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Peerless Systems Corporation
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Notes:
PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Avenue
El Segundo, CA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1999
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 17, 1999, 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 1,000,000 shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending January 31, 2000.
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 11, 1999, 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 20, 1999
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.
PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Avenue
El Segundo, CA 90245
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
June 17, 1999
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 17, 1999 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 May 20,
1999, 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 May 11,
1999, will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on May 11, 1999, the Company had outstanding and entitled to
vote 11,204,099 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.
1
Stockholder Proposals
Proposals of stockholders that are intended to be presented at the Company's
2000 Annual Meeting of Stockholders must be received by the Company not later
than December 31, 1999 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. 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.
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,
1999, are set forth below:
Principal Occupation/
Name Age Position Held With the Company
---- --- ------------------------------
Edward A. Gavaldon........ 53 President, Chief Executive Officer and Chairman
of the Board
Robert G. Barrett......... 54 General Partner, Battery Ventures
Robert L. North........... 63 Chief Executive Officer and Director of HNC
Software, Inc.
Robert V. Adams........... 67 Chairman of Documentum, Inc.
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.
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.
2
Robert L. North has served the Company as a director since July 1996. Mr.
North has been Chief Executive Officer and a director of HNC Software, Inc., a
neural network technology company, since June 1987. For 21 years prior to that
time he was employed by TRW, Inc. Electronic Systems Group, most recently as
Vice President and General Manager. Prior to that time, he was a member of the
technical staff for the Satellite Central Office of Aerospace Corporation. Mr.
North received B.S. and M.S. degrees in electrical engineering from Stanford
University.
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, 1999 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 met four times during the fiscal year ended
January 31, 1999.
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 three times during the fiscal year ended January 31, 1999.
During the fiscal year ended January 31, 1999, 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 2,466,666 shares of the Company's Common
Stock authorized for issuance under the Incentive Plan.
At March 31, 1999, options (net of canceled or expired options) covering an
aggregate of 2,033,170 shares of the Company's Common Stock had been granted
under the Incentive Plan, and only 789,433 shares (plus any shares that might
in the future be returned to the plans as a result of cancellations or
expiration of options) remained available for future grant under the Incentive
Plan. During the last fiscal year, the Company granted options to purchase
365,000 shares at exercise prices of $4.875 to $14.00 per share to executive
officers. Options to purchase 578,276 shares at exercise prices of $3.25 to
$23.125 per share were granted to all employees (excluding executive officers)
as a group, and options to purchase 30,000 shares at exercise prices of $4.875
to $22.125 were granted to all current directors who are not officers of the
Company.
3
In May 1999, 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 2,466,666 shares to 3,466,666 shares. The Board
adopted this amendment to ensure that the Company can continue to grant stock
options to all 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 170 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 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).
4
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 1,789,433 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, 1999, the closing
price of the Company's Common Stock as reported on the Nasdaq National Market
System was $8.50 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.
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.
5
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 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.
6
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.
7
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 PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending January 31, 2000 and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's financial statements
since 1990. Representatives of PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers 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 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 PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
8
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, 1999 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.
Beneficial Owner Beneficial Ownership(1)
- ---------------- ---------------------------
Number of Percent of
Shares Total
------------- ------------
State of Wisconsin Investment Board.............. 925,000 8.3%
P.O. Box 7842
Madison, WI 53707
AMVESCAP PLC(2).................................. 805,200 7.3%
1315 Peachtree St. NE
Atlanta, GA 30309
Edward A. Gavaldon(3)............................ 377,979 3.4%
David R. Fournier(4)............................. 166,081 1.5%
Robert G. Barrett(5)............................. 117,023 1.1%
Thomas B. Ruffolo(6)............................. 59,805 *
Hoshi Printer(7)................................. 52,657 *
Robert T. North(8)............................... 13,332 *
Robert V. Adams(9)............................... 6,666 *
Reginald Cardin.................................. 1,197 *
David Emmett..................................... -- *
All directors and executive officers as a group
(9 persons) (10)................................ 794,740 7.2%
- --------
* 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 11,084,251 shares outstanding on January 31,
1999, 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 365,979 shares issuable pursuant to options exercisable within
60 days of January 31, 1999.
(4) Includes 37,533 shares issuable pursuant to options exercisable within 60
days of January 31, 1999.
(5) Includes 13,332 shares issuable pursuant to options exercisable within 60
days of January 31, 1999.
(6) Includes 22,798 shares issuable pursuant to options exercisable within 60
days of January 31, 1999.
(7) Includes 49,624 shares issuable pursuant to options exercisable within 60
days of January 31, 1999.
(8) Includes 13,332 shares issuable pursuant to options exercisable within 60
days of January 31, 1999.
(9) Includes 6,666 shares issuable pursuant to options exercisable within 60
days of January 31, 1999.
(10) Includes 509,264 shares issuable pursuant to options exercisable within
60 days of January 31, 1999.
9
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. On June 18, 1998, 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 $22.125 per share. In addition, on
October 16, 1998, options to purchase 3,334 shares of Common Stock were
granted to Mr. Adams, Mr. Barrett and Mr. North at an exercise price of
$4.875.
Executive Compensation
The following table sets forth for the fiscal years ended January 31, 1999,
January 31, 1998 and January 31, 1997, the compensation earned by the
Company's Chief Executive Officer and the Company's other four most highly
compensated executive officers at January 31, 1999, as well as former
executive officers of the Company (the "Named Executive Officers"):
10
Summary Compensation Table
Annual Long-Term
Compensation Compensation
--------------------- ------------
Other Securities
Fiscal Annual Underlying
Name and Principal Position Year Salary($) Bonus($) Compensation Options
- --------------------------- ------ --------- -------- ------------ ------------
Edward A. Gavaldon......... 1999 199,038 50,000 -- 150,000
President, Chief Executive 1998 175,000 84,375 -- --
Officer and Chairman of 1997 166,154 50,000 -- 100,000
the Board
Hoshi Printer(1)........... 1999 144,677 -- -- 25,000
Vice President, Finance 1998 140,000 28,125 -- --
and Administration,
Chief Financial Officer 1997 83,462 16,667 -- 99,999
and Secretary
Reginald Cardin(2)......... 1999 147,614 -- -- --
Vice President, 1998 146,240 28,125 -- --
Engineering
1997 140,000 18,750 24,957(3) 50,000
David R. Fournier(4)....... 1999 131,511 -- 25,951(5) 50,000
Vice President, Sales, 1998 122,653 33,750 35,140(5) --
Marketing
and Field Operations 1997 123,874 25,200 12,000(5) 126,665
Thomas B. Ruffolo.......... 1999 124,005 12,500 -- 40,000
Vice President, Corporate 1998 116,511 28,125 -- --
Development
1997 103,058 22,500 -- 30,000
David Emmett(6)............ 1999 92,500 12,500 25,000(7) 100,000
Senior Vice President, 1998 -- -- -- --
Engineering
and Technical Operations 1997 -- -- -- --
- --------
(1) Mr. Printer is no longer an executive officer of the Company as of January
8, 1999.
(2) Mr. Cardin is no longer an executive officer of the Company as of
September 30, 1998.
(3) Reflects relocation expenses paid by the Company on behalf of Mr. Cardin
during fiscal 1997.
(4) Mr. Fournier is no longer an executive officer of the Company as of March
1, 1999.
(5) Reflects sales commissions paid to Mr. Fournier during fiscal years 1999,
1998 and 1997.
(6) Mr. Emmett joined the Company as an executive officer in July 1998.
Amounts shown for fiscal year 1999 reflect compensation paid to Mr. Emmett
during the period July 1998 through January 1999.
(7) Reflects relocation expenses paid by the Company on behalf of Mr. Emmett
during fiscal year 1999.
11
STOCK OPTION GRANTS AND EXERCISES
Option/SAR Grants in Fiscal Year 1999. The following table summarizes the
stock options granted by the Company to the Company's Named Executive Officers
during the last fiscal year. No SARs were granted during the last fiscal year.
% of Total
Number of Options/SARs
Securities Granted to
Underlying Employees in Exercise or
Options/SARs Last Base Grant Date
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date Present Value
---- ------------ ------------ ----------- ---------------- -------------
Edward A. Gavaldon...... 50,000 5.1% $14.00 March 10, 2008 $609,030
100,000 10.3% $4.875 October 16, 2008 $421,460
Hoshi Printer........... 25,000 2.6% $4.875 October 16, 2008 $105,365
Reginald Cardin......... -- -- -- -- --
David R. Fournier....... 25,000 2.6% $14.00 March 10, 2008 $304,515
25,000 2.6% $4.875 October 16, 2008 $105,365
Thomas B. Ruffolo....... 15,000 1.5% $14.00 March 10, 2008 $182,709
25,000 2.6% $4.875 October 16, 2008 $105,365
David Emmett............ 100,000 10.3% $6.031 August 25, 2008 $523,070
The Company grants options to its executive officers under the Incentive
Plan and the 1992 Stock Option Plan (the "1992 Plan") (collectively, the
"Plans"). No further options may be granted under the 1992 Plan as the reserve
option pool has been exhausted. The terms of the 1992 Plan are substantially
the same as the terms of the Incentive Plan with respect to options granted
under the Plans.
As of January 31, 1999, options to purchase a total of 443,377 shares were
outstanding under the Plans and no options to purchase shares remained
available for grant thereunder.
The following table shows for the fiscal year ended January 31, 1999 certain
information regarding options exercised by and held at year end by the Named
Executive Officers:
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Values
Number of Value of Unexercised
Securities Underlying In-the-Money Options
Unexercised Options at FY-End ($)
Shares Acquired Value at FY-End (#) Exercisable/
on Exercise (#) Realized ($)(1) Exercisable/Unexercisable(2) Unexercisable(2)(3)
Name --------------- --------------- ---------------------------- --------------------
Mr. Gavaldon............ -- -- 351,098/194,668 $2,507,060/452,382
Mr. Printer(4).......... 6,500 $ 90,675 49,624/0 $ 270,451/0
Mr. Cardin(5)........... 55,141 $ 482,884 0/0 --
Mr. Fournier(6)......... 115,999 $2,078,985 15,712/67,088 $ 114,556/118,906
Mr. Ruffolo............. -- -- 18,335/50,714 $ 109,172/116,342
Mr. Emmett.............. -- -- 0/100,000 $ 0/271,900
- --------
(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 $8.750 per share at the close of trading on
January 29, 1999.
(4) Mr. Printer is no longer an executive officer of the Company effective as
of January 8, 1999.
(5) Mr. Cardin is no longer an executive officer of the Company effective
September 30, 1998.
(6) Mr. Fournier is no longer an executive officer of the Company effective
March 1, 1999.
12
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. 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 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.
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
- --------
(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.
13
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 1999, 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 1999, 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 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 1999. Shortly after the end of fiscal 1999, the Committee
evaluated Mr. Gavaldon's performance in accordance with his previously
established goals and awarded his bonus accordingly. See "Employment
Agreement."
14
Other Executive Officer Compensation
At the beginning of fiscal 1999, 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 1999, 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. In certain
circumstances, the Committee decided to award options to the executive
officers during fiscal year 1999 as the Committee determined that the existing
options outstanding were not sufficient to incentivize the executive officers.
Compensation Committee of the
Board of Directors
Robert G. Barrett
Robert L. North
15
PERFORMANCE MEASUREMENT COMPARISON(1)
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
[GRAPHIC APPEARS HERE]
PERFORMANCE MEASURE
24-Sep-96 30-Apr-98 31-Jul-98 31-Oct-98 31-Jan-99
PEERLESS
Scaled Price $100.00 $ 156.66 $ 189.77 $ 62.50 $ 79.55
NASDAQ(A)
Scaled Price $100.00 $ 153.02 $ 152.80 $ 145.72 $ 207.64
H&Q TECHNOLOGY(B)
Scaled Price $100.00 $ 172.33 $ 167.68 $ 163.69 $ 242.24
- --------
(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.
16
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.
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 20, 1999
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, 1999 is
available without charge upon written request to: Corporate Secretary,
Peerless Systems Corporation, 2381 Rosecrans Avenue, El Segundo, California
90245.
17
PEERLESS SYSTEMS CORPORATION
1996 EQUITY INCENTIVE PLAN
ADOPTED July 25, 1996
INTRODUCTION.
In May 1996, the Board of Directors adopted the Peerless Systems
Corporation 1996 Stock Option Plan. In July 1996, the Board of Directors
amended and restated the 1996 Stock Option Plan to read as set forth herein.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
1.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Peerless Systems Corporation, a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(r) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(s) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(t) "PLAN" means this Peerless Systems Corporation 1996 Equity Incentive
Plan.
(u) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(v) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
3.
(w) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, or a
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one or more persons. In the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Code Section 162(m), or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate three million four hundred sixty-six thousand six
hundred sixty-six (3,466,666) shares of Common Stock. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of Restricted Stock), the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted options covering
more than 253,333 shares in any calendar year. This subsection 5(c) shall not
apply prior to the date of the first registration of an equity security of the
Company under Section 12 of the Exchange Act and, following such registration,
shall not apply until (i) the earliest of: (A) the first material modification
of the Plan (including any increase to the number of shares reserved for
issuance under the Plan in accordance with Section 4); (B) the issuance of all
of the shares of common stock reserved for issuance under the Plan; (C) the
expiration of the Plan; or (D) the first meeting of stockholders at which
directors are to be elected that occurs after the close of the third calendar
year following the calendar year in which occurred the first registration of an
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option
5.
shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option
6.
Agreement may provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect to some or all
of the shares allotted to that period, and may be exercised with respect to some
or all of the shares allotted to such period and/or any prior period as to which
the Option became vested but was not fully exercised. The Option may be subject
to such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire
7.
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
8.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 11(d) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
9.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of any adversely affected holders of
Options, the cancellation of any outstanding Options under the Plan and the
grant in substitution therefor of new Options under the Plan covering the same
or different numbers of shares of stock, but having an exercise price per share
not less than: eighty-five percent (85%) of the Fair Market Value for a
Nonstatutory Stock Option one hundred percent (100%) of the Fair Market Value
for an Incentive Stock Option1 or, for an Incentive Stock Option held by a 10%
stockholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 8, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 8(b) shall be applicable only to the extent required by Section
162(m) of the Code.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable
10.
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to whom
a Stock Award is transferred in accordance with the Plan shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable
11.
of evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: (i) any surviving
corporation or an Affiliate of such
12.
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar Stock Awards for those outstanding under the Plan,
or (ii) such Stock Awards shall continue in full force and effect. In the event
any surviving corporation and its Affiliates refuse to assume or continue such
Stock Awards, or to substitute similar options for those outstanding under the
Plan, then, with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the time during which such
Stock Awards may be exercised shall be accelerated and the Stock Awards
terminated if not exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company where stockholder is necessary for the Plan to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board
13.
or approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
This amendment and restatement of the Plan shall become effective on the
effective date of the registration statement with respect to the Company's
initial public offering of shares of Common Stock, but no Stock Awards granted
under the Plan shall be exercised unless and until the Plan has been approved by
the stockholders of the Company, which approval shall be within twelve (12)
months before or after the date the Plan is adopted by the Board.
14.
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PEERLESS SYSTEMS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1999
The undersigned hereby appoints Edward A. Gavaldon 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 Thursday, June 17, 1999 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 DIRECTOR 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 WITHHOLD AUTHORITY
below (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:
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(Continued on other side)
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(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 1,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: To ratify selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending January 31, 2000.
[_] 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.
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Signature(s)
Dated: _____________________________, 1999
Please vote, sign, date and
promptly return this proxy in
the enclosed return envelope
which is postage prepaid if
mailed in the United States.
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