<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 240.14a-12
PEERLESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(3) Per unit price or other underlying value of transaction computed
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[_] Check box if any part of the fee is offset as provided by Exchange
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<PAGE>
PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Avenue
El Segundo, CA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 20, 2000
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 20, 2000, 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 ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending January 31, 2001.
3. To approve the amendment of the Company's 1996 Employee Stock Purchase
Plan, as amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 500,000 shares.
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 May 15, 2000, 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/ Carolyn M. Maduza
Carolyn M. Maduza
Secretary
El Segundo, California
May 23, 2000
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.
<PAGE>
PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Avenue
El Segundo, CA 90245
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
June 20, 2000
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, for use at the annual
meeting of stockholders to be held on June 20, 2000 at 2:00 p.m. local time,
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 our offices located at 2381 Rosecrans Avenue, El Segundo,
California. We intend to mail this proxy statement and accompanying proxy card
on or about June 1, 2000, to all stockholders entitled to vote at the annual
meeting. References to "we," "us," "our," "the Company" and "Peerless" refer
to Peerless Systems Corporation.
Solicitation
We 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. We may
reimburse persons representing beneficial owners of our 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
Peerless. 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 our common stock at the close of business on May
15, 2000, will be entitled to notice of and to vote at the annual meeting. At
the close of business on May 15, 2000, Peerless had outstanding and entitled
to vote 14,724,000 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
annual 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 our
Secretary at our 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.
1
<PAGE>
Stockholder Proposals
Proposals of stockholders that are intended to be presented at our 2001
Annual Meeting of Stockholders must be received by us not later than December
31, 2000 in order to be included in the proxy statement and proxy relating to
that annual meeting. Stockholders are also advised to review our 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 five Board positions presently authorized in
the Certificate of Incorporation. Each director to be elected will hold office
until the next annual meeting of stockholders and until his successor is
elected and has been qualified, or until such director's earlier death,
resignation or removal. Each nominee listed below is currently a director of
Peerless.
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,
2000, are set forth below:
<TABLE>
<CAPTION>
Principal Occupation/ Director
Name Age Position Held With the Company Since
---- --- ------------------------------ --------
<C> <C> <S> <C>
Adam Au............ 43 Vice President, General Manager, PSN 2000
Robert G. Barrett.. 55 Chairman of the Board 1991
Robert L. North.... 64 Former Chief Executive Officer and
Director of HNC
Software, Inc. 1996
Robert V. Adams.... 68 Chairman of Documentum, Inc. 1998
</TABLE>
Adam Au has served us as a director since April 2000. He has more than 18
years of experience in the networking software industry and is the founder of
Auco, Inc. which was acquired by Peerless in June 1999. Prior to founding
Auco, Inc., he was group director of the Corporate Technology Office at Novell
Inc. Mr. Au served as Chief Executive Officer and Chairman of Auco, Inc., a
privately owned company, from 1994 to 1999. He is currently Vice President and
General Manager of Peerless Systems Networking, a subsidiary of the Company.
Mr. Au received a B.S.E.E. from the University of Hong Kong and an M.S.E.E.
from the University of Wisconsin at Madison.
Robert G. Barrett has served us as a director since March 1991. He was a
founder and a Managing Partner of Battery Ventures, Inc., a venture capital
fund specializing in communication and software investment until his recent
departure on April 30, 2000. Presently, Mr. Barrett serves as a director of
Brooktrout Technology, Inc., Corillian Corporation, Interspeed and several
privately-held high technology companies. Mr. Barrett received an A.B. degree
in history and an M.B.A. degree from Harvard University.
2
<PAGE>
Robert L. North has served us as a director since July 1996. Mr. North was
the Chief Executive Officer of HNC Software from 1987 until his retirement in
January, 2000. He currently serves as a director of HNC Software, Inc.,
Digital Insight, Keylime Software, Z-Market, QSS and WebCapital. For 21 years
prior to that time he was employed by TRW, Inc.'s 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 us 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 was President and Chief
Executive Officer of Xerox Technology Ventures from 1989 until 1999. Mr. Adams
was formerly an Executive Vice President 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, 2000 the Board of Directors held
seven meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with our 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 met four times during the fiscal year ended January 31, 2000.
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 met four times during the fiscal year ended January 31, 2000.
During the fiscal year ended January 31, 2000, 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.
3
<PAGE>
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the our independent
auditors for the fiscal year ending January 31, 2001 and has further directed
that management submit the selection of independent auditors for ratification
by the stockholders at the annual meeting. Ernst & Young LLP has been engaged
as our independent auditors since September 1999. Representatives of Ernst &
Young LLP are expected to be present at the annual meeting, and will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
On September 20, 1999, we dismissed PricewaterhouseCoopers LLP or PwC, the
independent accounting firm which the registrant previously engaged as the
principal accounting firm to audit our financial statements. PwC's report on
our consolidated financial statements for the years ended January 31, 1998,
and January 31, 1999 did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. On September 16, 1999, the Audit Committee of our Board
of Directors approved the decision to discharge PwC. During the years ended
January 31, 1998, and January 31, 1999 and the period from January 31, 1999
through the date of dismissal, there were no disagreements with PwC on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of PwC, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.
On September 21, 1999, we engaged Ernst & Young LLP as the principal
accountant to audit our consolidated financial statements. The Audit Committee
of our Board of Directors approved this engagement on September 16, 1999. For
the years ended January 31, 1998, and January 31, 1999 and for the period from
January 31, 1999 to September 20, 1999, we did not consult Ernst & Young LLP
regarding either (i) the application of accounting principles to a specified
transaction, either complete or proposed or (ii) the type of audit opinion
that might be rendered on the registrant's consolidated financial statements.
We have provided PwC with a copy of the above disclosures. PwC has furnished
us with a letter addressed to the Securities and Exchange Commission or
"SEC"stating that PwC agrees with the above disclosures. A copy of this letter
is attached as Exhibit 16.1 to the Current Report on Form 8-K filed on
September 27, 1999.
Stockholder ratification of the selection of Ernst & Young LLP as our
independent auditors is not required by our Bylaws or otherwise. However, the
Board of Directors is submitting the selection of Ernst & Young LLP 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
of Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee and the Board of Directors 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 Peerless 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 Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
4
<PAGE>
PROPOSAL 3
APPROVAL OF 1996 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In July 1996, our Board of Directors approved the Employee Stock Purchase
Plan covering an aggregate of 300,000 shares of Common Stock reflecting the
2:3 reverse split that occurred when Peerless went public. The Purchase Plan
is intended to qualify as an employee stock purchase plan within the meaning
of Section 423 of the Internal Revenue Code or 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 Peerless or an
affiliate of Peerless 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 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 Peerless and its affiliates.
On March 31, 2000, an aggregate of 49,255 shares of our common stock had
been purchased under the Purchase Plan, and only 1 share remained available
for future sale under the Purchase Plan. During the last fiscal year, Peerless
sold 7,840 shares at $4.25 to $ 7.969 per share to executive officers, sold
137,926 shares at $4.25 to $7.969 per share to all employees (excluding
executive officers) as a group, and sold 16,962 shares at $4.25 to $7.969 to
all current directors who are not officers of Peerless.
On May 23, 2000, the Board of Directors approved an amendment to the
Purchase Plan, to increase the allocation available for purchase under the
Plan by 500,000 shares, subject to stockholder approval. The purpose is to
enhance the flexibility of the Board and the Compensation Committee in
offering our common stock to our employees. This amendment increases the
number of shares authorized for issuance under the Purchase Plan from a total
of 300,000 shares to 800,000 shares. The Board adopted this amendment to
ensure that we can continue to offer shares of common stock to all employees
at levels determined appropriate by the Board and the Compensation Committee.
Stockholders are requested in this Proposal 3 to approve the Purchase 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 Purchase 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 3.
5
<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 January 31, 2000 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
Peerless as a group; and (iv) all those known by Peerless to be beneficial
owners of more than five percent of our common stock.
<TABLE>
<CAPTION>
Beneficial
Beneficial Owner Ownership (1)
- ---------------- --------------------
Number of Percent of
Shares Total
--------- ----------
<S> <C> <C>
State of Wisconsin Investment Board...................... 1,401,200 9.5%
P.O. Box 7842
Madison, WI 53707
T. Rowe Price Associates, Inc............................ 919,900 6.3%
100 E. Pratt Street
Baltimore, MD 21202
AMVESCAP PLC (2)......................................... 805,200 5.5%
1315 Peachtree St. NE
Atlanta, GA 30309
Edward A. Gavaldon (3)................................... 369,457 2.5%
David R. Fournier (4).................................... 185,337 1.2%
Robert G. Barrett (5).................................... 117,023 *
Thomas B. Ruffolo (6).................................... 101,726 *
Adam Au (7).............................................. 3,351 *
Robert T. North (8)...................................... 13,332 *
Robert V. Adams (9)...................................... 6,666 *
David Emmett (10)........................................ 25,000 *
All directors and executive officers as a group (8
persons)................................................ 920,419 5.7%
</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 14,724,000 shares outstanding on January 31,
2000, 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) Includes 168,659 shares issuable pursuant to options exercisable within
60 days of January 31, 2000. Mr. Gavaldon terminated his employment with
Peerless on April 13, 2000.
(4) Includes 0 shares issuable pursuant to options exercisable within 60 days
of January 31, 2000. Mr. Fournier terminated his employment with Peerless
on March 1, 1999.
(5) Includes 13,332 shares issuable pursuant to options exercisable within 60
days of January 31, 2000.
(6) Includes 5,180 shares issuable pursuant to options exercisable within 60
days of January 31, 2000. Mr. Ruffolo terminated his employment with
Peerless on January 14, 2000.
(7) Includes 3,351 shares issuable pursuant to options exercisable within 60
days of January 31, 2000.
(8) Includes 13,332 shares issuable pursuant to options exercisable within 60
days of January 31, 2000.
(9) Includes 6,666 shares issuable pursuant to options exercisable within 60
days of January 31, 2000.
(10) Includes 12,500 shares issuable pursuant to options exercisable within 60
days of January 31, 2000. Mr. Emmett terminated his employment with
Peerless on February 4, 2000.
6
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file with the
Securities and Exchange Commission, or "SEC," initial reports of ownership and
reports of changes in ownership of our common stock and other equity
securities of Peerless. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations that no other reports were
required, during the fiscal year ended January 31, 2000, 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 us 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 1996 Equity 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 our 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. On June 17, 1999, 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. Adams at an
exercise price of $10.063 per share. In addition, on June 17, 1999, options to
purchase an additional 3,334 shares of Common Stock were granted to Mr. Adams
at an exercise price of $10.063.
7
<PAGE>
Executive Compensation
The following table sets forth for the fiscal years ended January 31, 2000,
January 31, 1999 and January 31, 1998, the compensation earned by our former
Chief Executive Officer and our other four most highly compensated executive
officers at January 31, 2000, as well as former executive officers of Peerless
(the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Fiscal
Position Year Salary($) Bonus($) Commission($) Other($) Total($)
------------------ ------ --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Edward A.
Gavaldon /(3)/......... 2000 274,519 -- -- -- 274,519
Former President,..... 1999 199,038 50,000 -- -- 249,038
Chief Executive
Officer and........... 1998 175,000 84,375 -- -- 259,375
Chairman of the Board
Thomas B.
Ruffolo /(4/).......... 2000 151,115 -- -- -- 151,115
Former Vice
President............. 1999 124,005 12,500 -- -- 136,505
Corporate
Development.......... 1998 116,511 28,125 -- -- 144,636
David Emmett/(5)/....... 2000 188,558 -- -- -- 188,558
Former Senior Vice
President,........... 1999 92,500 12,500 -- -- 105,000
Engineering and
Technical............ 1998 -- -- -- -- --
Operations
Charles R. Boelig....... 2000 118,554 38,025 -- 63,379/(1)//(2)/ 219,958
Former Senior Vice
President,........... 1999 -- -- -- -- --
Sales and Marketing... 1998 -- -- -- -- --
Carolyn Maduza.......... 2000 121,154 -- -- 41,242/(1)/ 162,396
Senior Vice President,
Finance.............. 1999 -- -- -- -- --
and Administration,
Chief................ 1998 -- -- -- -- --
Financial Officer,
Secretary
and Treasurer
Ron Davis............... 2000 139,750 5,000 -- -- 144,750
Vice President of
Sales................ 1999 114,254 16,875 -- -- 131,129
1998 102,752 7,500 -- -- 110,252
Adam Au................. 2000 135,689 -- -- -- 135,689
Vice President and.... 1999 62,300 -- -- -- 62,300
General Manager, PSN.. 1998 91,540 -- -- -- 91,540
</TABLE>
- --------
(1) Represents relocation expenses.
(2) In addition to and in connection with these relocation expenses, the
Company provided Mr. Boelig a short-term loan. See "Certain Relationships
and Related Transactions."
(3) Mr. Gavaldon is no longer an executive officer of Peerless as of April 13,
2000.
(4) Mr. Ruffolo is no longer an executive officer of Peerless as of January
14, 2000.
(5) Mr. Emmett is no longer an executive officer of Peerless as of February 4,
2000.
8
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
Option/SAR Grants in Fiscal Year 2000. The following table summarizes the
stock options granted by Peerless to our Named Executive Officers during the
last fiscal year. No SARs were granted during the last fiscal year.
Stock Option Grants Fiscal Year 2000
<TABLE>
<CAPTION>
Number of % of Total Grant Date
Name Securities Options Granted Exercise Price Expiration Date Present Value
---- ---------- --------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Carolyn M. Maduza....... 100,000 11.3% $ 7.13 May 3, 2009 $ 619,460
Ron Davis............... 30,000 3.4% $ 9.38 March 1, 2009 $ 244,521
17,164 1.9% $ 9.25 December 8, 2009 $ 138,035
Adam Au................. 100,000 11.3% $ 8.50 June 10, 2009 $ 739,000
Edward A. Gavaldon...... 120,000 13.6% $13.25 September 16, 2009 $1,382,364
David Emmett............ 28,000 3.2% $13.25 September 16, 2009 $ 322,552
</TABLE>
We grant options to our executive officers under the 1996 Equity Incentive
Plan and the 1992 Stock Option Plan. The terms of the 1992 Plan are
substantially the same as the terms of the Incentive Plan with respect to
options granted under both plans.
As of January 31, 2000, options to purchase a total of 765,000 shares were
outstanding under both plans and no options to purchase shares remained
available for grant thereunder.
The following table shows for the fiscal year ended January 31, 2000 certain
information regarding options exercised by and held at year end by our Named
Executive Officers:
Aggregated Option Exercises Fiscal Year 2000, and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Unexercised
at FY-End Value of In-The-Money Options at
Shares on Value Exercisable/ FY-End
Name Exercise Realized($)(1) Unexercisable(2) Exercisable/ Unexercisable($)(2)(3)
---- --------- -------------- --------------------- -----------------------------------
<S> <C> <C> <C> <C>
Carolyn M. Maduza....... -- -- 0/100,000 --
Margaret Turner......... -- -- 6,653/13,569 4,987/5,458
Ron Davis............... -- -- 18,919/56,081 --
Adam Au................. -- -- 3,351/100,000 13,096/0
Edward Gavaldon......... 240,798 2,177,985 166,278/258,690 404,103/41,249
Mr. Ruffolo............. 27,441 243,304 5,180/0 2,254/0
Mr. Emmett.............. 12,500 112,113 12,500/103,000 --
</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 $4.875 per share at the close of trading
on January 31, 2000.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indemnification Agreements
We have entered into indemnification agreements with certain of our
directors and executive officers which provide, among other things, that we
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 or she may be required to pay in actions or proceedings in
which he or she is or may be made a party by reason of his or her position as
a director, officer or other agent of Peerless, and otherwise to the full
extent permitted under Delaware law and our Bylaws.
Employment and Severance Agreements
The Company entered into an employment agreement in January 1995 with Edward
A. Gavaldon. The agreement provided that Mr. Gavaldon serve as Chief Executive
Officer and President and provided for payment of a base salary of $175,000
with a bonus of up to $75,000 annually, and participation in our 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.
Effective as of February 1, 1999, the Board increased Mr. Gavaldon's annual
base salary to $275,000 and his potential annual bonus to $200,000. The
agreement also provided that all of Mr. Gavaldon's outstanding options be
accelerated in the event of the acquisition or change in control of Peerless
or a sale of all or substantially all of our assets.
In the event that the Company were to terminate Mr. Gavaldon without cause,
the Company would be required to pay Mr. Gavaldon certain benefits, including
salary and continued vesting of unvested options. On April 13, 2000, Mr.
Gavaldon resigned his employment with the Company. Pursuant to his employment
agreement, and pursuant to the terms of a severance agreement, the Company
agreed to provide Mr. Gavaldon with pay and benefits (including continued
vesting of unvested options) for the one year period following Mr. Gavaldon's
resignation.
On May 23, 2000 the Board of Directors of the Company approved an agreement
with Howard Nellor, the Company's acting President and Chief Executive
Officer, pursuant to which the Company agreed to pay Mr. Nellor a salary of
$240,000, with a potential annual bonus of $100,000, participation in our
benefit plans, and options to purchase 204,000 shares of common stock of the
Company. The agreement further provides for accelerated vesting, including in
the event of an acquisition or change in control of Peerless or a sale of all
or substantially all of our assets.
On May 23, 2000 the Board of Directors of the Company approved an agreement
with Carolyn Maduza, the Company's Chief Financial Officer, pursuant to which
the Company agreed to pay Ms. Maduza a salary of $200,000, with a bonus of
$75,000, participation in our benefit plans, and certain other Company
benefits. The agreement further provides that options held by Ms. Maduza be
accelerated in the event of an acquisition or change in control of Peerless or
a sale of all or substantially all of our assets. In the event that the
Company were to terminate Ms. Maduza without cause, the Company would be
required to pay Ms. Maduza certain benefits, including salary, bonus and
continued vesting of unvested options.
Officer Indebtedness/Repayment
On May 27, 1999 as part of a relocation package offered to Charles Boelig
upon his commencement of employment and pursuant to the Company's By-Laws, the
Company loaned Mr. Boelig the amount of $120,000, with no interest for a term
not to exceed 60 days. This loan was pursuant to a note secured by a Second
Trust Deed on Mr. Boelig residential real property in Los Angeles County. On
June 23, 1999 upon the sale of his residence in New Hampshire, Mr. Boelig
repaid the loan to the Company in full.
10
<PAGE>
Legal Proceedings
The Company was sued by the State of Wisconsin Investment Board ("SWIB"), a
holder of more than five percent of a class of voting securities of the
Company, in the Court of Chancery of the State of Delaware in New Castle
County in December 1999. Edward A. Gavaldon, the former Chief Executive
Officer and a former director of the Company, has also been named as a
defendant. The complaint alleges that Peerless wrongfully influenced the
passage of Proposal 2 (Increase in the Number of Shares in the Stock Option
Plan) at the 1999 Annual Meeting of Shareholders and provided misleading
information to SWIB. Mr. Gavaldon is alleged to have benefitted wrongfully
from these actions.
SWIB seeks to nullify the shareholder approved Amendment and is asking for
unspecified damages. The Company has filed an Answer and Counter-Claim and
believes that it will prevail in this matter.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
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.
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.
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. 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 or her
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
11
<PAGE>
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 year 2000, the Committee
established bonus compensation formulas for certain of its officers based on
individual criteria. The arrangement provided each executive officer with the
opportunity to earn a cash bonus according to the extent to which he or she
met company specific goals and objectives. The Committee established the
formulas and criteria for fiscal year 2000, and the Committee determined
realization of these criteria by the officers. No bonuses were paid in fiscal
year 2000 with respect to the annual incentive bonus.
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 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. In addition in certain cases, the committee
has provided for accelerated vesting of options in connection with the
retention of key personnel or in accordance with agreements.
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 year 1999. Shortly after the end of fiscal year 1999, the
Committee evaluated Mr. Gavaldon's performance in accordance with his
previously established goals and awarded his bonus accordingly. See
"Employment Agreement."
12
<PAGE>
Other Executive Officer Compensation
At the beginning of fiscal year 2001, the Committee reviewed and/or
established the base salaries of each 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,
early in fiscal year 2001, the Committee established bonus compensation
formulas for certain officers based on individual criteria. Additionally, the
Committee reviewed the performance for fiscal year 2000 of each executive
relative to the pre-determined objectives and determined that no bonuses would
be awarded for the fiscal year. However, the Committee awarded options to
certain executive officers for fiscal year 2000 based upon the attainment of
individual performance goals as established earlier in the fiscal year.
Compensation Committee of the
Board of Directors
Robert G. Barrett
Robert L. North
13
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON
The material on this page 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.
The following chart shows a comparison of cumulative returns for the
Company, the Nasdaq Stock Market (United States Companies) and the H&Q
Technology Stocks at scaled prices 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
[GRAPH FOR PEERLESS SYSTEMS]
<TABLE>
<CAPTION>
PERFORMANCE MEASURE
----------------------------------------------------------
31-Jul-
24-Sep-96 30-Apr-98 98 31-Oct-98 31-Jan-99 31-Jan- 00
--------- --------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PEERLESS
Scaled Price...... $100.00 $156.66 $189.77 $ 62.50 $ 79.55 44.32
NASDAQ (A)
Scaled Price...... $100.00 $153.02 $152.80 $145.72 $207.64 326.80
H&Q TECHNOLOGY (B)
Scaled Price...... $100.00 $172.33 $167.68 $163.69 $242.24 416.59
</TABLE>
14
<PAGE>
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/ Carolyn M. Maduza
Carolyn M. Maduza
Secretary
May 23, 2000
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, 2000 is
available without charge upon written request to: Corporate Secretary,
Peerless Systems Corporation, 2381 Rosecrans Avenue, El Segundo, California
90245.
15
<PAGE>
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:
(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.
20
<PAGE>
(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 [eight
hundred thousand (800,000)] 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.
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.
21
<PAGE>
(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;
(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 to such Offering. In addition, in connection
with
22
<PAGE>
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.
(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.
23
<PAGE>
(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 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.
24
<PAGE>
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.")
(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
25
<PAGE>
as necessary to comply with any laws or governmental 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.
26
<PAGE>
PEERLESS SYSTEMS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
June 20, 2000
2381 Rosecrans Avenue
El Segundo, CA 90245
- --------------------------------------------------------------------------------
[X] Please mark vote as
in this example.
PROXY
PEERLESS SYSTEMS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 20, 2000
The undersigned hereby appoints Howard Nellor and Carolyn M. Maduza, 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 Tuesday, June 20, 2000 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.
See reverse for voting instructions.
<PAGE>
--------------------
COMPANY #
CONTROL #
--------------------
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy
card.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK HHH EASY HHH IMMEDIATE
. Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
. Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/prls/ -- QUICK HHH EASY HHH
IMMEDIATE
. Use the Internet to vote your proxy 24 hours a day, 7 days a week.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to PEERLESS SYSTEMS CORPORATION c/o Shareowner
ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873.
[X] Please mark vote as
in this example.
If you vote by Phone or Internet, please do not mail your Proxy Card
Please detach here
- -------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
Nominees: Robert V. Adams, Adam Au, Robert G. Barrett and Robert L. North
01 02 03 04
(Instructions: To withhold authority to vote for any indicated nominee, write
the number(s) of the nominee(s) in the box provided to the right)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending January 31, 2001.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: To approve an amendment to the Company's 1996 Employee Stock
Purchase Plan, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 500,000 shares.
[ ] FOR all nominees [ ] WITHHOLD
listed below (except AUTHORITY
as marked to the to vote for all nominees
contrary below)
[_] FOR[_] AGAINST[_] ABSTAIN
listed
below. [_] FOR[_] AGAINST[_] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [_]
Indicate changes below:
Date: ______________
Signature(s) in Box
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
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
- --
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