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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PEERLESS SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
PEERLESS SYSTEMS CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
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PEERLESS SYSTEMS CORPORATION
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 1998
To the Stockholders of Peerless Systems Corporation:
Notice Is Hereby Given that the Annual Meeting of Stockholders of Peerless
Systems Corporation, a Delaware corporation (the "Company"), will be held on
June 18, 1998, at 2:00 p.m. local time at the Company's offices located at
2381 Rosecrans Avenue, El Segundo, California for the following purpose:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 1,200,000 shares.
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for its fiscal year ending January 31, 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 24, 1998, as
the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ HOSHI PRINTER
Hoshi Printer
Secretary
El Segundo, California
April 24, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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PEERLESS SYSTEMS CORPORATION
2381 ROSECRANS AVENUE
EL SEGUNDO, CA 90245
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 18, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Peerless Systems Corporation, a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held on June 18, 1998 at 2:00 p.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Company's offices
located at 2381 Rosecrans Avenue, El Segundo, California. The Company intends
to mail this proxy statement and accompanying proxy card on or about April 30,
1998, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 24,
1998, will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 24, 1998, the Company had outstanding and entitled
to vote 10,786,570 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter
has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 2381
Rosecrans Avenue, El Segundo, California 90245, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by
attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company not later
than December 31, 1998 in order to be included in the proxy statement and
proxy relating to that Annual Meeting. Stockholders are also advised to review
the Company's Bylaws, which contain additional requirements with respect to
advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are four nominees for the four Board positions presently authorized in
the Company's Bylaws. Paul D. Levy, after serving the Company since August
1996, resigned from the Board in December, and has elected not to stand for
reelection. Each director to be elected will hold office until the next annual
meeting of stockholders and until his successor is elected and has qualified,
or until such director's earlier death, resignation or removal. Each nominee
listed below is currently a director of the Company. Mr. Adams was appointed
by the Company's Board of Directors on March 10, 1998, and each of the other
directors was elected by the stockholders at the 1997 Annual Stockholders
Meeting.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the four nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for
election has agreed to serve if elected and management has no reason to
believe that any nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them as of March 31,
1998, are set forth below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
Edward A. Gavaldon.......... 52 President, Chief Executive Officer and
Chairman of the Board
Robert G. Barrett........... 53 General Partner, Battery Ventures
Robert L. North............. 62 Chief Executive Officer and Director of HNC
Software, Inc.
Robert V. Adams............. 66 Chairman of Documentum, Inc.
</TABLE>
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 a B.A. degree in economics from the University of California
at Los Angeles and an M.B.A. degree from the University of Southern
California.
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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. 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 Office 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.
Robert V. Adams has served the Company as director since March 1998. Mr.
Adams serves as director and Chairman of the Board of Documentum, Inc.,
director of Tekelec, Inc., and director of Encad Corp. Mr. Adams has been
President and Chief Executive Officer of Xerox Technology Ventures since 1989.
Mr. Adams was formerly an Executive Officer of Xerox Corporation. Mr. Adams
received a B.S. degree in mechanical engineering from Purdue University and an
M.B.A. degree from the University of Chicago.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended January 31, 1998 the Board of Directors held
seven meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
and receives and considers the accountants' comments as to controls, adequacy
of staff and management performance and procedures in connection with audit
and financial controls. The Audit Committee is composed of two non-employee
directors: Messrs. Adams and Barrett, with Mr. North serving as an alternate
member. The Audit Committee, as previously constituted, met four times during
the fiscal year ended January 31, 1998.
The Compensation Committee makes recommendations concerning salaries,
benefits and incentive compensation, administers the issuance of stock options
and other awards to employees and consultants under the Company's stock option
plans and otherwise determines compensation levels and performs such other
functions regarding compensation as the Board may delegate. The Compensation
Committee is composed of two non-employee directors: Messrs. Barrett and
North, with Mr. Adams serving as an alternate member. The Compensation
Committee, as previously constituted, met five times during the fiscal year
ended January 31, 1998.
During the fiscal year ended January 31, 1998, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the
committees on which he served that were held during the period for which he
was a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF 1996 EQUITY INCENTIVE PLAN, AS AMENDED
In May 1996, the Board of Directors 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, and
subsequently approved by the stockholders, as an amendment and restatement of
the Company's 1996 Plan. There are 1,266,666 shares of the Company's Common
Stock authorized for issuance under the Incentive Plan.
At March 31, 1998, options (net of canceled or expired options) covering an
aggregate of 1,174,300 shares of the Company's Common Stock had been granted
under the Incentive Plan, and only 92,366 shares (plus any shares that might
in the future be returned to the plans as a result of cancellations or
expiration of options)
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remained available for future grant under the Incentive Plan. During the last
fiscal year, the Company did not grant options to the executive officers.
Options to purchase 245,053 shares at exercise prices of $9.50 to $17.75 per
share were granted to all employees (excluding executive officers) as a group,
and options to purchase 9,999 shares at the exercise price of $15.63 per share
were granted to all current directors who are not officers as a group.
In March 1998, the Board approved an amendment to the Incentive Plan,
subject to stockholder approval, to enhance the flexibility of the Board and
the Compensation Committee in granting stock options to the Company's
employees. The amendment increases the number of shares authorized for
issuance under the Incentive Plan from a total of 1,266,666 shares to
2,466,666 shares. The Board adopted this amendment to ensure that the Company
can continue to grant stock options to employees at levels determined
appropriate by the Board and the Compensation Committee.
Stockholders are requested in this Proposal 2 to approve the Incentive Plan,
as amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Incentive Plan, as amended. Abstentions will
be counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Incentive Plan are outlined below:
GENERAL
The Incentive Plan provides for the grant of both incentive stock options to
employees and nonstatutory stock options, restricted stock purchase awards and
stock bonuses collectively, to employees, directors and consultants. Incentive
stock options granted under the Incentive Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the Incentive Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The Incentive Plan was adopted to provide a means by which selected
officers, directors and employees of and consultants to the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of employees holding key positions, to secure
and retain the services of persons capable of filling such positions and to
provide incentives for such persons to exert maximum efforts for the success
of the Company. All of the Company's approximately 160 employees, directors
and consultants are eligible to participate in the Incentive Plan.
ADMINISTRATION
The Incentive Plan is administered by the Board of Directors of the Company
which the Board has delegated to the Compensation Committee. The Board has the
power to construe and interpret the Incentive Plan and, subject to the
provisions of the Incentive Plan, to determine the types of awards to be
granted the persons to whom and the dates on which awards will be granted, the
number of shares to be subject to each award, the time or times during the
term of each award within which all or a portion of such award may be
exercised, the exercise price, the type of consideration and other terms of
the award. The Board of Directors is authorized to delegate administration of
the
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Incentive Plan to a committee composed of not fewer than two members of the
Board. The Board has delegated administration of the Incentive Plan to the
Compensation Committee of the Board. As used herein with respect to the
Incentive Plan, the "Board" refers to the Compensation Committee as well as to
the Board of Directors itself. In addition, the Incentive Plan provides that,
in the Board's discretion, directors who grant awards to employees covered
under Section 162(m) of the Code generally will be "outside directors" as
defined in Section 162(m). See "Federal Income Tax Information" below for a
discussion of the application of Section 162(m).
ELIGIBILITY
Incentive stock options may be granted under the Incentive Plan to selected
employees (including officers) of the Company and its affiliates. In addition,
selected key employees (including officers), directors and consultants are
eligible to receive nonstatutory stock options and other awards under the
Incentive Plan.
No option may be granted under the Incentive Plan 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 such 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.
No person may be granted options under the Incentive Plan during any
calendar year to purchase in excess of 253,333 shares of Common Stock. This
limitation permits the Company under Section 162(m) of the Code to continue to
be able to deduct as a business expense certain compensation attributable to
the exercise of options granted under the Incentive Plan. See "Federal Income
Tax Information" below for a discussion of the application of Section 162(m).
STOCK SUBJECT TO THE INCENTIVE PLAN
Subject to approval of this Proposal 2 by the Company stockholders, an
aggregate of 1,292,366 shares are reserved for issuance under the Incentive
Plan. If awards granted under the Incentive Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such
awards again becomes available for issuance under the Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Incentive Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options under
the Incentive Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory options under the Incentive Plan may
not be less than 85% of the fair market value of the Common Stock subject to
the option on the date of the option grant. However, if options were granted
with exercise prices below market value, deductions for compensation
attributable to the exercise of such options could be limited by Section
162(m). See "Federal Income Tax Information." At March 31, 1998, the closing
price of the Company's Common Stock as reported on the Nasdaq National Market
System was $18.00 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the Incentive Plan is deemed to be canceled and a new option
granted. Both the option deemed to be canceled and the new option deemed to be
granted will be counted against the 253,333 shares per calendar year
limitation.
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The exercise price of options granted under the Incentive Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the Incentive Plan
typically vest over five years at the rate of 20% per year after the grant
date during the optionee's employment or services as a director or consultant.
Recently the Board began granting options that vest over four years at the
rate of 25% per year after the grant date during the optionee's employment or
services as a director or consultant. Shares covered by options granted in the
future under the Incentive Plan may be subject to different vesting terms. The
Board has the power to accelerate the time during which an option may be
exercised. In addition, although seldom authorized by the Board, options
granted under the Incentive Plan may permit exercise prior to vesting, but in
such event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of the Company
before vesting. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise, by authorizing
the Company to withhold a portion of the stock otherwise issuable to the
optionee, by delivering already-owned stock of the Company or by a combination
of these means.
Term. The maximum term of options under the Incentive Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five
years. Options under the Incentive Plan terminate three months after
termination of the optionee's employment or relationship as a consultant or
director of the Company or any affiliate of the Company, unless (a) such
termination is due to such person's permanent and total disability (as defined
in the Code), in which case the option may, but need not, provide that it may
be exercised at any time within one year of such termination; (b) the optionee
dies while employed by or serving as a consultant or director of the Company
or any affiliate of the Company, or within three months after termination of
such relationship, in which case the option may, but need not, provide that it
may be exercised (to the extent the option was exercisable at the time of the
optionee's death) within eighteen months of the optionee's death by the person
or persons to whom the rights to such option pass by will or by the laws of
descent and distribution; or (c) the option by its terms specifically provides
otherwise. Individual options by their terms may provide for exercise within a
longer period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise
of the option within these periods is prohibited for specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Incentive Plan or subject
to any award granted under the Incentive Plan (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 Incentive Plan and
awards outstanding thereunder will be appropriately adjusted as to the class
and the maximum number of shares subject to such plan, the maximum number of
shares which may be granted to an employee during a calendar year, and the
class, number of shares and price per share of stock subject to such
outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume awards outstanding under the Incentive Plan or
substitute similar awards for those outstanding under such plan, or such
outstanding awards will continue in full force and effect. In the event that
any surviving corporation declines to assume or continue awards outstanding
under the Incentive Plan, or to substitute similar awards, then the time
during which such awards may be exercised will be accelerated and the
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awards terminated if not exercised during such time. The acceleration of an
award in the event of an acquisition or similar corporate event may be viewed
as an antitakeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate on July 24, 2006.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption
by the Board if the amendment would: (a) modify the requirements as to
eligibility for participation (to the extent such modification requires
stockholder approval in order for the Plan to satisfy Section 422 of the Code,
if applicable, or Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of
1934, as amended (the "Exchange Act")); (b) increase the number of shares
reserved for issuance upon exercise of options; or (c) change any other
provision of the Incentive Plan in any other way if such modification requires
stockholder approval in order to comply with Rule 16b-3 or satisfy the
requirements of Section 422 of the Code. The Board may submit any other
amendment to the Incentive Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m)
of the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the Incentive Plan, an incentive stock option may not be transferred
by the optionee other than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the
optionee. The Board may grant a nonstatutory stock option that is transferable
and, in any case, an optionee may designate in writing a third party who may
exercise the option in the event of the optionee's death. In addition, shares
subject to repurchase by the Company under an early exercise stock purchase
agreement may be subject to restrictions on transfer which the Board deems
appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be capital gain or loss. Generally, if the optionee disposes
of the stock before the expiration of either of these holding periods (a
"disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition
will be a capital gain or loss, which will be long-term, mid-term or short-
term depending on how long the optionee holds the stock. Slightly different
rules may apply to optionees who acquire stock subject to certain repurchase
options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the
Code and the satisfaction of a tax reporting obligation) to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs.
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Nonstatutory Stock Options. There are no tax consequences to the optionee or
the Company by reason of the grant of a nonstatutory stock option. Upon
exercise of a nonstatutory stock option, the optionee normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value
on the date of exercise over the option exercise price. Generally, with
respect to employees, the Company is required to withhold from regular wages
or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of
the stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the
option. Such gain or loss will be long-term, mid-term or short-term depending
on how long the optionee holds the stock. Slightly different rules may apply
to optionees who acquire stock subject to certain repurchase options or who
are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation
attributable to stock options, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised
solely of "outside directors" and either: (i) the option plan contains a per-
employee limitation on the number of shares for which options may be granted
during a specified period, the per-employee limitation is approved by the
stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the option is approved by stockholders.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand L.L.P. as the
Company's independent auditors for the fiscal year ending January 31, 1999 and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Coopers &
Lybrand L.L.P. has audited the Company's financial statements since 1990.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Coopers & Lybrand L.L.P. as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Coopers & Lybrand
L.L.P. to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Coopers & Lybrand L.L.P.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 31, 1998 by: (i) each nominee for
director; (ii) each of the executive officers and individuals named in the
Summary Compensation Table; (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
--------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- ----------
<S> <C> <C>
AMVESCAP PLC (2)...................................... 805,200 7.5%
1315 Peachtree St. NE
Atlanta, GA 30309
Kern Capital Management LLC (3)....................... 755,000 7%
14 West 47th St., Ste. 1926
New York, NY 10036
Wall Street Associates (4)............................ 644,200 6%
1200 Prospect St., Ste. 100
La Jolla, Ca 92037
Battery Ventures II, L.P. (5)......................... 537,575 5%
Robert G. Barrett
Battery Ventures
901 Mariner's Island Blvd., Ste. 475
San Mateo, CA 94404
Edward A. Gavaldon (6)................................ 279,669 2.5%
David R. Fournier (7)................................. 131,654 1.2%
Stephen R. Butterfield (8)............................ 100,760 *
Robert G. Barrett (9)................................. 57,835 *
Thomas B. Ruffolo (10)................................ 44,408 *
Hoshi Printer (11).................................... 39,545 *
Reginald Cardin (12).................................. 31,541 *
Robert T. North (13).................................. 11,832 *
Robert V. Adams....................................... -- --
All directors and executive officers as a group (9
persons) (14)........................................ 703,744 6.2%
</TABLE>
- --------
*Represents beneficial ownership of less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws
where applicable, the Company believes that each of the stockholders named
in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are based
on 10,742,485 shares outstanding on March 31, 1998, adjusted as required
by rules promulgated by the SEC.
(2) AMVESCAP PLC, AVZ, Inc., AIM Management Group, Inc., AMVESCAP Group
Services, Inc., INVESCO, Inc., INVESCO North American Holdings, Inc.,
INVESCO Capital Management, Inc., INVESCO Funds Group, Inc., INVESCO
Management & Research, Inc., and INVESCO Realty Advisers, Inc. share
voting and investment power over the shares held by AMVESCAP PLC.
(3) Robert E. Kern Jr. and David G. Kern, as controlling members of Kern
Capital Management, LLC, may be deemed indirect beneficial owners of the
Company's Common Stock owned by Kern Capital Management in that they might
be deemed to share the power to direct the voting or disposition of the
securities. Messrs. Kern both disclaim the beneficial ownership of such
shares except to the extent of their pecuniary interest therein.
(4) Shares held information as of February 28, 1998. Wall Street Associates
has sole voting power with respect to 363,700 shares and sole investment
power with respect to 611,500 shares.
9
<PAGE>
(5) 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.
(6) Includes 279,669 shares issuable pursuant to options exercisable within
60 days of March 31, 1998.
(7) Includes 103,106 shares issuable pursuant to options exercisable within
60 days of March 31, 1998.
(8) Includes 32,994 shares issuable pursuant to options exercisable within 60
days of March 31, 1998. Mr. Butterfield is no longer an executive officer
of the Company effective as of December 18, 1997.
(9) Includes 11,832 shares issuable pursuant to options exercisable within 60
days of March 31, 1998.
(10) Includes 8,929 shares issuable pursuant to options exercisable within 60
days of March 31, 1998.
(11) Includes 34,046 shares issuable pursuant to options exercisable within 60
days of March 31, 1998.
(12) Includes 30,344 shares issuable pursuant to options exercisable within 60
days of March 31, 1998
(13) Includes 11,832 shares issuable pursuant to options exercisable within 60
days of March 31, 1998.
(14) Includes 512,752 shares issuable to all directors and executive officers
pursuant to options exercisable within 60 days of March 31, 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
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. The Board of Directors has adopted
resolutions providing for the automatic grant, under the Incentive Plan of:
(i) an option to purchase 26,666 shares of Common Stock to each non-employee
director who is first elected to the Board of Directors after completion of
the Company's initial public 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. In June 1997, pursuant to the non-
discretionary grant under the 1996 Plan, options to purchase an aggregate of
3,333 shares of Common Stock were granted to each of Mr. Barrett, Mr. North
and Mr. Levy at an exercise price of $15.625 per share. In addition, an option
to purchase 26,666 shares of Common Stock was granted to Mr. Adams at an
exercise price of $14.00 per share automatically upon his appointment to the
Board.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended January 31, 1998,
January 31, 1997 and December 31, 1995, the compensation earned by the
Company's Chief Executive Officer and the Company's other four most highly
compensated executive officers at January 31, 1998, as well as a former
executive officer of the Company (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS ($) COMPENSATION OPTIONS
- --------------------------- ------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Edward A. Gavaldon...... 1998 175,000 84,375 -- --
President, Chief 1997 166,154 50,000 -- 100,000
Executive 1995 153,211 18,125 -- 354,293
Officer and Chairman of
the Board
Hoshi Printer(2)........ 1998 140,000 28,125 -- --
Vice President, Finance 1997 83,462 16,667 -- 99,999
and Administration, 1995 -- -- -- --
Chief Financial Officer
and Secretary
Stephen R. Butterfield.. 1998 118,070 28,395 -- --
Chief Technologist(3) 1997 101,285 30,240 -- 66,666
1995 98,280 21,924 -- --
Reginald Cardin......... 1998 146,240 28,125 -- --
Vice President, 1997 140,000 18,750 24,957(4) 30,000
Engineering 1995 45,769 -- -- 76,666
David R. Fournier....... 1998 122,653 33,750 35,140(5) --
Vice President, Sales, 1997 123,874 25,200 12,000(5) 126,665
Marketing 1995 110,000 32,170 -- --
and Field Operations
Thomas B. Ruffolo....... 1998 116,511 28,125 -- --
Vice President, 1997 103,058 22,500 -- 30,000
Corporate Development 1995 102,308 14,063 -- --
</TABLE>
- --------
(1) The Company changed its fiscal year-end from December 31 to January 31,
effective in the year beginning February 1, 1996. Compensation information
for the one-month transition period ended January 31, 1996 is not
presented herein.
(2) Mr. Printer joined the Company as an executive officer in June 1996.
Amounts shown for 1997 reflect compensation paid to Mr. Printer during the
period from June 1996 through January 1997.
(3) Mr. Butterfield is no longer an executive officer of the Company effective
as of December 18, 1997.
(4) Reflects relocation expenses paid by the Company on behalf of Mr. Cardin
during fiscal 1997.
(5) Reflects sales commissions paid to Mr. Fournier during fiscal 1998 and
1997.
11
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the Incentive
Plan and the 1992 Stock Option Plan (the "1992 Plan") (collectively, the
"Plans"). No further options may be granted under the 1992 Plan as the reserve
option pool has been exhausted. The terms of the 1992 Plan are substantially
the same as the terms of the Incentive Plan with respect to options granted
under the Plans.
As of March 31, 1998, options to purchase a total of 1,575,700 shares were
outstanding under the Plans and options to purchase 92,366 shares remained
available for grant thereunder.
No options were granted to the Named Executive Officers during the fiscal
year ended January 31, 1998. The following table shows for the fiscal year
ended January 31, 1998 certain information regarding options exercised by and
held at year end by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE AT FY-END (#) AT FY-END ($)
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(2)(3)
- ---- --------------- --------------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Mr. Gavaldon............ 40,000 516,750 259,431/136,335 2,435,063/1,166,280
Mr. Printer............. -- -- 37,689/62,310 285,683/472,310
Mr. Butterfield(4)...... -- -- 23,075/43,651 175,072/330,875
Mr. Cardin.............. 5,500 79,350 32,310/68,856 292,096/608,178
Mr. Fournier............ 38,848 567,350 92,161/56,638 857,547/525,769
Mr. Ruffolo............. 23,471 307,788 2,858/26,191 21,664/207,780
</TABLE>
- --------
(1) Calculated based on the fair market value of the underlying shares on the
date of exercise less the exercise price
(2) Reflects vested options and converted options that are subject to early
exercise.
(3) Calculated based on a price of $10.88 per share at the close of trading on
January 31, 1998.
(4) Mr. Butterfield is no longer an executive officer of the Company effective
as of December 18, 1997.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement in January 1995 with Edward
A. Gavaldon. The agreement provides that Mr. Gavaldon will serve as Chief
Executive Officer and President and provides for payment of a base salary of
$175,000 with a bonus of up to $75,000 annually, and participation in the
Company's benefit plans. Effective as of February 1, 1998, the Board increased
Mr. Gavaldon's annual base salary to $200,000 and his potential annual bonus
to $100,000. The agreement also provides 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 and certain benefits for an additional one-year period and will
accelerate the vesting of his options for at least an additional six months.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program presently is administered by
the two-member Compensation Committee of the Board of Directors (the
"Committee") set forth below. These Committee members are not employees of the
Company. Prior to December 31, 1997, the Compensation Committee was
- --------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or 1934 Act, whether made before
or after the date hereof and irrespective of any general incorporation
language contained in such filing.
12
<PAGE>
comprised of Robert Barrett and Paul Levy. Accordingly, the Board of
Directors, as then constituted, approved all executive compensation for fiscal
1998, except for the granting of year-end cash bonuses, which was determined
by the Compensation Committee as presently constituted.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of
the Code. The Committee believes that, with respect to the application of
Section 162(m) of the Code, at the present time it is highly unlikely that the
cash compensation paid to any Named Executive Officer in a taxable year will
exceed $1 million. However, options granted with exercise prices at least 100%
of fair market value are intended to qualify under the Plans as "performance-
based compensation."
The objectives of the Company's executive compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align the financial interests of executive officers with the
performance of the Company, to strengthen the relationship between executive
pay and shareholder value, to motivate executive officers to achieve the
Company's business objectives and to reward individual performance. In
carrying out these objectives, the Committee considers the level of
compensation paid to executive officers in positions of companies similarly
situated in size and products, the individual performance of each executive
officer, corporate performance, and the responsibility and authority of each
position relative to other positions within the Company.
The Company's executive compensation package consists of three components:
base salary and related benefits; annual cash bonus incentives; and equity-
based compensation incentives. Mr. Fournier, Vice President, Sales, Marketing
and Field Operations, also receives sales commissions as a fourth component of
his compensation package. The Committee reviews each of these components and
develops an incentive compensation package for each of the Company's executive
officers based, in part, upon the review of competitive compensation
information, the recommendations of senior management and other information
available to the Committee.
BASE SALARY AND BENEFITS
The first component of the Company's executive compensation package is base
salary and related benefits. Each executive officer receives a base salary and
benefits based on competitive compensation information and his
responsibilities and performance. The Compensation Committee compares the
Company's compensation levels with published surveys of executive compensation
at comparable companies as well as with recent proxy data for publicly traded
companies also involved in the information technology industry. In order to
maximize the incentive elements of the executive officers' total compensation
packages, the Committee sets the base salary and benefits component of these
packages within the competitive range of the salary and benefits levels of the
executive officers of the comparative companies.
ANNUAL INCENTIVE BONUS
The second component of the Company's executive compensation package is an
annual incentive bonus. In the beginning of fiscal 1998, the Committee
established bonus compensation formulas for each such officer based on certain
individual performance criteria. The arrangement provided each executive
officer with the opportunity to earn a cash bonus according to the extent to
which he met his particular individual performance criteria. The Committee
established the formulas and criteria for fiscal 1998, and the Committee
determined realization of these criteria by the officers and approved the
final amounts of bonuses paid.
1992 STOCK OPTION PLAN AND 1996 EQUITY INCENTIVE PLAN
The third component of the Company's executive compensation package is stock
options, which the Company believes are becoming increasingly important as an
incentive tool designed to more closely align the
13
<PAGE>
interests of the executive officers of the Company with the long-term
interests of the Company's stockholders and to encourage its executive
officers to remain with the Company. Generally, the Company grants stock
options at fair market exercise prices, as determined by the Committee at the
time of grant.
The Company's Plans have been established to provide all employees of the
Company with an opportunity to share, along with the stockholders of the
Company, in the long-term performance of the Company. Periodic grants of stock
options are generally made annually to eligible employees, with additional
grants being made to certain employees upon commencement of employment and,
occasionally, following a significant change in job responsibilities, scope or
title. Stock options granted under the Plans generally have a non-statutory
four-to-seven year vesting schedule and generally expire ten years from the
date of grant. In addition, a portion of the options granted to the Company's
executive officers are performance-based options. These options provide for
deferred vesting generally over a seven-year period, with the acceleration of
a portion of the option in the event the executive meets designated
performance objectives in a given year. The Compensation Committee
periodically considers the grant of stock-based compensation to all executive
officers. Such grants are made on the basis of a quantitative and qualitative
analysis of individual performance, the Company's financial performance, and
the executive's existing options.
CEO COMPENSATION
The base salary, annual incentive bonus and stock options for Mr. Gavaldon
were determined in accordance with the terms of an employment agreement (the
"Employment Agreement") dated as of January 4, 1995 between Mr. Gavaldon and
the Company. The Employment Agreement was the result of negotiations to induce
Mr. Gavaldon to join the Company as its President and Chief Executive Officer
in January 1995. In recognition of Mr. Gavaldon's substantial contribution to
the growth and success of the Company and of competitive conditions in the
market for executive offices, and to encourage Mr. Gavaldon's continued
service to the Company, the Board approved an amendment to the Employment
Agreement in July 1996 to, among other things, increase Mr. Gavaldon's base
salary and annual incentive bonus which salary and bonus continued at the same
rate during fiscal 1998. Shortly after the end of fiscal 1998, the Committee
evaluated Mr. Gavaldon's performance in accordance with his previously-
established goals and awarded his bonus accordingly. See "Employment
Agreement".
OTHER EXECUTIVE OFFICER COMPENSATION
At the beginning of fiscal 1998, the Committee established the base salary
of each other executive officer based on data regarding executive compensation
of the Company's competitors, including published survey information, each
executive officer's base salary for the prior fiscal year, past performance,
the scope of such officer's responsibility and other information available to
the Committee. In addition, at the beginning of fiscal 1998, the Committee
established bonus compensation formulas for each officer based on certain
individual performance criteria. The Committee reviewed the performance of
each executive relative to the pre-determined objectives and awarded bonuses
in various percentages to any of the executive officers. The Committee,
however, decided not to award options to the executive officers during fiscal
1998 as the Committee determined that the existing options outstanding were
sufficient to incentivize the executive officers.
Compensation Committee of the
Board of Directors
Robert G. Barrett
Robert L. North
Paul D. Levy (resigned December
31, 1997)
14
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following charts show a comparison of cumulative returns for the
Company, the Nasdaq Stock Market (United States Companies) and the H&Q
Technology Stocks beginning after the close of trading on September 24, 1996,
when the Company's Common Stock was priced at $11.00 per share for sale in the
Company's initial public offering.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
AMONG PEERLESS SYSTEMS CORPORATION, NASDAQ U.S. INDEX COMPOSITE
AND H&Q TECHNOLOGY INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
PEERLESS NASDAQ U.S. H&Q
Measurement Period SYSTEMS INDEX TECHNOLOGY
(Fiscal Year Covered) CORPORATION COMPOSITE INDEX
- ------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Measurement Pt- 09/24/96 $100 $100 $100
FYE 10/31/96 $ 96.59 $ 99.09 $ 97.23
FYE 01/31/97 $181.82 $112.57 $114.69
FYE 04/30/97 $107.95 $103.34 $105.68
FYE 07/31/97 $126.14 $131.09 $142.40
FYE 10/31/97 $118.18 $131.43 $132.78
FYE 01/31/98 $ 98.91 $134.05 $133.38
</TABLE>
- --------
(1) The Section is not "soliciting material," is not deemed "filed" with the
SEC, and is not to be incorporated by reference into any filing of the
Company under the 1933 Act or the 1934 Act, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in such filing.
15
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnification agreements with its directors
and executive officers which provide, among other things, that the Company
will indemnify such officer or director, under the circumstances and to the
extent provided for therein, for expenses, damages, judgments, fines and
settlements that he may be required to pay in actions or proceedings in which
he is or may be made a party by reason of his position as a director, officer
or other agent of the Company, and otherwise to the full extent permitted
under Delaware law and the Company's Bylaws.
During the years ended January 31, 1997 and December 31, 1995 recognized
revenues of approximately $2,244,000 and $707,000 respectively, from
transactions with a principal shareholder. At January 31, 1997, the Company
had approximately $894,000 of deferred revenue relating to license fees
prepaid by this party. As of January 31, 1998, this former related party was
no longer a principal shareholder of the Company.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ HOSHI PRINTER
Hoshi Printer
Secretary
April 24, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY,
PEERLESS SYSTEMS CORPORATION, 2381 ROSECRANS AVENUE, EL SEGUNDO, CALIFORNIA
90245.
16
<PAGE>
- -------------------------------------------------------------------------------
PEERLESS SYSTEMS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 1998
The undersigned hereby appoints Edward A. Gavaldon and Hoshi Printer, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Peerless Systems
Corporation which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of Peerless Systems Corporation (the "Company") to be held at
the Company's corporate offices located at 2381 Rosecrans Avenue, El Segundo,
California, on Thursday, June 18, 1998 at 2:00 p.m. (local time), and at any
and all postponements, continuations and adjournments thereof, with all powers
that the undersigned would possess if personally present, upon and in respect
of the following matters and in accordance with the following instructions,
with discretionary authority as to any and all other matters that may properly
come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR THE DIRECTORS LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [_] listed below. [_]
NOMINEES: Edward A. Gavaldon, Robert G. Barrett, Robert L. North and Robert V.
Adams
To withhold authority to vote for any nominee(s), write such nominee(s)'
name(s) below:
---------------------------- ----------------------------
(CONTINUED ON OTHER SIDE)
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
(CONTINUED FROM OTHER SIDE)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 1,200,000 shares and to add
provisions with respect to Section 162(m) of the Internal Revenue
Code of 1986, as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: To ratify selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for its fiscal year ending January 31, 1999.
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED OFFI-
CER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY AUTHORIZED PERSON.
-------------------------------------------
-------------------------------------------
SIGNATURE(S)
Dated: _____________________________, 1998
PLEASE VOTE, SIGN, DATE AND
PROMPTLY RETURN THIS PROXY IN
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