorporated, a California corporation, and
its successors and assigns, the copyrights in and to the above work(s)
which were created by the undersigned and all right title and interest of
the undersigned, vested and contingent therein and thereto.
Executed as of______________ day of ___________ 198__.
<PAGE>
Adobe:__________________ CONSULTANT:__________________
Cost Center(s) to be Charged:
<PAGE>
EXHIBIT C
---------
DEVELOPMENT SCHEDULE
<TABLE>
<CAPTION>
Milestone Task Responsibility Date Payment
- ------------ -------------------- -------------- ---- -------
<S> <C> <C> <C> <C>
1 Sign Development Joint [*] [*]
and License
Agreement
2 High level Adobe [*] [*]
functional/require-
ments specification
for Version 2015
interface program
3 Version 2015 Adobe [*]
interface program
preliminary
specification and
documentation to
enable Peerless to
2015 based PCL
4 [*] [*]
5 Final 2015 Adobe [*]
specifications and
font interface
specifications.
6 Delivery of 2015 Peerless [*] [*]
based PCL
specifications
7 Peerless/Adobe Joint [*] [*]
design review
8 An engineering Adobe [*] [*]
(Alpha) release
(including font
support and font
data) of Version
2015
</TABLE>
[*Confidential Treatment Requested]
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
9 [*] [*]
10 [*] [*]
11 Delivery of Peerless [*] [*]
engineering
(Alpha) release of
2015 based PCL5E
and Floating Point
Performance
Improvements
12 A fully quality- Adobe [*]
assured customer
release of Version
2015
13 Delivery of pre- Peerless [*] [*]
production (Beta)
release of 2015
based PCL
14 Delivery and Peerless [*] [*]
acceptance of final
release of 2015
based PCL 5
</TABLE>
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT D
---------
MINIMUM TERMS OF SOURCE SUBLICENSE
Adobe will include the substance of the following minimum terms and conditions
in any Source Sublicense Agreement that it enters into with an Adobe Source
Licensee in accordance with the terms of this Agreement.
1. Source Licensee is granted a license for internal development purposes
only to the Licensed Source Materials in supporting the Licensed Object Code.
2. Source Licensee has the right to create Licensed Software Derivatives
and to use, reproduce, distribute and sub-license the machine-executable form of
the Licensed Software and any such Licensed Software Derivatives, provided,
however that all Licensed Software Derivatives shall be distributed only in the
form of Object Derivatives. In the event Object Licensee distributes the
Licensed Object Code or Object Derivative on magnetic or optical media rather
than silicon chip(s) media, Object Licensee will take reasonable steps to ensure
that each such copy of the Licensed Object or Object Derivatives distributed by
Object Licensee or any intermediaries is accompanied by a copy of an End User
Agreement containing the minimum terms and conditions set forth in Exhibit F
hereto. The End User Agreement may be a written agreement signed by the customer
or a written agreement in the package containing the Licensed Object or Object
Derivatives or the end user documentation therefor that the customer accepts by
opening the package.
3. Source Licensee acknowledges that Adobe represents that Adobe or its
suppliers are the sole owner of any and all right, title and interest in and to
the Licensed Software and each and every embodiment thereof and all proprietary
rights therein, including, without limitation copyrights, patents and trade
secrets.
4. Source Licensee shall take the following specific precautions with
respect to any and all Licensed Source Materials: (i) restrict access to the
Licensed Source Materials only to Source Licensee's employees or independent
contractors who require access thereto for a purpose authorized by this
Agreement, (ii) clearly identify each medium which contains the Licensed Source
Materials as containing confidential and proprietary property, (iii) limit the
supply of such media to the minimum number reasonably necessary for use by
Source Licensee, (iv) make it a condition of any such disclosure of the Licensed
Source Materials to any employee or contractor that any such employee or
contractor agrees that he will hold the Licensed Source Materials and any part
thereof in confidence and protect the proprietary rights therein; (v) take such
other precautions as Source Licensee normally takes with its employees and
contractors who handle Source Licensee's source code for comparable software.
Source Licensee will store or otherwise use the Licensed Source Materials (and
all Copies thereof) on secure computer systems (as defined in Exhibit I hereto).
<PAGE>
5. Source Licensee shall cause to be reproduced in all copies of all or
any portion of the Licensed Software the following copyright notice: Copyright
(C)1993 Peerless System Corporation All Rights Reserved.
6. Due to the unique and proprietary nature of the Licensed Source
Materials, Source Licensee acknowledges that there may be no adequate remedy at
law for breach of Source Licensee's obligations under this Agreement. Upon any
such breach, Adobe or its suppliers of the Licensed Source Materials shall be
entitled to seek appropriate injunctive relief against Source Licensee, in
addition to whatever remedies at law Adobe or its suppliers may have.
7. Source Licensee shall comply with any and all export regulations, rules
and orders now in effect or as may be issued from time to time by the Office of
Export Administration of the United States Department of Commerce or any other
Federal Governmental authority which has jurisdiction relating to the export of
the Licensed Software from the United States of America or relating to any
product(s) in which the Licensed Software is, will be, or may be incorporated.
Source Licensee shall use or distribute the Licensed Software only in countries
authorized for such use or distribution by the United States of America and
shall not ship any product produced directly by use of the Licensed Software to
any unauthorized destination.
<PAGE>
EXHIBIT E
---------
MINIMUM TERMS OF OBJECT REPRODUCTION SUB-LICENSE
Adobe will include the substance of the following minimum terms and conditions
in any Object Sublicense Agreement pursuant to which it grants reproduction
rights to an Adobe Object Licensee in accordance with the terms of this
Agreement:
1. In the event Object Licensee distributes the Licensed Object Code or
Object Derivative on magnetic or optical media rather than silicon chip(s)
media, Object Licensee will take reasonable steps to ensure that each such copy
of the Licensed Object or Object Derivatives distributed by Object Licensee or
any intermediaries is accompanied by a copy of an End User Agreement containing
the minimum terms and conditions set forth in Exhibit F hereto. The End User
Agreement may be a written agreement signed by the customer or a written
agreement in the package containing the Licensed Object or Object Derivatives or
the end user documentation therefor that the customer accepts by opening the
package.
2. Object Licensee shall cause to be reproduced in all copies of all or
any portion of the Licensed software the following copyright notice: Copyright
(C) 1993 Peerless Systems Corporation All Rights Reserved.
3. Upon expiration or termination of the software license agreement
between Adobe and its supplier of the Licensed Object, Object Licensee shall
cease all use, manufacture, duplication and distribution of all or any part of
the Licensed Software in any form, including without limitation all Licensed
Software Derivatives, except that Object Licensee may distribute all units
containing Licensed Object Code or Object Derivatives (in whole or in part) then
in its inventory, provided further, however, that Object Licensee shall
immediately remit to Adobe all amount which will be owed Adobe from sales or
licenses of such inventory.
4. Object Licensee shall comply with any and all export regulations, rules
and orders now in effect or as may be issued from time to time by the Office of
Export Administration of the United States Department of Commerce or any other
Federal Governmental authority which has jurisdiction relating to the export of
the Licensed Software from the United States of America or relating to any
product(s) in which the Licensed Software is, will be, or may be incorporated.
Object Licensee shall use or distribute the Licensed Software only in countries
authorized for such use or distribution by the United States of America and
shall not ship any product produced directly by use of the Licensed Software to
any unauthorized destination.
<PAGE>
EXHIBIT F
---------
MINIMUM TERMS AND CONDITIONS OF END USER LICENSE
1. Licensor grants Licensee a nonexclusive sublicense to use the Licensed
Object on a single machine. Licensee may assign its rights under this Agreement
to a licensee of all of Licensee's right and interest to such Licensed Object
provided the Licensee transfers all copies of such Licensed Object and the
transferee agrees to be bound by the terms and conditions of this Agreement.
2. Licensee agrees that it will not copy the Licensed Object except as
necessary to use them on the single machine. Licensee agrees that any such
copies of the Licensed Object shall contain the same copyright notices which
appear in the Licensed Object.
3. Except as stated above, this Agreement does not grant Licensee any
right (whether by license, ownership or otherwise) in or to intellectual
property with respect to the Licensed Object.
4. Licensee will not export or re-export the Licensed Object without the
appropriate United States or foreign government licenses.
5. Title to and ownership of the Licensed Object and documentation and
any reproductions thereof shall remain with Licensor and its suppliers.
<PAGE>
EXHIBIT G
---------
OTHER DELIVERABLES
[TO BE COMPLETED BY MUTUAL AGREEMENT AS PART OF THE DESIGN
REVIEW]
<PAGE>
EXHIBIT H
---------
MANNER OF PAYMENT; AUDIT RIGHTS
1. Any and all amounts due to Peerless hereunder shall be sent or
delivered by Adobe to Peerless at its address first above written or at such
other address as Peerless may designate by written notice to Adobe from time to
time.
2. In the event that Peerless does not receive any amounts from Adobe
hereunder on or before the day upon which such amounts are due and payable, such
outstanding amounts shall thereupon bear interest until payment at the maximum
rate permissible by applicable law, but in no event to exceed fifteen percent
(15%) per annum. Amounts received by Peerless hereunder shall first be credited
against any unpaid interest accrued pursuant to this Section 2, and accrual of
such interest shall be in addition to and without limitation of any and all
additional rights or remedies which Peerless may have hereunder or at law or in
equity.
3. Adobe shall keep in its principal place of business complete and
accurate books of account relating to delivery and sub-licensing of the Licensed
Software. Such books of account shall, without limitation, include all
information necessary to determine the amount of payments due Peerless pursuant
to Section 8 (Payments) hereof.
4. Concurrently with the payment by Adobe of quarterly payments to
Peerless, Adobe shall deliver to Peerless a true and correct written statement
of account.
5. Peerless shall have the right at its expense, and no more often than
once during any twelve (12) month period, to have an independent auditor from a
national accounting firm enter Adobe's premises, upon reasonable notice and
during Adobe's normal business hours, to examine such records as may be required
by the auditor to verify or determine royalties paid or payable under this
Agreement. Such auditor shall be instructed to report to Peerless only the
aggregate amount of royalties due and payable for each quarter being audited,
and will be required to execute a confidentiality agreement specifying that no
other information has been disclosed to Peerless and that no information has
been disclosed to any third party. If no request for examination of such records
for a particular accounting period has been made by Peerless within three (3)
years after the end of said period, then the obligation to keep such records and
materials for said period shall terminate and the royalty payment made for such
accounting period shall be deemed to be correct and incontestable. Peerless
shall bear the expense of any such audit unless such audit reveals that
royalties paid by Adobe pursuant to Section 8 (Payment) hereof with respect to
any quarterly period are more than Ten Percent (10%) less than what should have
been paid by Adobe with respect to such period, in which event the costs of such
audit shall (in addition to, and without limitation of, any other rights or
remedies Peerless may have hereunder or at law or in equity) be borne by Adobe.
<PAGE>
EXHIBIT I
---------
SECURE COMPUTER SYSTEM
1. Secure Computer System refers to a computer system used by Adobe or
Adobe Source Licensee to modify, compile and assemble Licensed Source Materials.
2. Each Secure Computer System shall be housed entirely within a Secure
Site. Secure Site is defined to be a building or a group of adjacent buildings.
Access to the Secure Site shall be restricted to authorized employees,
independent contractors and escorted visitors.
3. Access to the Secure Computer System will be controlled by password
identification.
4. Backups of the Licensed Source Materials will be securely archived.
5. All users of the Secure Computer System will be informed of the system
security policy, which will include at least the following points:
(a) No copies of any portion of the Licensed Source Materials are to
be made, or maintained, outside of the Secure Computer System except for
authorized backups.
(b) Workstations are to be locked if left unattended for any period of
time while logged on to the Secure Computer System.
(c) All listings of the Licensed Source Materials are to be kept
within a secure area. When not in use, listings are to be secured within a
locked cabinet.
<PAGE>
EXHIBIT 10.11
AMENDMENT NO. 1
TO
PCL DEVELOPMENT AND LICENSE AGREEMENT
This Amendment No. 1 To PCL Development and License Agreement ("Amendment")
is made by and between PEERLESS SYSTEMS CORPORATION, a California corporation
with its principal place of business located at 2381 Rosencrans Avenue, El
Segundo, California 90245 ("Peerless"), and ADOBE SYSTEMS INCORPORATED, a
California corporation with its principal place of business located at 1585
Charleston Road, Mountain View, California 94039 ("Adobe"). This Amendment is
effective as of October 31, 1993.
RECITALS
A. Adobe and Peerless entered into that certain PCL Development and
License Agreement dated June 14, 1993 (the "Agreement") pursuant to which
Peerless has agreed to undertake certain software development for Adobe.
B. Adobe is required to deliver to Peerless certain Adobe information and
materials to permit Peerless to complete its development obligations under the
Agreement.
C. Adobe and Peerless desire to establish the procedures for handling and
use of such information and materials.
AGREEMENT
Adobe and Peerless agree that the following provisions shall be added to
the Agreement:
1. Adobe Support Information. "Adobe Support Information" shall mean the
information and materials delivered by Adobe to Peerless in connection with the
Agreement that are set forth in Exhibit A (Adobe Support Information) to this
Amendment. Exhibit A and the delivery schedule for Adobe Support Information may
be amended from time to time by mutual agreement of the parties. All Adobe
Support Information will be released to Peerless pursuant to, and upon Peerless'
acceptance of, an Adobe Materials Release Form, a copy of which is attached
hereto as Exhibit B.
2. Other Adobe Information. Peerless acknowledges that any materials or
information delivered by Adobe to Peerless in connection with the Agreement not
designated as Adobe Support Information shall be subject to the terms of that
certain Master Agreement for Mutual Disclosure dated March 24, 1992 between the
parties.
[*Confidential Treatment Requested]
1
<PAGE>
3. License to Use Adobe Support Information. Subject to Peerless'
compliance with the terms of this Amendment, Adobe hereby grants to Peerless a
non-exclusive, non-transferable license to use the Adobe Support Information
solely at the development site identified in Exhibit C to this Amendment (the
"Development Site") for the sole purpose of designing, developing, adapting,
testing, and maintaining Licensed Software (as defined in the Agreement) for
delivery to Adobe pursuant to the Agreement.
4. Limitations on License to Peerless. Peerless shall have no right to
sublicense any rights under this Amendment to a third party, including any
rights to use Adobe Support Information. Peerless specifically acknowledges
that, other than as expressly set forth in Section 3 (License to Use Adobe
Support Information) above, no rights to the Adobe Support Information are
granted to it. Peerless agrees that it will not attempted to reverse engineer
any portion of the Adobe Support Information provided to Peerless solely in
object code form during the term of this Agreement or thereafter.
5. Proprietary Rights; Confidentiality.
a. Ownership. Adobe and its suppliers are the sole and exclusive
owners of all rights, title and interest, including all trademarks, copyrights,
patents, trade names, trade secrets and other intellectual property rights to
the Adobe Support Information. Except for the rights expressly enumerated
herein, Peerless is not granted any rights to patents, copyrights, trade
secrets, trade names, trademarks (whether or not registered), or any other
rights, franchises or licenses with respect to the Adobe Support Information.
b. Confidentiality; Security. Peerless agrees to protect the Adobe
Support Information in accordance with Exhibit D (Secure Procedures for Handling
Adobe Support Information).
6. Similar Products. Adobe acknowledges that existing or planned printer
operating environments independently developed or acquired by Peerless may
contain ideas and concepts similar or identical to those in the Adobe Support
Information. Adobe further acknowledges that, over time, Peerless' employees
will gain familiarity with the general concepts and ideas in the Adobe Support
Information. Adobe agrees that, except for the restrictions imposed on Peerless
under this Agreement, Peerless shall not be precluded from independently
developing or acquiring printer operating environments which are not derivative
in nature, but which contains ideas and concepts similar to those in the Adobe
Support Information. Furthermore, nothing herein shall preclude Peerless from
marketing such independently developed or acquired, non-derivative printer
operating environments to others and from retaining the revenues, or any portion
thereof, derived from the marketing of such products.
2
<PAGE>
7. Disclaimer of Warranties. THE ADOBE SUPPORT INFORMATION IS PROVIDED
STRICTLY "AS IS." ADOBE MAKES NO WARRANTIES, EXPRESS, IMPLIED, ARISING FROM
COURSE OF DEALING OR USAGE OF TRADE, OR STATUTORY, AS TO THE ADOBE SUPPORT
INFORMATION. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT ARE EXPRESSLY EXCLUDED.
8. Adobe Patents. As used herein, "Adobe Patent Right" means any right
arising under any United States or foreign patent now owned by, or later issued
or assigned to Adobe, applicable to the Adobe Support Information. Adobe
covenants that, to the extent that Peerless exercise the rights expressly
granted to Peerless herein, Adobe will not (i) assert any Adobe Patent Right
against Peerless or (ii) require any fee or royalty from Peerless based upon any
Adobe Patent Right. Except to the extent of such covenant not to assert any
Adobe Patent Right, nothing contained herein shall be construed as conferring,
by implication, estoppel, or otherwise, any license or right with respect to any
Adobe Patent Right.
9. Obligations on Cancellation, Termination, or Expiration. Upon
cancellation, termination, or expiration of the Agreement:
a. Licenses Terminated. The license granted pursuant to Section 3
(License to Use Adobe Support Information) above shall terminate immediately.
b. Safeguarding of Proprietary Rights. Peerless shall continue to be
responsible for safeguarding the proprietary rights of Adobe and Adobe's
suppliers in accordance with the terms of this Amendment after such
cancellation, termination, or expiration.
c. Return or Destruction of Adobe Information. Peerless will
immediately discontinue use of, and return or destroy all copies of, Adobe
Support Information and other Adobe proprietary information in its possession
(including copies placed in any storage device under Peerless' control). Upon
Adobe's request, Peerless shall warrant in writing to Adobe its return or
destruction of all of Adobe's proprietary information within thirty (30) days of
cancellation, termination or expiration.
All other provisions of the Agreement shall remain in full force and
effect.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by
their duly authorized representatives on the date below.
PEERLESS SYSTEM CORPORATION ADOBE SYSTEMS INCORPORATED
2381 Rosencrans Avenue 1585 Charleston Road
El Segundo, CA 90245 Mountain View, CA 94039
- ------------------------------ ----------------------------------
Authorized Signature Authorized Signature
S.A. MacDonald
- ------------------------------ ----------------------------------
Print Name Print Name
Sr. Vice President
- ------------------------------ ----------------------------------
Title Title
4
<PAGE>
The Exhibits to this Amendment are:
Exhibit A Adobe Support Information
Exhibit B Adobe Materials Release Form
Exhibit C Development Site
Exhibit D Secure Procedures for Handling Adobe Support Information
Exhibit E Employee Nondisclosure Agreement
Exhibit F Contractor Agreement
Exhibit G Notice Regarding Confidentiality
5
<PAGE>
EXHIBIT A
ADOBE SUPPORT INFORMATION
Technical Contacts:
Adobe: Jennifer McCormack Phone (408) 962-3877
Peerless: Barbara Renshaw Phone (310) 297-3204
Items delivered in object form:
[*]
Items delivered in source form:
[*]
6
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT B
ADOBE MATERIALS RELEASE FORM
<PAGE>
EXHIBIT C
DEVELOPMENT SITE
Peerless' use and storage of the Adobe Support Information shall be
restricted to the following development site:
Name of Development Site: Address:
Peerless Systems Corp. 2381 Rosencrans Avenue
E1 Segundo, CA 90245
1
<PAGE>
EXHIBIT D
SECURE PROCEDURES FOR HANDLING ADOBE SUPPORT INFORMATION
1. Authorized Employees. Peerless agrees that it will not (a) disclose all
or any portion of the Adobe Support Information to third parties, with the
exception of authorized employees ("Authorized Employees") and authorized
contractors ("Authorized Contractors") (subject to Peerless' having obtained
authorization for use of such contractors in accordance with Paragraph 6 (Prior
Approval of Contractors) below (i) who require access thereto for a purpose
authorized by the Amendment and (ii) who have signed the appropriate employee or
contractor agreement substantially in the form attached to this Amendment as
Exhibit E (Employee Nondisclosure Agreement) or Exhibit F (Contractor
Agreement), as applicable, and (iii) who sign a notice of confidentially in the
form attached to the Amendment as Exhibit G (Notice Regarding Confidentiality)
prior to the initial access to Adobe Support Information.
2. Adobe Support Information.
a. Peerless shall ensure that all Adobe Support Information received
from Adobe, and copies made thereof, will be properly marked or otherwise
appropriately identified as Adobe Support Information before being made
available to Authorized Employees and Authorized Contractors hereunder.
b. Peerless shall ensure that the same degree of care is used to
prevent the unauthorized use, dissemination, or publication of the Adobe Support
Information as Peerless uses to protect its own confidential information of a
like nature, but in no event shall the safeguards for protecting such Adobe
Support Information be less than a reasonably prudent business would exercise
under similar circumstances. Peerless shall take prompt and appropriate action
to prevent unauthorized use or disclosure of Adobe Support Information by the
Authorized Employees and Authorized Contractors.
c. Authorized Employees and Authorized Contractors shall be
instructed not to copy Adobe Support Information on their own, and not to
disclose Adobe Support Information to anyone not authorized to receive it.
d. Adobe Support Information shall be handled, used, and stored
solely at the Development Site.
3. Trade Secrets. The techniques, algorithms, and processes contained in
the Adobe Support Information which have been developed, acquired, or licensed
by Adobe, or any modification or extraction thereof, constitute trade secrets of
Adobe and/or its suppliers, and will be used by Peerless only in accordance with
the terms of this Amendment. Peerless will take all measures reasonably required
to protect the proprietary rights of Adobe and its
1
<PAGE>
suppliers in the Adobe Support Information and will promptly notify Adobe of any
lost or missing items and take all reasonable steps to recover such items.
4. Clone Product Development. If Peerless engages in development of a
product having page description capabilities that are substantially compatible
with the PostScript language ("Clone Product") during the term of this
Agreement, it shall ensure that there is no sharing of Adobe Support
Information, or any facilities or personnel with access to Adobe Support
Information, with such Clone Product development. Adobe acknowledges that PCL
products and printer operating system products shall not be considered Clone
Products. Peerless shall ensure that all Authorized Employees and Authorized
Contractors who have had previous access to Adobe Support Information will be
precluded for a period of twelve (12) months after their latest access to such
Adobe Support Information from being employed in any Clone Product development.
"Employment in any Clone Product development" shall be defined as having direct
access to, or producing any specifications, documentation, or source code for,
components of a Clone Product. Peerless shall further ensure that each such
employee or contractor shall, concurrent with the commencement of work on such
Clone Product development within Peerless, sign a written affirmation to
Peerless on a form provided by Peerless which states that each such employee or
contractor (a) has neither retained nor had access for a minimum period of
twelve (12) months to any Adobe Support Information, and (b) will not utilize,
or facilitate use of, any Adobe Support Information in such Clone Product
development. This prohibition relating to Clone Product development shall apply
equally to raster-output devices, to display or screen output devices, or to any
other peripheral devices.
5. Obligations Survive Termination. The provisions of Paragraph 4 (Clone
Product Development) above shall survive the termination, cancellation or
expiration of the Agreement.
6. Prior Approval of Contractors. Notwithstanding the provisions in this
Exhibit permitting Authorized Contractors to have access to Adobe Support
Information, Peerless may not permit a contractor to come into contact with
Adobe Support Information unless Peerless has first obtained such authorization
in writing from Adobe. Adobe, in its sole discretion, may withhold such approval
in the event that a contractor (or contractor's employer) is engaged in Clone
Product development, either for its own benefit or for the benefit of a third
party, or if Adobe believes that the contractor may be engaged in similar
product development, and Peerless cannot assure Adobe to its satisfaction that
contractor, while engaged in supporting such development activities, will be
able to refrain from commingling or sharing any portion of the Adobe Support
Information with any such Clone Product development.
7. Proprietary Notices. In order to protect Adobe's copyright and other
ownership interests, Peerless agrees that as a condition of its rights
hereunder, each copy of
2
<PAGE>
the Adobe Support Information, or any portion thereof or documentation therefor,
shall contain a valid copyright notice and any other proprietary notices,
including the copyright notices of Adobe's suppliers, which appear on or in the
Adobe Support Information and documentation delivered to Peerless hereunder or
as Adobe may require from time to time. Presence of a copyright notice does not
constitute an acknowledgment of publication.
8. Proprietary Rights Audit. During the term of the Agreement and for a
period of eighteen (18) months thereafter, Adobe or its authorized
representatives shall have access to such portion of Peerless' records and
premises to allow Adobe to determine whether Peerless is substantially in
compliance with the terms and conditions of this Amendment. In no event shall
audits be made hereunder more frequently than once a year. Such access shall be
(a) during Peerless' regular business hours, (b) arranged so that, to the extent
possible, Peerless' regular business activities are minimally disrupted and (c)
under the terms of a confidentiality agreement acceptable to Peerless and
executed by the individual(s) conducting such audit. If such audit reveals that
Peerless is not substantially in compliance with its obligations to protect
Adobe's proprietary rights, Peerless shall pay the reasonable costs of such
audit. Otherwise, Adobe shall pay the costs of such audit. Such payment will not
preclude Adobe from exercising any right which it may have under the Agreement,
as amended. Peerless shall promptly correct any deficiencies discovered in the
course of the audit.
3
<PAGE>
EXHIBIT E
EMPLOYEE NONDISCLOSURE AGREEMENT
1
<PAGE>
EXHIBIT F
CONTRACTOR AGREEMENT
1
<PAGE>
EXHIBIT G
NOTICE REGARDING CONFIDENTIALITY
1. Peerless Systems Corp. ("Peerless") is in possession of certain Adobe
Support Information of Adobe Systems Incorporated ("Adobe") which Peerless has
received pursuant to the Development and License Agreement between Peerless and
Adobe dated June 14, 1993, as amended ("License Agreement").
2. To further the purposes of the License Agreement, and in consideration
of the disclosure to Recipient of proprietary information of Adobe, all of which
is of a confidential nature and which contains valuable trade secrets, know-how,
and proprietary information of Adobe (the "Adobe Support Information"),
Recipient agrees to comply with the terms hereof regarding confidentiality of
information.
3. Recipient agrees not to use the Adobe Support Information for any
purpose except for the specific purposes which Peerless or Adobe authorize in
writing. Recipient agrees not to disclose the Adobe Support Information to any
person at any time except to employees of Adobe and to the Designated Third
Parties listed below who have entered into this form of a Confidentiality
Agreement. Recipient agrees to use his or her best efforts to prevent any
unauthorized use or disclosure of the Adobe Support Information, and to promptly
notify Adobe of any such unauthorized use of which Recipient learns.
4. All materials including, without limitation, programs, recorded
information, documents, drawings, models, apparatus, sketches, designs, and
lists furnished to Recipient by Peerless or Adobe which are designated in
writing to be the property of Adobe will remain the property of Adobe and will
be returned to Adobe promptly at its request, together with any copies or
modifications thereof.
5. Recipient acknowledges that Adobe is a party to this Agreement, and that
unauthorized use or disclosure of the Adobe Support Information will result in
irreparable and continuing damage to Adobe for which there will be no adequate
remedy at law. If Recipient fails to comply with the terms of this Agreement,
Adobe and/or Peerless shall be entitled to equitable relief to protect its
interests, inducing but not limited to injunctive relief, in addition to any
other rights and remedies provided by law.
6. This Agreement will be governed in all respects by the laws of the State
of California as such laws are applied to agreements entered into and to be
performed entirely within California between California residents. If any
provision of this Agreement is held to be invalid, the parties agree that such
invalidity will not affect the validity of the remaining portions of this
Agreement, and agree to substitute for the invalid provision a valid provision
which most closely approximates the intent and economic effect of the invalid
provision. Recipient will not assign or transfer any rights or obligations under
this
1
<PAGE>
Agreement without the prior written consent of Adobe. This Agreement contains
the entire understanding of the parties regarding the matters set forth herein.
This Agreement may be modified only by a writing signed by all parties. The
waiver by Adobe of a breach of any provision of this Agreement by Recipient will
not operate or be interpreted as a waiver of any other or subsequent breach by
Recipient.
7. The effective date of this Agreement shall be ________________.
2
<PAGE>
RECIPIENT: PEERLESS SYSTEMS CORP.
By: By:
---------------------------------- ----------------------------------
Print Name: Print Name:
-------------------------- --------------------------
Date: Date:
------------------------------- -------------------------------
ADOBE SYSTEMS INCORPORATED: DESIGNATED THIRD PARTIES:
1585 Charleston Road
P.O. Box 7900 #1
Mountain View, CA 94039-7900 -----------------------------------
Name
By:
----------------------------------
Print Name: -------------------------------------
-------------------------- (Date Confidentiality Agreement
Date: Executed)
-------------------------------
#2
-----------------------------------
Name
-------------------------------------
(Date Confidentiality Agreement
Executed)
1
<PAGE>
Adobe Materials Release Form
To: Date:
From: Contact Person:
All materials released under this form are covered by the terms and conditions
of:
Contract: Date of Contract:
Description of Materials Released:
Restrictions and Comments:
Acknowledged and Agreed to by:
Adobe Systems Incorporated Accepting Party
Date: Date:
---------------------------- -----------------------------------
- --------------------------------- -----------------------------------------
Signature Signature
- --------------------------------- -----------------------------------------
Print Name Print Name
Please sign above, print name, date and return to:
Adobe Systems Incorporated
1585 Charleston Road, P.O. Box 7900
Mountain View, CA 94039-7900
<PAGE>
EXHIBIT 10.12
1585 CHARLESTON ROAD
P.O. BOX 7900
MOUNTAIN VIEW CA
94039-7900
PHONE 415 961.4400
FAX 415 961.3769
August 5, 1994
Mr. William S. Wood
PEERLESS SYSTEMS CORP.
2381 Rosecrans Avenue
El Segundo, CA 90245
Re: PCL Development and License Agreement dated June 14, 1993
Dear Bill,
This letter confirms the revised Milestone Payments and new Engineering
Fees that Peerless and Adobe previously agreed to verbally regarding
completion of the PCL5e development project described in the above
Agreement.
Milestone Payments
------------------
To date, Adobe has paid [*] as Pre-Paid Royalties to Peerless in Milestone
Payments representing payment though Milestone 11 in the Development
Schedule. The two remaining PrePaid Royalty payments totaling [*] for
Milestones 13 and 14 will be paid by Adobe to Peerless in four payments as
follows:
<TABLE>
<CAPTION>
Payment Amount Task/Target Date
------- ------ ----------------
<S> <C> <C>
1 [*] [*]
2 [*] [*]
3 [*] [*]
4 [*] [*]
</TABLE>
Peerless agrees that Adobe will not be required to make Payments 1, 2, and
4 above until the task is complete. The Target Dates above reflect the
current schedule.
Engineering Fees
----------------
In addition to the above Milestone Payments, Adobe will pay engineering
fees to Peerless to cover Peerless' extended development expenses from [*].
Adobe will pay engineering fees to Peerless at the rate of [*] per hour up
to a maximum of [*] per calendar quarter for up to two full
[*Confidential Treatment Requested]
<PAGE>
time engineers. A first payment of [*] will be paid upon execution of this
letter by Peerless accompanied by a statement verifying that Peerless will
have had two full time engineers on the project during [*]. Thereafter, the
engineering fees will be paid monthly at the end of the calendar month
through [*]. Peerless will send an invoice to Marsha Dillon at Adobe with
information indicating who worked on project and the number of hours worked
per person. Peerless and Adobe agree to meet and discuss the possibility of
payments beyond [*]if the project extends beyond the current target
completion date of [*].
Peerless and Adobe agree that all other terms and conditions of the
original agreement remain the same.
Best regards,
Marsha Dillon
Business Development Manager
ACKNOWLEDGED AND AGREED TO ON BEHALF OF
PEERLESS SYSTEMS CORPORATION
BY:
------------------------------------
PRINT NAME: David R. Fournier
----------------------------
TITLE: V.P. Sales
---------------------------------
DATE: 8/5/94
----------------------------------
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<PAGE>
EXHIBIT 10.13
ADDENDUM NO. 1
EFFECTIVE AS OF MARCH 31, 1995
TO
PCL DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
ADOBE SYSTEMS INCORPORATED AND PEERLESS SYSTEMS CORPORATION
NAME OF LICENSED SOFTWARE: HP COLOR LASERJET EMULATOR
THIS ADDENDUM sets forth additional and different terms and conditions
particular to the Licensed Software described below and shall be
incorporated by reference into the PCL Development and License Agreement
between PEERLESS SYSTEMS CORPORATION ("Peerless") and ADOBE SYSTEMS
INCORPORATED ("Adobe"), effective as of June 14, 1993, as amended on October
13, 1993, September 22, 1993, and August 5, 1994 (the "Agreement"). Such
different or additional terms are applicable only to the Licensed Software
described below and, unless otherwise specifically stated below, in no way
alter the terms and conditions applicable to other Licensed Software covered
by the Agreement. All capitalized terms used but not defined in this
Addendum shall retain the same meaning as given them in the Agreement, and
such definitions are incorporated herein by reference.
A. LICENSED SOFTWARE: HP Color LaserJet Emulator suitable for the
Adobe 2016 Open Architecture environment (the "Color Emulator") that is
functionally equivalent to the PCL that is found in the newly released HP
Color LaserJet.
B. SPECIFICATIONS: The Color Emulator will operate in accordance
with the specifications set forth in Exhibit A (PostScript 2016 Based HP
---------
Color LaserJet Emulator Specifications) attached hereto. As with the
PeerlessPrint5E language, Peerless shall continue to update the
PeerlessPrint5C language to be compatible with all meaningful HP color
PCL5E-based products as they evolve.
C. DEVELOPMENT SCHEDULE: The development and milestone schedule
(the "Development Schedule") attached hereto as Exhibit B (HP Color LaserJet
---------
Emulator Development Schedule) sets forth the responsibilities of the parties
with respect to the development of the Color Emulator. Development tasks are
shown in the column entitled "Task." The party or parties responsible for a
particular task are shown in the same row as that task under the column
entitled "Responsibility." The date upon which a particular task is to be
completed is shown in the same row as that task under the column entitled
"Date." Each party agrees to complete the tasks for which it is responsible
as shown on the Development Schedule and to provide any deliverables in
connection with those tasks on the relevant dates set forth on the
Development Schedule. The parties agree that any delay by a party in
completing a task upon which tasks of the other party are contingent will
extend the
<PAGE>
completion date for such other tasks on a one-for-one basis for each day of
delay (contingency of tasks is indicated in the Development Schedule).
D. ACCEPTANCE:
1. ACCEPTANCE PROCEDURES. Upon completion of a final production
version of the Color Emulator that operates in accordance with
specifications described in Exhibit A (PostScript 2016 Based HP Color
---------
LaserJet Emulator Specifications) as determined by all Test Suites, Peerless
shall deliver to Adobe such software and any additional deliverables that
Peerless may be required to provide pursuant to the Development Schedule.
Sections 4.2 through 4.6 of the Agreement, and the acceptance procedures set
forth therein, are hereby incorporated by reference into this Addendum.
2. TEST SUITES. Adobe and Peerless acknowledge that they will use
the Genoa Test Suites for the HP Color LaserJet Printer. Adobe shall define
test suites and identify acceptance and performance criteria in accordance
with milestone 12 of the Development Schedule. Peerless shall obtain at its
own expense all necessary test suites.
E. APPLICABLE ROYALTIES:
1. ADVANCE ROYALTIES. In an effort to assist Peerless in funding
the development of the Color Emulator, Adobe shall pay Peerless advance
royalties of [*] (the "Advance Royalties") ([*] of which has already been
paid) in installments upon completion of certain milestones and in the
amounts shown on the Development Schedule for a particular milestone under
the column entitled "Payment". Except as otherwise stated in Section E(2)
below, the Advance Royalties shall be subject to the same terms and
provisions of the Agreement as are applicable to the Pre-Paid Royalties (as
defined in Section 8.6 of the Agreement).
(a) In the event that Adobe fails to deliver deliverables required
by the Development Schedule on the date specified in the Development
Schedule and Peerless, through no fault of its own, is unable to meet any
milestone delivery dates that are specified as contingent on such
deliverable as a result of such Adobe-caused delays (contingency of tasks is
indicated in the Development Schedule), Adobe is obligated to make the
milestone payments to Peerless on the Target Dates specified in the
Development Schedule; provided, however, that in no event shall Adobe be
required to make the payments associated with milestones 2 and 15 shown on
the Development Schedule until such milestone is actually met.
(b) In the event that Peerless fails to deliver deliverables
required by the Development Schedule on the dates specified in the
Development Schedule, other than as a result of a failure of Adobe to
deliver deliverables required by the Development Schedule on the dates
specified in the Development Schedule, Adobe shall be entitled to withhold
all subsequent milestone payments until it receives the delayed
deliverables.
2. RECOUPMENT OF ADVANCE ROYALTIES. The parties agree that the
Advance Royalties shall be added to Pre-Paid Royalties, and that such
aggregate amount
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comprised of the Pre-paid Royalties and the Advance Royalties (collectively,
"Total Pre-paid Royalties") shall be recouped [*].
3. OBJECT ROYALTIES. Adobe shall pay Peerless for each copy of the
Color Emulator or any subsequent Peerless Color Product [*].
Pursuant to the foregoing, the parties agree that Subsection 8.2(iii)
of the Agreement is hereby amended and restated to read in full as follows:
"(iii) In the event that Peerless develops Licensed Software
implementing PCL Color Products ("Peerless Color Products") and
provides Adobe with the Adobe version of such Peerless Color Products,
Adobe shall pay Peerless for each copy of Licensed Object or Object
Derivative for such Peerless Color Products shipped or delivered by
Adobe or any Adobe Sub-Licensee an amount equal to [*]."
4. COLOR EMULATOR PRICES. Adobe shall have the sole discretion to
determine prices with respect to the Color Emulator. Adobe agrees, however,
not to discount prices of the Color Emulator by an amount proportionately
greater than the amount by which it discounts PostScript software pricing.
5. FORECASTS. Commencing June 1995, Adobe shall provide to
Peerless semi-annual forecasts of revenues expected from the licensing of
the Color Emulator.
F. ADDITIONAL OBLIGATIONS:
1. SHIPMENT OF PEERLESS PCL5E. Adobe agrees to offer PCL5E
provided by Peerless as a PCL option for the Adobe 2016 Open Architecture
(the "PCL5E for 2016"), provided that (i) Peerless delivers and Adobe
accepts the PCL5E for 2016 and (ii) sufficient customer demand exists at the
time of and after Adobe's acceptance of the PCL5E for 2016. This Section
F(1) does not create any obligation on the part of Adobe to offer PLC5E for
any subsequent Adobe architectures.
G. DESIGNATED PERSONS.
1. Technically qualified Peerless contact to respond to
information requested by Adobe:
Larry Feldman Phone #: (310) 297-3267
Director of Software Fax: (310) 536-0058
Peerless Systems Corporation
2381 Rosecrans Avenue
El Segundo, CA 90245
2. Technically qualified Adobe contact to respond to information
requested by Peerless:
[*Confidential Treatment Requested]
<PAGE>
Carmen Hernandez Phone #: (415) 962-4713
Co-Development Consulting
Engineer Fax: (415) 960-2570
Adobe Systems Incorporated
1585 Charleston Road
P.O. Box 7900
Mountain View, CA 94039-7900
3. Adobe Contract Representative:
Marsha Dillon Phone #: (415) 962-6683
Business Development Manager Fax: (415) 965-7430
Adobe Systems Incorporated
1585 Charleston Road
P.O. Box 7900
Mountain View, CA 94039-7900
4. Peerless Contract Representative:
William Wood Phone #: (310) 297-3210
Peerless Systems
Corporation Fax: (310) 536-0058
2381 Rosecrans Avenue
El Segundo, CA 90245
<PAGE>
IN WITNESS WHEREOF, Peerless and Adobe have caused this Addendum No. 1 to
be executed by their duly authorized representatives.
Adobe: OEM:
ADOBE SYSTEMS INCORPORATED
PEERLESS SYSTEMS CORPORATION
By: By:
---------------------------------- ----------------------------------
Print Name: John E. Warnock Print Name: E. A. Gavaldon
-------------------------- --------------------------
Title: CEO Title: President and CEO
------------------------------- -------------------------------
Date: May 3, 1995 Date: April 18, 1995
------------------------------- --------------------------------
<PAGE>
EXHIBIT A
POSTSCRIPT 2016 BASED HP COLOR LASERJET EMULATION SPECIFICATIONS
GENERAL
Release 1. Release 1 of the Color Emulator will be a display list generating
implementation that will use the Adobe display list management approach. If
the Color Emulator uses this approach, the Adobe environment will be able to
run in a compression configuration to reduce memory usage. The emulation will
be tested in a compression configuration. It will have planar frame buffer
organization and be for CMYK devices only. Such initial release will also be
restricted to single bit per pixel support per color component.
Release 2. Release 2 of the Color Emulator will include multi-bit per pixel,
"chunky" composite frame buffer organization and CMY device support.
An additional release will address any additions or changes necessary to
offer functional equivalence to the HP 1200 line of enhanced PCL5 color
inkjet printers or the latest HP PCL5E color inkjet printer on the market.
The requirements for this release will be defined during the development of
Release 1 and Release 2 of the Color Emulator.
The Color Emulator will be a derivative product based on the Adobe PCL5E
product currently in development for delivery on the Adobe PostScript 2016
platform. As such, the Color Emulator will contain the same capabilities
provided in Adobe PCL5E, augmented by provisions to incorporate color. The
Color Emulator will conform with Hewlett-Packard as defined in the following
Hewlett-Packard document, which describes PCL specifications for the HP
Color LaserJet:
PCL5 COLOR TECHNICAL REFERENCE MANUAL, EDITION 1, SEPTEMBER 1994, PART
NO. E00994
In addition, the Color Emulator will conform to those undocumented features
of Hewlett-Packard Color LaserJet that are verified by the test suites
identified in paragraph D(2) of the Addendum.
To the extent that Hewlett-Packard printers do not conform with the above
documentation, the Color Emulator may not exactly emulate a particular
Hewlett-Packard printer or software revision. The Color Emulator will not
abort operation or lose subsequent input in the presence of abnormal or
illegal input.
The Color Emulator will be developed and tested specifically for the Adobe
[*] Reference Platform Controller, driving a [*] print engine. Other
controller or engine combinations are beyond the scope of Release 1 of the
Color Emulator, although the design and implementation will not be
unreasonably limited to this specific platform without mutual consent of
both parties. The features schedule and related reimbursement of Peerless
development costs for
[*Confidential Treatment Requested]
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additional development platforms or engines will be mutually agreed upon at
the time Adobe requests such additional development work.
FLOATING POINT
The HPGL portion of the Color Emulator will be configured for use without
floating point hardware support.
PJL
Hewlett-Packard Printer Job Language (PJL) is, in general, NOT included as
part of the Color Emulator. Adobe product code is responsible for any PJL
parsing and parameter management in its environment. Any new PJL commands in
the HP Color LaserJet product need to be emulated and may require
cooperation from the Peerless code as specified by Adobe. The interface
currently provided in Adobe PCL5E (obtain the NVRAM/Front Panel information
from the Adobe product code per Adobe's specification of the interface and
parsing the PJL Universal Exit command) will continue to be provided in the
Color Emulator.
FONT SUPPORT
The Color Emulator does not include a font rasterizer or font data. The
Color Emulator requires a LaserJet 4 compatible font rasterizer and font
data. Font selection and appearance will match or conform to the Hewlett-
Packard products only to the extent that the font rasterizer and font data
supplied by Adobe do so. The Color Emulator will use the Adobe font system
in the same manner as with Adobe PCL5E.
PRODUCT CODE
Peerless will provide a modified version of the Adobe product code that
implements a model for the eventual product front panel that has the same
basic functionality as the HP Color LaserJet front panel, including printing
of sample pages.
<PAGE>
EXHIBIT B
HP COLOR LASERJET EMULATOR DEVELOPMENT SCHEDULE
<TABLE>
<CAPTION>
MILESTONE TASK WHO DATE PAYMENT
<C> <S> <C> <C> <C>
1 Letter of intent* Joint [*] [*]
2 Sign Addendum No. 1 containing detailed, Joint [*] [*]
agreed upon milestone schedule and
specification
3 Deliver an Onyx Color Reference Platform Adobe [*] [*]
Version 2016, [*] engine, and color
capable PostScript.
4 Deliver Camelot simulator, "tool chain" Adobe [*] [*]
necessary to build 2016 and existing PCL5E
product.
5 Provide a knowledgeable technical contact. Adobe [*] [*]
familiar with the internal 2016 interfaces
that the Color Emulator will use who can
acknowledge and focus appropriate attention
on Peerless' questions within 8 working
hours and interact daily until the necessary
information is fully developed.
6 Deliver detailed engine specification for Adobe [*] [*]
[*]
7 Deliver comprehensive details, including Adobe [*] [*]
any new PJL related specifications, of the
software interface between the PDL and
the Adobe Print Engine Driver for the [*].
The 2016 call interfaces must provide
necessary and sufficient capabilities to
support the language requirements defined
in the specification documents.
8 Deliver information for color calibration Adobe [*] [*]
method, calibration tables, formats, tools,
and the color space standard Adobe uses for
PostScript color products.
</TABLE>
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<TABLE>
<C> <S> <C> <C> <C>
9 Validate reference platform, simulator, Joint [*] [*]
and tool chain by replicating then-current
PCL5E in the color development
environment using Adobe/PP5E GRS
package.
10 Delivery and acceptance of detailed Peerless [*] [*]
specification describing how Peerless is
using the 2016 print environment interfaces
for Release 1 of the Color Emulator.
11 Delivery and acceptance of the Color Peerless [*] [*]
Emulator capable of generating monochrome
output using Peerless Color GRS package.
12 Specify test suites and acceptance and Adobe [*] [*]
performance criteria to be used for final
acceptance.
13 Deliver 2016 with all Color Emulator- Adobe [*] [*]
relevant interfaces "frozen" for the duration
of the 2016 development cycle.
14 Deliver an Agate Color Reference Platform Adobe [*] [*]
Version 2016.
15 Delivery and acceptance of the Onyx-based Peerless [*] [*]
Color Emulator capable of generating bi-
level color output suitable for controlled
demonstration.
16 Delivery and acceptance of the Agate-based Peerless [*] [*]
Color Emulator capable of generating bi-
level color output suitable for controlled
demonstration.
17** Delivery and acceptance of Release 1 of the Peerless [*] [*]
Agate-based Color Emulator that satisfies
the acceptance criteria identified pursuant to
milestone 12 above.
18 Delivery and acceptance of detailed Peerless [*] [*]
specification describing how Peerless is
using the 2016 print environment interfaces
for Release 2 of the Color Emulator.
19 Delivery and acceptance of Release 2 of the Peerless [*] [*]
Color Emulator.
</TABLE>
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<TABLE>
<C> <S> <C> <C>
20 Delivery and acceptance of the Color Peerless [*]
Emulator for the latest HP PCL5E color
inkjet printer on the market.
</TABLE>
* Payment shall be refunded if milestone 2 is not met.
** Payment not required until milestone is met.
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.14
1585 CHARLESTON ROAD
P.O. BOX 7900
MOUNTAIN VIEW, CA
94039-7900
PHONE 415.961.4400
FAX 415.961.3769
August 30, 1995
Cary A. Kimmel
PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Ave.
El Segundo, CA 90245
RE: PCL5 DEVELOPMENT AND LICENSE AGREEMENT DATED JUNE 14, 1993
Dear Cary,
Adobe agrees to modify the terms of the August 5, 1994 letter amendment
to the above Agreement regarding the PCLSe development project described
in the Agreement as follows:
1.0 Peerless has invoiced Adobe for the final [*] Pre-Paid Royalty
payment associated with the final delivery, Milestone 4 in the
August 5, 1994 letter, upon Peerless' delivery of the final
candidate software release. Adobe will provide payment of such
invoice upon Adobe's acceptance in accordance with Paragraph 4
---------
("Acceptance") of the Agreement.
2.0 It is agreed by both parties that the following actions will
constitute the completion of all activities for this project.
2.1 The PP5e product will be functionally complete as of Peerless
Release 11B.2 of the PP5e software released to Adobe on May 31,
1995 and revised on June 2, 1995.
2.2 Remaining Peerless efforts are associated with "bug" fixes of
this release.
2.3 Once Peerless Quality Assurance has completed their review of
the complete ATS and CET output from Peerless Release 11B.2,
subsequent release testing will consist of regression testing
only. Regression testing consists of a complete FTS and ATS run
and rerunning any specific CET/other files that demonstrated the
bugs that are fixed in the release being tested. The output of any
such regression testing will be supplied to Adobe.
[*Confidential Treatment Requested]
<PAGE>
Kimmel/Peerless
August 30, 1995
Page 2
2.4 The differences between the version of Genoa test suites that
Peerless is running (February 1993 plus 1993 updates) and the
version that Adobe is running are minor and no upgrade of the
Peerless suites is required by Adobe.
2.5 Adobe agrees that: (i) the Adobe PostScript 2016.102 software
as, delivered to Peerless on July 7, 1995, (ii) the Amethyst
Reference System sent to Peerless on July 3, 1995 and (iii) the
RefSim code delivery sent to Peerless on July 12, 1995 are
sufficient to complete acceptance testing and additional Peerless
rework in support of subsequent 2016 releases is not required.
2.6 The style, method and content of Peerless release 13 shall be
that of previous releases made by Peerless. Adobe testing to
complete the Adobe acceptance test cycle shall consist of
rerunning of Genoa Test Suites (ATS, FTS, CETs and other Adobe-
generated tests sent to Peerless on June 19, 1995) and reviewing
output.
3.0 Peerless agrees that any engineering charges necessary to complete
the tasks outlined in Section 2.0 above shall not increase the
Final Engineering Fees as defined in Section 4.0 below.
4.0 In addition to the above Milestone Payment, Adobe will pay
engineering fees to Peerless to cover Peerless' extended
development expenses (actual hours spent by Peerless engineering
personnel) during the period from May 1, 1995 through completion
of the project as outlined above up to a maximum of [*], (the
"Final Engineering Fees"). Peerless will send an invoice to Sandy
Songy at Adobe with information indicating who worked on the
project and the number of hours worked per person.
All other terms of the Agreement and any amendments thereto including
the letter amendment of August 5, 1994 shall remain in full force and
effect.
Sincerely, ACKNOWLEDGED AND AGREED TO ON
BEHALF OF PEERLESS CORPORATION:
By:
---------------------------
Sandy Songy Print: William Wood
Business Development Manager ------------------------
Title: Vice President
------------------------
Date: 8/31/95
-------------------------
cc: Jim Stephens
Don Andrews
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.15
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO APPEARS HERE]
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only. February 6,
----------
1992 is made by and between Continental Development Corporation, a California
- ---- ---------------------------------------------
corporation (herein called "Lessor") and The Peerless Group, a California
--------------------------------
corporation doing business under the name of The Peerless Group, (herein
- ----------- ------------------
called "Lessee").
1.2 Premises: Suite Number(s) 400 floors, consisting of approximately
---
25,169 rentable feet, more or less, as defined in paragraph 2 and as shown on
- ---------------
Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 2381 Rosecrans Avenue
---------------------
in the City of El Segundo
-----------------------------------------------------------------
County of Los Angeles
----------------------------------------------------------------------
State of California, as more particularly described in Exhibit D hereto, and as
---------- -
defined in paragraph 2.
*1.4: Use: General and engineering offices for software development.
---------------------------------------------------------
, subject to paragraph 6.
- -------------------------------------------------------
*1.5 Term: Five years commencing June 1, 1992 ("Commencement Date")
---------- ------------
and ending May 31, 1997, as defined in paragraph 3.
------------
1.6 Base Rent: $58,818.92 per month, payable on the 1st day of each month,
---------- ---
per paragraph 4.1 rent abated for months 1 through 12
--------------------------------------------------------------
- --------------------------------------------------------------------------------
1.7 Base Rent increase: On N/A the monthly Base Rent payable under
---
paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution: $58,818.42
-----------------------------------------------
for month 13 (June 1993)
----------------------------------------------------------------------------
1.9 Security Deposit: $58,000 to be paid April 15, 1992.
------------------------------------------------------
1.10 Lessee's Shares of Operating Expense increase: 13,032% as defined in
paragraph 4.2. ------
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property, referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises", including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to the
rules and regulations attached hereto, and as established by Lessor from time to
time. Lessee shall be entitled to rent and use 85 unreserved and 15 reserved
parking spaces in the Office Building Project at the monthly rate applicable
from time to time for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the
cost to Lessee, which cost shall be immediately payable upon demand by Lessor.
*2.2.2 The monthly parking rate per parking space will be $60.00 for
----------
reserved and $45.00 for non-reserved per month at the commencement of the term
- ------------------------------------
of this Lease, and is subject to change upon five (5) days prior written notice
to Lessee. Monthly parking fees shall be payable one month in advance prior to
the first day of each calendar month.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, land-scaped areas and decorative walls.
*2.4 Common Areas--Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 Common Areas--Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available:
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project:
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Office Building Project as Lessor may,
in the exercise of sound business judgment deem to be appropriate.
3.1 Term. The term and Commencement Date of this Lease shall be as specified
in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee said date and
subject to paragraph 3.2.2. Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or
obligations of Lessee hereunder or extend the term hereof; but, in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's
INITIALS:
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1984 American Industrial Real Estate Association FULL SERVICE-GROSS
PAGE 1 OF 10 PAGES
See Addendum
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option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard Improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period. Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.2.1 Possession Tendered-Defined. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements. Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent
*4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of the Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease term
commences.
(c) "Comparison Year" is defined as each calendar year during the term
of this Lease subsequent to the Base Year; provided, however, Lessee shall have
no obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense Increase for the first and last
Comparison Years of the Lease Term shall be prorated according to that portion
of such Comparison Year as to which Lessee is responsible for a share of such
increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The Operation, repair, maintenance, and replacement, in
neat, clean, safe, sale, good order and condition, of the Office Building
Project, including but not limited to the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Areas lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
*(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgement of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessee is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
*(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the delinquency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion
of the last Comparison Year for which Lessee is responsible as to Operating
Expense Increases, notwithstanding that the Lease term may have terminated
before the end of such Comparison Year.
(c) 1984 American Industrial Real Estate Association FULL SERVICE-GROSS
Page 2 of 10 Pages
* See Addendum
<PAGE>
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.5 of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's opinion, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or
permit the use of the Premises or the Common Areas in any manner that will tend
to create waste or a nuisance or shall lend to disturb other occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. In the event that
it is determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation.
* (b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
* 7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair, provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be
no abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
* (b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
* (a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee
make any alterations, improvements, additions or Utility Installations without
the prior approval of Lessor, or use a contractor not expressly approved by
Lessor, Lessor may, at any time during the term of this Lease, require that
Lessee remove any part or all of the same.
* (b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
* (d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by laws. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
(c) 1984 American Industrial Real Estate Association FULL SERVICE-GROSS
PAGE 3 of 10 PAGES
* See Addendum
<PAGE>
any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor of the Premises, the Building or the Office Building
Project upon the condition that if Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
premises, the Building, and the Office Building Project free from the effect of
such lien or claim, in addition Lessor may require Lessee to pay Lessor's
reasonable attorneys fees and costs in participating in such action of Lessor's
best interest so to do.
* (e) All alterations, improvements, additions and Utility
installations (whether or not such Utility installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings
sound attenuation and lighting and telephone or communication systems,
conduit, wiring and outlets, shall be made and done in a good and workmanlike
manner and of good and sufficient quality and materials and shall be the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the Lease term unless Lessor requires their removal pursuant to
paragraph 7-3(a). Provided Lessee is not in default notwithstanding the
provisions of this paragraph (7-3(a), Lessee's personal property and equipment,
other than that which is affixed to the Premises so that it cannot be removed
without material damage to the Premises or the Building and other than Utility
installations shall remain the property of Lessee and may be removed by Lesse
subject to the provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility installations.
7.4 Utility Additions, Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. Insurance;Indemnity.
8.1 Liability Insurance--Lessee. Lessee shall at Lessee's expense obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL040), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance--Lessor, Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risk
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenace of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance--Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form or equivalent providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force
during the term of this Lease, a policy of rental value insurance covering a
period of one year with loss payable to Lessor which insurance shall also cover
all Operating Expenses for said period. Lessee will not be named in any such
policies carried by Lessor and shall have no right to any proceeds therefrom.
The policies required by these paragraphs 8.2 and 8.4 shall contain such
deductibles as Lessor or the aforesaid lender may determine. In the event that
the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof,
the deductible amounts under the applicable insurance policies shall be deemed
an Operating Expense. Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies carried by Lessor. Lessee shall pay the
entirety of the increase in the property insurance premium for the Office
Building Project over what it was immediately prior to the commencement of the
term of this Lease if the increase is specified by Lessor's insurance carrier as
being caused by the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance with seven (7) days after
the Commencement Date of this Lease. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with renewals
thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
* 8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents. Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnity and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; proceeding be brought against Lessor by reason of any such matter,
Lessee upon notice from Lessor shall defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee
in such defense. Lessor need not have first paid any such claim in order to be
so indemnified. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and Lessee
hereby assumes all risk of damage to property of Lessee or injury to persons, in
upon or about the Office Building Project arising from any cause Lessee hereby
waves all claims in respect thereof against Lessor.
* 8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefore or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places or
from new construction or the repair alteration or improvement of any part of the
Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessable. Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other Lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. Damages or Destruction
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damage or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the than Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean,if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild damaged areas to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
<PAGE>
9.2 Premises Damage: Premises Building Partial Damage.
(a) Insured Loss Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an insured
loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels at Lessor's expense repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
*(b) Uninsured Loss. Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent of willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, as of the date of the occurence of such damage, in which
event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction: Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date
of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
*(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9 and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (i) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said apartment of rent, if any Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
*(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination-Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
*10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10#2 or 10#5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises. Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
*11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
<PAGE>
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting, or power, or suffer any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install Lessee's expense supplemental equipment and/or separate motering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall not
be liable in any respect whatsoever for the inadequacy, stoppage, interruption
or discontinuance of any utility or service due to riot, strike, labor dispute,
breakdown, accident, repair or other cause beyond Lessor's reasonable control in
cooperation with government request or directions.
12. Assignment and Subletting.
*12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of the law assign, transfer, mortgage, sublet, or otherwise transfer or encumber
all or any part of Lessee's interest in the Lease or in the the Premises,
without Lessor's prior written consent which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in
a timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of the Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate" ;
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if alter such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee , the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
to Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
*(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therin:
*(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
*(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into
a sublease under this Lease, be deemed for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease: provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
*(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', engineers' or other consultants'
fees.
*12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
*(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations). 12.1 (assignment or
subletting). 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination),
33(auctions), or 41.1(easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
*(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable UnLawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
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*See Addendum
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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee, provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C.S. 101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, The same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, of its successor in interest or by any guarantee or Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that the Lessee proves could be reasonably
avoided; that portion of the leasing commission paid by Lessor pursuant to
paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover rent as it
becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
* 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have therefore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than
thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
of Base Rent, Lessee's Share of Operating Expense increase or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expense increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
*14. Condemnation. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option,to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
of condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent of Lessee's Share of Operating Expense increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Lessee and no reduction of rent shall occur with respect thereto
or by reason thereof. Lessor shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning authority,
by giving written notice to Lessee of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Office Building Project. Any award for the taking of all or any part of
the Premises or the Office Building Project under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improvements that have been paid for by
Lessee. For that purpose the cost of such improvements shall be amortized over
the original term of this Lease excluding any options. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are N/A
----------------------
as "listing broker" and Lee & Associates as
-----------------------------------------------------
"cooperating broker," licensed real estate broker(s). A "cooperating broker" is
defined as any broker other than the listing broker entitled to a share of any
commission arising under this Lease. Upon execution of this Lease by both
parties, Lessor shall pay to said brokers jointly, or in such separate shares as
they may mutually designate in writing, a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $
--------------
for brokerage services rendered by said broker(s) to Lessor in this transaction.
(c) Lessor agrees to pay said fee not only on behalf of Lessor, but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of this
paragraph 15 to the extent of their interest in any commission arising under
this Lease and may enforce that right directly against Lessor; provided,
however, that all brokers having a right to any part of such total commission
shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a). above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorney's fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date
<PAGE>
to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party. (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any Lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
*17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a Lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest. Lessor herein named (and in case of any subsequent transfers than
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
*19. Interest on Past-due Obligations. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
*22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Office Building Project and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease.
*23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to
Lessee or to Lessor at the address noted below or adjacent to the signature of
the respective parties, as the case may be. Mailed notices shall be deemed
given upon actual receipt at the address required, or forty-eight hours
following deposit in the mail, postage prepaid, whichever first occurs. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
*24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short term" memorandum of this
Lease for recording purposes.
*26. Holding over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be two hundred percent (200%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
*28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Nothwithstanding such subordination, Lessee's right to
quiet possession of the Premises shall not be disturbed if Lessee is not in
default and so long as Lessee shall pay the rent and observe and perform all of
the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect
to have this Lease and any Options granted hereby prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice thereof
to Lessee, this Lease and such Options shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this Lease or such Options are dated
prior or subsequent to the date of said mortgage, deed of trust or ground lease
or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in accordance
with this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to decision
or judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction
is subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
*32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
<PAGE>
* 32.3 Lessor shall have the right to retain keys to the Premises and to
un lock all doors in or upon the Premises other than files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises of Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 (auctions) and 34 (signs) hereof, wherever
in this Lease the consent of one party is required to an act of the other party
such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
* 39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee: provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
* (a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c) or paragraph 13.1(d), whether
or not the defaults are cured, during the 12 month period of time immediately
prior to the time that Lessee attempts to exercise the subject Option, (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
* (c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. Security Measures--Lessor's Reservations.
* 40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project
or building in which the Premises are located upon not less than 90 days prior
written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
* (c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air or light by any structure erected
in the vicinity of the Building, whether by Lessor or third parties, shall in no
way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
Initials:[initials appear here]
----------------------
[initials appear here]
----------------------
c 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
PAGE 9 OF 10 PAGES
* See Addendum
<PAGE>
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Lease Addendum dated September 20, 1991 attached hereto and made a part
hereof.
* Includes new provisions 50 through 57.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
CONTINENTAL DEVELOPMENT CORPORATION THE PEERLESS GROUP
- --------------------------------------- --------------------------------------
By /s/ Richard C. Lundquist By /s/ William S. Wood
------------------------------------- ------------------------------------
Richard C. Lundquist William S. Wood
Its President Its Vice President - Finance
------------------------------ -----------------------------
By /s/ Leonard E. Blakesley By [Signature Appears Here]
------------------------------------- ------------------------------------
Leonard E. Blakesley, Jr.
Its Secretary Its
------------------------------ ------------------------------------
Executed at El Segundo, CA Executed at El Segundo, CA
---------------------------- ---------------------------
on Februar 10, 1992 on Feb 10, 1992
------------------------------------- ------------------------------------
Address Address 2381 Rosecrans
-------------------------------- -------------------------------
@ 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071. (213) 687-4777
1984-By American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without permission in writing.
<PAGE>
LEASE ADDENDUM
This Addendum is dated this 6 day of February, 1992 and shall be operative as of
this date unless otherwise stated herein. It is intended to supplement that
certain lease by and between Continental Development Corporation (Lessor) and
The Peerless Group, a California corporation (Lessee) dated the 6 day of
February, 1992 (the Lease). Lessor and Lessee hereby agree to the matters
hereinafter set forth. This Addendum shall be attached to the Lease and shall
incorporate all relevant terms of the Lease as if set forth verbatim. If there
are any conflicts between this Addendum and any provisions of the Lease, the
Addendum shall be controlling as to matters specifically set forth herein. As
to matters not specifically set forth herein, the Lease shall be controlling.
The following amendments and revisions are hereby made to corresponding numbered
paragraphs "1" through "49" of the Lease.
Paragraph No. Revision
1.4 The "Use" of the Premises shall be general office and
commercial use consistent with applicable laws,
ordinances, and regulations (which may include, without
limitation, computer hardware and software design and
development).
1.5 The end of the term (subject to possible exercise of the
option) shall be May 31, 1997.
2.2.2 Paragraph 2.2.2 is deleted, and the availability of, and
charges for, parking spaces shall be governed by paragraph
51 of the Addendum hereto.
2.4 Line 4 of Paragraph 2.4 is revised to read, in part, as
follows:
"...right, from time to time, to make reasonable
modifications and amendments to such rules, and
reasonable additional rules, as it may deem necessary,
in its reasonable judgement, for the appropriate
operation and safety of the Office Building Project
and its occupants. Lessor shall not be responsible..."
3.2 Paragraph 3.2 (including Paragraphs 3.2.1 and 3.2.2) is
superseded in it entirety by the Work Letter attached to
the Lease as Exhibit C.
4.1 The first sentence of Paragraph 4.1 is revised to read:
"Subject to the abatement of rent for the first twelve
(12) full months of the term, and except as otherwise
provided in this Lease (which includes the Addendum
hereto), Lessee shall pay to Lessor the Base Rent for
the Premises set forth..."
<PAGE>
4.2(d) (v) The following is added at the end of (paragraph) 4.2 (d) (v):
"except for any amounts of real property taxes that result from
any additional improvements placed upon the Office Building
Project (A) by Lessor other than for the exclusive use of Lessee
or (B) by any other lessee(s)."
4.2(g) Line 3 of (paragraph) 4.2(g) is revised to read as follows:
". . . of Lessee's Share of the Operating Expense Increase for
any Comparison Year provided Lessor presents to Lessee a
reasonably detailed statement of such estimate, and the same
shall be payable monthly or quarterly, as Lessor shall . . ."
Line 8 of (paragraph) 4.2(g) is revised to read:
". . . shall be entitled to credit the amount of such
overpayment against any rent payments next due and, if not fully
recouped at the end of the term, to a prompt refund in cash. If
Lessee's payments . . ."
4.2(h) A new paragraph 4.2(h) is added as follows:
"(h) The foregoing provisions notwithstanding, Lessee shall not
be responsible for any portion of any increases in Operating
Expenses that represent or result from: (i) the initial lease-up
of the Building to the 95% occupancy level (including, without
limitation, any costs of associated institution of full
janitorial and trash disposal services, heavier use of water,
sewer, gas, electricity, or other utility services, increased
insurance payments or security costs, etc.); (ii) the completion
of any aspects of the construction or furnishing of the Building
or the Office Building Project that were not fully completed
without defect at the beginning of the Base Year or repairs of
construction defects; (iii) any tax increase(s) caused by any
additional improvements placed upon or in the Office Building
Project by Lessor other than for the exclusive use of Lessee or
by any other lessee(s); or (iv) Lessor's negligence. For
calculational purposes, all of the foregoing costs shall be
disregarded, both for the "Base Year" and for each and every
"Comparison Year," the parties intending that lessor shall be
responsible for all costs associated with the completion and
initial lease-up of the Building and the Office Building Project
and that all determinations of Operating Costs Increases assume
stabilized operations of the leased-up Building and Project.
Under no circumstances shall leasing commissions be included in
Operating Expenses."
4.3 Paragraph 4.3 (including 4.3.1 through 4.3.5) is deleted.
6.3(b) The last sentence of (paragraph) 6.3(b) is replaced by the
following:
"Lessor warrants to Lessee that there are no conditions,
restrictions, ordinances, regulations, covenants, or other
limitations that will prevent
<PAGE>
the use of the Premises for general office purposes."
7.1 The last sentence of (paragraph) 7.1 is deleted and replaced by the
following:
"Lessor shall maintain the Building as a Class A building with
good elevator service, maintenance, and upkeep."
7.2(b) Line 3 of (paragraph) 7.2(b) is revised to read:
". . . and tear if the same would have been prevented by good
practices by Lessee in maintenance for which Lessee is
responsible under this Lease. Lessee shall repair any damage to
the Premises occasioned . . ."
7.3(a) The words "and equipment" are deleted from the end of the second
sentence of (paragraph) 7.3(a) (line 4).
The words "one and one-half times" are deleted from line 8 of
(paragraph) 7.3(a).
7.3(b) Line 3 of (paragraph) 7.3(b) is revised to read, in part, as follows:
". . . deemed conditioned upon Lessee acquiring a permit to do
so, if required by applicable laws, ordinances, or regulations,
from the . . ."
7.3(d) The last line of (paragraph) 7.3(d) is revised to read:
". . . in participating in such action if Lessor shall
reasonably determine it is necessary to do so in order
reasonably to protect Lessor's interests."
7.3(e) Lines 6 and 7 of (paragraph) 7.3(e) are revised to read, in part, as
follows:
". . . the provisions of this paragraph 7.3(e), Lessee's
personal property and equipment (including trade and other
fixtures) other than such items that are affixed to the Premises
so that they cannot be removed without material . . ."
8.7 Lines 2-8 of (paragraph) 8.7 are revised to read, in part, as
follows:
". . . person or property of anyone or any entity arising from
Lessee's use of the Office Building Project or the Premises; in the
conduct of Lessee's Business in or about the Premises; or in any
activity, work, or things done, permitted, or suffered by Lessee in
or about the premises and shall further indemnify and hold harmless
Lessor from and against any and all claims, costs and expenses
arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this
Lease or arising from any act, or omission of Lessee or any
<PAGE>
of its agents, employees, or contractors and from and against all
costs, attorney's fees, expenses and liabilities incurred by Lessor
as the result of any of the foregoing and in dealing reasonably
therewith, including but not limited to the defense of any claim or
action or proceeding involved therein; and in case any . . ."
The last sentence of Paragraph 8.7 is replaced by the following two
sentences:
"The foregoing notwithstanding, Lessee shall not be obligated to
indemnify or defend Lessor or its associated persons identified
above in this paragraph for any claims, damages, costs, or injuries
to the extent that such damages, costs, or injuries result from
negligence or greater fault on the part of Lessor or any of those
associated persons or from any violation by any of them of the
provisions of this Lease. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the
Office Building Project arising from any of the above matters as to
which Lessee is required by this paragraph to provide
indemnification in favor of Lessor; and Lessee hereby waives all
claims in respect thereof against Lessor."
8.8 Section 8.8 limited so that Lessor is not, and shall not be, exculpated
from any damages, injury, loss of income, etc. to or by Lessee that may
result from Lessor's gross negligence, willful misconduct, or, except as
otherwise expressly provided in this Lease, violations of the terms of
this Lease.
9.2(b) Lines 3-6 of Paragraph 9.2 (b) are revised to read, in part, as follows:
". . . which damage interferes substantially with Lessee's use or
enjoyment of the Premises, Lessor shall either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect or (ii) if
the cost of such repair would exceed the "mandatory repair amount,"
as defined below, at Lessor's option, give written notice to Lessee
within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease . .
."
A new sentence is added at the end of Paragraph 9.2(b) to read as
follows:
"For purposes of this Paragraph, the "mandatory repair amount" shall
mean (i) in the case of Premises Damage, the lesser of $250,000.00
and $5,000.00 times the number of months remaining in the lease term
(including the option term if Lessee gives notice to Lessor of
exercise of the option within thirty days after such damage) or (ii)
in the case of Premises Building Partial Damage, $750,000.00.
<PAGE>
9.5(a) Line of para. 9.5(a) is revised to read as follows:
"Unless Lessor is entitled to terminate this Lease pursuant to the
terms of paragraph 9.2(b) or 9.3 above and does so, if any part of
the Premises . . ."
9.5(b) The words "ninety (90) days" in line 2 of para. 9.5(b) are changed to
"forty-five (45) days".
The words "six (6) months" in lines 2-3 of para 9.5(b) are changed to
"five (5) months".
10.1 The end of line 1 of (Paragraph) 10.1 through the end of (paragraph)
10.1 is revised to read, as follows:
". . . subject to reimbursement (to the extent, and only to the
extent, set forth in article 4.2 hereof) by Lessee of Lessee's
Share of certain increases in such taxes."
11.3 Paragraph 11.3 is revised to read, in its entirety, as follows:
"Electricity, water, gas, light, telephone, and other utilities
shall be available at the Premises at all times. Lessor may
require reasonable advance notice from Lessee for provision of,
and may charge Lessee the reasonable cost of providing, heating,
ventilation, air conditioning, or janitorial services at times
other than generally accepted business days and hours (or other
than after hours on business days in the case of standard after-
hours janitorial services.)
12.1 Line 5 of (Paragraph) 12.1 is revised to read, in part, as follows:
". . . shall include the transfer of (or series of transfers in
any twelve (12) month period aggregating) (a) if . . . "
In line 6 of (Paragraph) 12.1, the words "twenty-five percent (25%) of
the voting stock of such corporation" are changed to:
"fifty percent (50%) of the outstanding voting stock of, but in no
event sales or an offering stock by, such corporation:.
In line 7 of (Paragraph) 12.2 the words "twenty-five percent (25%)" are
changed to "fifty percent (50%)".
12.3 Paragraph 12.3(c) is revised to begin "Neither a reasonable delay in
----------
the approval . . ."
12.4(a) The last sentence of (Paragraph) 12.4(a) is revised to read:
"Lessee shall have no right or claim against said sublessee for
any such rents so paid by said sublessee to Lessor, nor shall
Lesse have a claim against Lessor for such rents so paid provided.
<PAGE>
such amounts were due and owing from Lessee to Lessor."
12.4(b) The following is added at the end of the second sentence of paragraph
12.4(b) (i.e., the sentence that begins "In entering into any sublease,
----
. . .") in line 3 of that paragraph:
". . . it being agreed that the American Industrial Real Estate
Association Standard Sublease (1978 form) or a similar form will be
deemed acceptable."
12.4(e) The words "three (3) days" in line 2 of paragraph 12.4(e) are changed
to "five (5) business days".
12.6 The words "of a quality substantially equal to that of Lessee and" are
deleted from line 2 of paragraph 12.6.
The words "or of such assignment or subletting, whicherver is greater"
are deleted from lines 4 and 5 at the end of 12.6.
13.1(b) The words "if material" are added both (i) on line 1 of paragraph
13.1(b) before the word "(alterations)" and (ii) in line 2 of that
paragraph before the word "(false statement)".
Lines 3 and 4 of paragraph 13.1(b) are revised to read, in part, as
follows:
". . . 33 (auctions), or 41.1 (easements), it being agreed that the
above breaches may, in Lessor's reasonable judgment, be deemed to
be material, non-curable defaults (provided, in the case of the
specified failures relating to material alterations, assignments or
subletting, insolvency, estoppel certificates, subordination, or
easements, that Lessee fails to cure the same within fifteen
(15) days after written notice and demand for cure from Lessor to
Lessee)."
13.1(c) The words "three (3) days" in line 2 of paragraph 13.1(c) are changed
to "five (5) days."
13.3 Line 2 of para. 13.3 is revised to read, in part:
". . . thirty (30) days (or twenty [20] days in the case of
failures to perform that materially and substantially interfere
with the conduct of Lessee's business) after written notice . . ."
The words "30-day period" in line 5 of para. 13.3 are changed to:
"30-day period (or 20-day period, as the case may be)"
14 The final sentence of paragraph 14 is deleted.
15(b) Paragraph 15(b) is replace in its entirety by the following:
<PAGE>
The parties acknowledge (i) that Lessor has acted on its own
behalf and as its own listing agent in connection with this
lease; (ii) that Lee and Associates has advised Lessee in this
transaction; and (iii) that Lessor (and not Lessee) is solely
responsible for the fee to be paid to Lee and Associates in
accordance with the separate agreement between those two
entities."
17 Line 5 of (P) 17 is revised to read, in part, as follows:
". . . shall be delivered to the transferee and provided further
that the transferee shall be responsible for the performance of
all obligations to be performed hereunder by "Lessor" during the
transferee's term of ownership or status as ground lessee and,
except to the extent of an estoppel of Lessee pursuant to
paragraph 16 hereof, any obligations of the transferor hereunder
required to have been performed prior to the transfer but not so
performed."
19 The words "to Lessor" in line 1 of (P) 19 are changed to "hereunder."
The words "by Lessee" at the end of line 2 of (P) 19 are changed
to "the other party."
22 Lines 6 and 7 of (P) 22 are revised to read, in part, as follows:
". . . and Lessee acknowledges that Lessee assumes all
responsibility for the compliance of its operations, activities,
and improvements at the Premises with the Occupational Safety
and Health Act and with all applicable laws and regulations in
effect during the term of this Lease."
23 Paragraph 23 is deleted, and notice hereunder is to be governed solely
by paragraph 53 hereof.
24 The first sentence of (P) 24 is revised to read as follows:
"No waiver by either party hereto of any provision hereof shall
be deemed a waiver of any other provision hereof or of any
subsequent breach by the other party of the same or any other
provision."
26 The words "two hundred percent (200%)" in line 3 of (P) 26 are changed
to "one hundred fifty percent (150%)."
28 The word "Lessee" in (P) 28 is changed to "either party hereto."
32.2 The following is added at the end of (P) 32.2:
". . . provided that Lessor and its agents use reasonable care
in such activity and do not materially interfere with Lessee's
use or enjoyment of the Premises. "
<PAGE>
32.3 The last line of paragraph 32.3 is revised to read as follows:
"...or business resulting from actions taken by Lessor or its agents
under this paragraph 32.3 in an emergency except as may result from the willful
misconduct or gross negligence of such persons."
39.2 Paragraph 39.2, including the heading thereof, is revised to read, in its
entirety, as follows:
"39.2 Exercise of Options. The Option(s), if any, herein granted to
Lessee may be exercised only by the original Lessee or by any Lessee Affiliate,
as defined in Paragraph 12.2 of this Lease, or by any permitted assignee of this
Lease or a permitted sublessee of at least fifty-one percent (51%) of the
Premises. Except as contemplated in the preceding sentence, no option may be
separated from this Lease in any manner, either by reservation or otherwise."
39.4(a) The parenthetical phrase "(without any necessity for notice thereof to
Lessee)" is deleted from line 4 of para. 39.4(a).
The word "material" is added both (i) before the word "non-curable" at
the end of line 6 of paragraph 39.4(a) and (ii) before the words "terms,
covenants or conditions" in line 7 of paragraph 39.4(a).
39.4(c) The parenthetical phrase "(without any necessity for notice thereof to
Lessee)" is deleted from line 3 of paragraph 39.4(c).
The word "material" is added both (i) before the word "non-curable" at
the end of line 6 of paragraph 39.4(c) and (ii) before the words "terms,
covenants or conditions" in line 7 of paragraph 39.4(c).
40.1 The first sentence of paragraph 40.1 is revised to read:
"Lessor shall provide security guard service for the Building at
least during normal business hours, and, if Lessor does not provide guard
service 24 hours per day, 7 days a week, card key and telephone arrangements,
or similar security measures, limiting access to the Building and elevators
shall be in operation during all periods when security guard service is not
provided."
Line 4 of paragraph 40.1 is revised by adding the word "reasonable"
before the word "cost".
40.2(c) Paragraph 40.2(c) is revised to read as follows:
"To permit any lessee the exclusive right to conduct any business in
the Building provided that no such exclusive rights shall limit the use,
consistent with the other provisions of this Lease and with applicable laws and
regulations, of the Premises by Lessee or its permitted assignee or sublessee."
<PAGE>
General Rules
- -------------
G.R. 6 General Rule 6 is revised to read:
"Subject to paragraph 7.2(b) of the Lease concerning repair of
damage to the Premises occasioned by installation or removal of
Lessee alterations, etc., Lessee shall be entitled to install
and/or change, from time to time, locks, bolts, or other
reasonable security devices to protect and secure the Premises
(including, without limitation, the sensitive proprietary
information and trade secrets involved in Lessee's business)
provided that, in each instance, Lessee furnishes to Lessor a
duplicate key or other access device so that Lessor will have
access to the Premises at all times. Lessor shall take reasonable
precautions to insure that such keys and any other access devices
are properly secured and are available only to responsible
representatives of Lessor and that the security of Lessee in the
Premises is preserved."
G.R.12 General Rule is revised to read, in part, as follows:
"Lessor reserves the right to close and lock the building on
Saturdays, Sundays, and legal holidays, and on other days between
the hours of 6:30 p.m. and 7:30 a.m. of the following day
provided that Lessor provides Lessee with keys or other devices
that allow ready access by Lessee's authorized personnel to the
Premises at all times. If Lessee uses the Premises during such
periods, Lessee shall . . ."
G.R. 19 The following is added at the end of General Rule 19:
". . . (other than occasional warming or preparation of food by
employees for their consumption on premises)"
P.R. 5 Parking Rule 5 is revised to read as follows:
"Lessor reserves the right reasonably to relocate all or a part
of the reserved parking spaces to which Lessee is entitled
provided that Lessee's 15 reserved parking spaces shall at all
-------------
times be (i) reasonably located and (ii) among the 30 most
desirably located reserved tenant parking spaces associated with
the Building."
The following paragraphs "50" through 57 are added to the Lease as if set forth
therein in full.
50. TOXIC MATERIALS
Lessee will not dispose of any Toxic Materials (defined below) in, on, or about
the Premises or the Project; however, minimal quantities of Toxic Materials
which are not unreasonably
<PAGE>
hazardous and which are commonly used in or about office complexes or similar
buildings may be used and stored, if needed by Lessee in conjunction with its
business conducted from the Premises. Lessee shall notify Lessor in writing of
any such use or storage. Lessee, at its sole cost, will comply with all laws
relating to Lessee's storage, use and disposal of hazardous, toxic or
radioactive matter (collectively "Toxic Materials"). Lessee will be solely
responsible for, and will defend, indemnify and hold Lessor, its agents and
employees harmless from and against, all claims, costs and liabilities,
including attorneys' fees and costs, arising out of or in connection with
Lessee's storage, use and disposal of Toxic Materials. Lessee will be solely
responsible for, and will defend, indemnify and hold Lessor, its agents and
employees harmless from and against any and all claims costs, and liabilities
including attorneys' fees and costs, arising out of or in connection with the
removal, clean-up and restoration work and materials necessary to return the
Premises and any other property of whatever nature located on the Office
Building Project to their condition existing prior to the appearance of Lessee's
Toxic Materials (or any Toxic Materials belonging to any of Lessee's agents,
employees, or contractors) on the Premises if such Toxic Materials were
responsible for the need to perform any such removal, clean-up or restoration
work. Lessee's obligations under this Section will survive the termination of
this Lease.
51. PARKING
Throughout the term of this Lease (including the Option term, if the Option is
exercised, Lessee shall be entitled to the use of One Hundred (100) parking
spaces in the parking facility located adjacent to the Building, 85 of which
shall be unreserved and 15 of which shall be reserved full-sized spaces. The
locations of the reserved spaces shall be as agreed upon between Lessor and
Lessee prior to the commencement of the Lease term. The charge for these spaces
shall be Forty-Five Dollars ($45.00) per month for each unreserved space and
Sixty Dollars ($60.00) per month for each full sized reserved space, provided
--------
that no such charges shall apply, and Lessee shall be entitled to the use of
- ----
those parking spaces without charge, for the first twelve (12) full months (365
days) of the Lease term. Lessee (and its employees and guests) shall have access
to the parking facility and the spaces referred to above in this paragraph 24
hours a day, seven days a week.
52. LESSEE SIGNAGE
Lessee shall exhibit identification signage in compliance with Lessor's building
standard at Lessee's suite entry and on the building directory. Said signage
shall be furnished by Lessor at reasonable cost to be paid by Lessee.
Lessor shall permit the Lessee to have a building or monument sign during the
term of this Lease, with space and prominence proportionate to Lessee's
proportionate occupancy of the Building, provided the following conditions are
met:
1) Any proposal for signage must be approved in writing by Lessor in all
respects (sign design, location, etc.) at Lessor's sole discretion,
not to be exercised unreasonably and with Lessee to be treated as
favorably as any other tenant in the Building as regards such approval.
2) Any proposal for signage approved by Lessor also shall receive written
approval in all repsects from the City
<PAGE>
of El Segundo if such approval is required by an applicable ordinance
or regulation. A copy of such written approval by the City shall be
sent to Lessor upon receipt by Lessee. It shall be Lessee's sole
responsibility to obtain the City's consent, if such is required, but
Lessor agrees to cooperate reasonably with Lessee, if asked to do so,
for purposes of obtaining such consent provided that Lessee pays the
costs, if any, reasonably incurred by Lessor, after notice to Lessee,
in so doing and provided that Lessor shall notify Lessee of any steps
being taken, from time to time, with respect to monument signs for the
Building or the Office Building Project, including, without limitation,
any actions to obtain consents from the City of El Segundo, and shall
assist Lessee, if appropriate, to participate in such steps and
actions.
3) Any signs erected for Lessee pursuant hereto shall be subject to
maintenance, repair and replacement by Lessor, and Lessee shall be
responsible for the reasonable cost thereof.
53. NOTICES
Any notice required or permitted to be given hereunder shall be in writing and
may be given by personal delivery or by express or overnight mail, messenger, or
delivery service with proof of dispatch, and shall be deemed sufficiently given
if delivered or addressed to Lessee or to Lessor at the address, immediately
below, of the respective party, as the case may be. Mailed notices shall be
deemed given upon actual receipt at the address required, or forty-eight hours
following deposit in the mail Express or Certified, Return Receipt Requested.
Either party may by notice to the other specify a different address for notice
purposes except that, upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to either party hereunder shall also
be concurrently transmitted to such party at such other address as such party
may from time to time hereafter designate by notice to Lessee.
TO LESSOR: Richard C. Lundquist
Continental Development Corporation
2041 Rosecrans Avenue, Suite 265
El Segundo, California 90245
TO LESSEE: Lauren L. Shaw
The Peerless Group
2381 Rosecrans Avenue
El Segundo, California 90245
54. EXPANSION
During the term of this Lease, provided there is no existing default by Lessee
hereunder nor any condition which by only the passage of time would become a
default by Lessee hereunder, and provided further that Lessee has given Lessor
written notice of its intent to acquire additional premises, Lessor shall
cooperate with Lessee to endeavor to accommodate Lessee's requirements for
additional premises. Lessor shall provide Lessee with reasonable alternatives
for such additional premises (which shall be no less advantageous to Lessee from
an economic standpoint than other offers with respect to space in the Building
or the Office Building Project that Lessor may be making to any other person(s)
at or about the same time), each of which shall be reasonably
<PAGE>
specific as to its terms. No such offers shall be binding on wither party until
mutually agreed upon by Lessor and Lessee.
55. EXCUSED RENT AND OTHER LESSEE BENEFITS
Subject to the provisions of the following paragraph, Lessor hereby excuses
Lessee from the payment of Base Rent for the first twelve (12) full months (365
days) of the term of this Lease> If the first day of the Lease term is not the
first day of a calendar month, the rent for the thirteenth month thereafter,
which will have been paid in advance by lessee pursuant to paragraph 1.8 of this
Lease, shall be promptly returned to Lessee to the extent that a portion of said
month falls within the 365-day free-rent period.
Should this Lease be terminated at any time during the initial term of the Lease
(which does not include the Option term, whether or not the Option is exercised)
because of a default by Lessee, or should Lessee default in the payment of rent
due for any portion of the initial Lease term, then Lessor shall be entitled, in
addition to any other damages or other remedy, to payment of rent, at the Base
Rent rate set forth in the Lease, for the number of months during which Lessee
occupied the Premises with rent abated as provided herein times the fraction
equal to a (a) the number of months left in the initial Lease term at the time
of such termination or the number of months in the initial Lease term for which
rent shall be due and owing but shall remain unpaid by Lessee, as the case may
be, divided by (b) sixty (60).
As further consideration for Lessee's performance of the obligations to be
performed by Lessee under the Lease, Lessor hereby agrees to pay Lessee up to
the sum of Five Thousand Four Hundred Twenty-One Dollars ($5,421.00) monthly on
the first day of each month from and after the month the Lessee occupies the
Premises under the Lease until August 31, 1992, prorated for any partial month
during the month of occupancy, so long as Lessee is not in default hereunder.
Such sum is to reimburse Lessee for its existing rental obligation under its
former lease for other premises located at 2629 Manhattan Beach Boulevard,
Redondo Beach, California 90279 for said other premises. Lessor's obligation
shall terminate immediately and thereupon be prorated for any partial month if
Lessee's obligations under such Lease terminates prior to August 31, 1992.
Lessor hereby agrees that, upon the cancellation of Lessee's prior lease, Lessor
will reimburse Lessee up to the sum of Seven Thousand Five Hundred Dollars
($7,500.00) for Lessee's costs of cancellation.
For and in consideration of Lessee's execution of this Lease and the performance
of the terms and conditions hereof, Lessor hereby agrees that, upon Lessee's
occupancy of the Premises and the commencement of the Lease, it shall
immediately pay to Lessee the sum of One Hundred Thousand Dollars ($100,000.00)
to cover Lessee's costs of relocation to the Premises. Also, the Lessor agrees
that, in the event Lessee exercises its option, at the end of the initial 5 year
term, to extend the Lease for another five (5) year term, it will pay to Lessee
immediately upon submission by Lessee of documentation of refurbishment charges
incurred, up to the sum of One Hundred Thousand Dollars ($100,000.00) for
refurbishment of the Premises. This shall not be applicable or otherwise
available for any other extension, renewal or otherwise. Such allowance shall
be used to update, refinish, repaint, recarpet and generally refurbish the
Premises.
<PAGE>
56. LESSEE IMPROVEMENTS; TENANT IMPROVEMENT ALLOWANCE
Lessor shall contribute an amount not to exceed Twenty-five Dollars (25.00) per
square foot of Rentable area in the Premises for Tenant Improvements ("Tenant
Improvement Allowance"). No portion of said Tenant Improvement Allowance may be
used for furnishings and/or trade fixtures, or anything else, that may be
removable by Lessee upon the expiration of the term of this Lease. Such
contribution shall be made in the manner set forth in the Work Letter attached
to the Lease as Exhibit C (the "Work Letter").
Additionally, Lessor shall install, in accordance with the terms of the Work
Letter, Three Hundred Twelve Thousand Six Hundred Sixty-four Dollars and
Thirty-four Cents (312,664.34) of over-standard improvements and upgrades in the
premises, with such improvements and installation to be paid for initially by
Lessor subject to reimbursement by Lessee as follows: Lessee shall pay to
Lessor as Additional Rent pursuant to paragraph 4 (Rent) on a monthly basis
amortized at 9% per annum over the 2nd through and including 5th year of the
initial term of the Lease sum so spent on such over-building-standard Lessee
Improvements up to but not in excess of the sum of Three Hundred Twelve Thousand
Six Hundred Sixty-four Dollars and Thirty-four Cents (312,664.34).
Should any additional costs above the limitations set forth above be incurred
because of subsequent change orders from Lessee, said excess costs shall be
borne by Lessee, payment of which shall be 50 percent prior to the work being
started and 50 percent upon its completion.
57. OPTION TO EXTEND TERM
Lessee shall have the option to extend the term of this Lease for a period of
five (5) years (the "Option"), provided Lessee gives Lessor written notice of
its election to exercise the Option at least six (6) months, but not earlier
than one (1) year, prior to the expiration of the initial term of this Lease.
Time is of the essence. Exercise of the Option shall be subject to the
provisions of Article 39 of this Lease (as amended by this Addendum).
LESSOR: LESSEE:
CONTINENTAL DEVELOPMENT CORPORATION THE PEERLESS GROUP, a California
corporation
Date Date
------------------- --------------------
By: /s/Richard C. Lundquist By: /s/William S. Wood
----------------------------- -----------------------------
Richard C. Lundquist William S. Wood
Its: President Its: Vice President - Finance
By: /s/Leonard E. Blakesley Jr. By:
----------------------------- -----------------------------
Leonard E. Blakesley Jr.
Its: Secretary Its:
----------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated July 25, 1996, on our audits of the financial statements of
Peerless Systems Corporation. We also consent to the reference to our firm
under the caption "Experts."
Coopers & Lybrand L.L.P.
Newport Beach, California
July 25, 1996
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 JAN-31-1997
<PERIOD-START> JAN-01-1995 FEB-01-1996
<PERIOD-END> DEC-31-1995 APR-30-1996
<CASH> 1,184 627
<SECURITIES> 0 0
<RECEIVABLES> 1,746 2,665
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,244 3,365
<PP&E> 1,305 1,610
<DEPRECIATION> 796 901
<TOTAL-ASSETS> 4,185 4,533
<CURRENT-LIABILITIES> 5,551 5,817
<BONDS> 3,070 3,070
5,931 5,938
0 0
<COMMON> 508 508
<OTHER-SE> (12,104) (12,306)
<TOTAL-LIABILITY-AND-EQUITY> 4,185 4,533
<SALES> 0 0
<TOTAL-REVENUES> 10,413 3,331
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<TOTAL-COSTS> 5,254 1,648
<OTHER-EXPENSES> 5,523 1,519
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 176 71
<INCOME-PRETAX> (540) 93
<INCOME-TAX> 99 18
<INCOME-CONTINUING> (639) 75
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (639) 75
<EPS-PRIMARY> (0.17) 0.02
<EPS-DILUTED> (0.17) 0.02
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