SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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[X] Definitive Proxy Statement
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[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Peerless Systems Corporation
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(Name of Registrant as Specified in its Charter)
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PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Avenue
El Segundo, CA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 20, 2001
Dear Stockholder:
You are invited to attend the Annual Meeting of Stockholders of Peerless
Systems Corporation, a Delaware corporation (the "Company"), which will be
held on June 20, 2001, at 2:00 PM Pacific Daylight Time at the Company's
offices located at 2381 Rosecrans Avenue, El Segundo, California 90245 for the
following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending January 31, 2002.
3. To ratify the amendment of the Company's 1996 Equity Incentive Plan (as
amended at the July 1999 annual meeting, which increased the aggregate
number of shares of Common Stock by 750,000 shares) to increase the
aggregate number of shares of Common Stock authorized for issuance under
such plan by 250,000 shares.
4. To approve the further amendment of 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 500,000 shares.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors of the Company has fixed the close of business on
May 15, 2001 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. Accompanying this Notice and Proxy Statement is a copy
of the Company's Annual Report on Form 10-K for fiscal year ended January 31,
2001 as filed with the Securities and Exchange Commission.
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. You can also vote
your shares over the Internet or by telephone. Voting instructions for
Internet and telephone voting are printed on the proxy card. 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.
By Order of the Board of Directors
/s/ Denis W. Retoske
Denis W. Retoske
Vice President, General Counsel and
Secretary
El Segundo, California
May 23, 2001
PEERLESS SYSTEMS CORPORATION
2381 Rosecrans Avenue
El Segundo, CA 90245
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
June 20, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Peerless Systems Corporation (the "Board of Directors"), a Delaware
corporation (the "Company" or "Peerless"), for the Company's 2001 Annual
Meeting of Stockholders (the "Annual Meeting") to be held on June 20, 2001 at
2:00 PM Pacific Daylight Time, and 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 90245. Directions and a map to
the Company's offices can be found at the Company's website, www.peerless.com.
The Company intends to mail this proxy statement and the accompanying proxy
card on or about May 23, 2001 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. The Company has
retained MacKenzie Partners, Inc. to solicit proxies for a fee of $12,500 plus
a reasonable amount to cover expenses. 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 (as defined below) for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram,
Internet or personal solicitation by the directors, officers or other regular
employees. No additional compensation will be paid to the directors, officers
or other regular employees for such services.
Voting Rights and Outstanding Shares
Only stockholders of record as of the close of business on May 15, 2001
will be entitled to notice of and to vote at the Annual Meeting. At the close
of business on May 15, 2001, the Company had 14,920,788 shares of Common
Stock, par value $0.001 per share ("Common Stock"), issued and outstanding.
Each holder of record of Common Stock on such date will be entitled to one (1)
vote for each share held on all matters to be voted upon at the Annual
Meeting. The Company's Bylaws (the "Bylaws") provide that a majority of all of
the shares of the stock entitled to vote, whether present in person or
represented by proxy, shall constitute a quorum for the transaction of
business at the meeting. All votes will be tabulated by the inspector of
election appointed for the Annual Meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes.
Stockholders also have the choice of voting over the Internet or using a
toll-free telephone number. Please refer to your proxy card enclosed with this
proxy statement or the information forwarded by your bank, broker or other
holder of record to see which options are available to you. The telephone
voting facilities for stockholders of record will close at 9:00 AM Pacific
Daylight Time on June 19, 2001 and the Internet voting facilities for
stockholders of record will close at 10:00 AM Pacific Daylight Time on June
19, 2001. The telephone and Internet voting procedures are designed to
authenticate you as a stockholder by use of a control number and to allow you
to confirm that your instructions have been properly recorded.
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Abstentions and broker non-votes (which occur if a broker or other nominee
does not have discretionary authority and has not received voting instructions
from the beneficial owner with respect to the particular item) will each be
counted as present for purposes of determining the presence of a quorum. In
all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or by proxy at the Annual Meeting and
entitled to vote thereon is required to approve the proposals set forth
herein. For such proposals, abstentions will be counted for purposes of
calculating shares entitled to vote but are not counted as shares voting and
therefore have the effect of a vote against each such proposal. Broker non-
votes have no effect on such proposals. Directors will be elected by a
plurality of the votes of the shares present in person or represented by proxy
and entitled to vote. Accordingly, abstentions and broker non-votes will have
no effect on the outcome of the election of directors.
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 a written notice of revocation or a duly executed proxy bearing a
later date, or by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a proxy.
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PROPOSAL ONE
ELECTION OF DIRECTORS
There are five nominees for the five positions presently authorized for the
Board of Directors in the Company's Certificate of Incorporation (the
"Certificate of Incorporation"). Each director to be elected will hold office
until the next annual meeting of stockholders and until his successor is
elected and has been qualified, or earlier, upon such director's death,
resignation or removal.
The names and certain information concerning the persons nominated to serve
as directors by the Board of Directors at the Annual Meeting are set forth
below. It is intended that shares represented by the proxies will be voted FOR
the election to the Board of Directors of the persons named below unless
authority to vote for nominees has been withheld in the proxy. Although each
of the persons nominated has consented to serve as a director if elected and
the Board of Directors has no reason to believe that any of the nominees will
be unable to serve as a director, if any nominee withdraws or otherwise
becomes unavailable to serve, the persons named as proxies will vote for any
substitute nominee designated by the Board of Directors. The following
information regarding the directors (including nominees) is relevant to your
consideration of the slate proposed by the Board of Directors.
Director Nominees
The names of the nominees and certain information about them as of April
30, 2001 are set forth below:
Principal Occupation/ Director
Name Age Position Held With the Company Since
---- --- ------------------------------ --------
Adam W. Au......... 44 Director, Vice President and General
Manager of Netreon, Inc. 2000
Robert G. Barrett.. 56 Director 1991
Director, Chief Executive Officer and
Howard J. Nellor... 62 President 2000
Robert L. North.... 65 Director 1996
Louis C. Cole...... 57 Nominee for Director --
Adam W. Au has served the Company as a director since April 2000 and has
served as Vice President and General Manager of Netreon, Inc., a wholly owned
subsidiary of the Company, since June 1999. Between 1994 and 1999, Mr. Au
served as the Chief Executive Officer and Chairman of Auco, Inc., of which he
was a founder. Auco, Inc. was acquired by Peerless in June 1999 and since such
acquisition, Auco, Inc. has been renamed Peerless Systems Networking and later
Netreon, Inc. Mr. Au has more than 18 years of experience in the networking
software industry. Prior to founding Auco, Inc., he was Group Director of the
Corporate Technology Office at Novell Inc. Mr. Au received a B.S.E.E. from the
University of Hong Kong and an M.S.E.E. from the University of Wisconsin at
Madison.
Robert G. Barrett has served the Company as a director since March 1991.
Mr. Barrett serves as a founder and General Partner of Veracity Capital
Partners, a venture capital fund specializing in investment in technology
companies. Prior to founding Veracity Capital Partners, he was a founder and a
Managing Partner of Battery Ventures, Inc., a venture capital fund
specializing in communication and software investment until his departure on
April 30, 2000. Presently, Mr. Barrett serves as a director of Brooktrout
Technology, Inc., Corillian Corporation, Vastera, Inc. and several privately-
held high technology companies. Mr. Barrett received an A.B. in history and an
M.B.A. from Harvard University.
Howard J. Nellor has served the Company as a director since November 2000.
He has been the Chief Executive Officer and President of the Company since
November 2000. From April 2000 through October 2000, Mr. Nellor served as the
Interim Chief Executive Officer and President. Mr. Nellor has 39 years of
experience in the development of high technology products. He has held
numerous management positions over the course of
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his career. Prior to joining Peerless, Mr. Nellor managed his own consulting
company and during the 13 years of consulting, he worked with clients
primarily to assist in the management of crisis and turnaround situations.
These consulting assignments were in hi-tech fields and included software,
robotics, hardware, systems engineering, CEO and VP management training and
development, customer service, and general accounting. Mr. Nellor's
assignments frequently required the stabilization of corporate performance in
companies undergoing management changes. From 1997 to April 2000, Mr. Nellor
was a Consultant to the Company, during which time he focused on business
process re-engineering and software product development. Mr. Nellor's
experience includes over 20 years with TRW, Inc., including communication
satellite program management and many internal technical management positions.
He holds a B.S. in Engineering from the University of Nebraska and an M.B.A.
from Pepperdine University. He also has extensive education and training in
organizational development.
Robert L. North has served the Company as a director since July 1996. Mr.
North was the Chief Executive Officer of HNC Software from 1987 until his
retirement in January 2000. He currently serves as CEO of Entropia and as a
director of Digital Insight, Keylime Software, Z-Market, Centor Software,
ieWild, Neighborhood Bankcorp and WebCapital. For 21 years prior to that time,
he was employed by TRW, Inc.'s Electronic Systems Group, most recently as Vice
President and General Manager. Prior to that time, he was a member of the
technical staff for the Satellite Central Office of Aerospace Corporation. Mr.
North received a B.S. and an M.S. in electrical engineering from Stanford
University.
Louis C. Cole has agreed to serve as a director of the Company. From July
1989 to October 2000, Mr. Cole served as President, Chief Executive Officer
and Chairman of the Board of Legato Systems, Inc., a worldwide leader in
enterprise storage management software. During this seven-year period, he saw
the Company through its initial public offering and was responsible for the
growth of its annual revenue to $251.1 million. Prior to joining Legato, Mr.
Cole was a founder of Combinet, Inc., a pioneer in the development of ISDN
solutions that was acquired by Cisco Systems in 1995. Before founding
Combinet, Mr. Cole served as Executive Vice President of Novell, Inc., with
responsibility for all operations divisions. Prior to joining Novell, Inc.,
Mr. Cole was President of CXI, Inc., which was acquired by Novell in 1987.
Before serving CXI, Mr. Cole spent five years with National Advanced Systems
as Vice President of Corporate Services, and eight years at Fairchild Camera
and Instrument in a variety of Information Services management positions. He
currently serves on the Board of Directors for Tricord Systems, Inc. and Rogue
Wave Software, Inc., both publicly-traded companies, as well as several
privately-held companies. Mr. Cole holds a B.S. in Mathematics and Education
from Edinboro University of Pennsylvania.
Composition of the Board of Directors
All directors are elected by the holders of Common Stock. Members of the
Board of Directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors. There are no
family relationships among the directors and officers.
Although the Board of Directors has five authorized members, the Company
currently has only four directors. Accordingly, there is currently one vacancy
on the Board of Directors. Five persons are nominated to the Board of
Directors, and if all five director nominees are elected at the Annual
Meeting, there will be no vacancy on the Board of Directors.
Board Committees and Meetings
During the fiscal year ended January 31, 2001, the Board of Directors held
eleven meetings. The Board of Directors has an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee").
During the fiscal year ended January 31, 2001, each director attended 75% or
more of the aggregate of the meetings of the Board of Directors and of the
committees on which each member served that were held during the period for
which each member was a director or committee member, respectively.
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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 of Directors the independent auditors to
be retained; and receives and considers the independent auditors' comments as
to controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The two directors who are
members of this committee are Messrs. Barrett and North, both of whom are
"independent" as required by applicable Nasdaq listing standards and the
Bylaws of the Company. The Audit Committee met four times during the fiscal
year ended January 31, 2001. The Company's new director nominee, Mr. Cole, if
elected, will serve on the Audit Committee as the third independent director.
The Audit Committee is governed by a written charter approved by the Board of
Directors, a copy of which is included as Appendix A to this proxy statement.
A more complete description of the Audit Committee's functions is set forth in
the charter.
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 of Directors may delegate. The
Compensation Committee is composed of the two non-employee directors: Messrs.
Barrett and North. The Compensation Committee met four times during the fiscal
year ended January 31, 2001.
Vote Required
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy and entitled to vote. Abstentions and broker
non-votes will have no effect on the outcome of the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE ABOVE NOMINEES.
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PROPOSAL TWO
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the independent
auditors for the fiscal year ending January 31, 2002 and has further directed
that management submit the selection of independent auditors for ratification
by the stockholders at the Annual Meeting. Ernst & Young LLP has been engaged
as the independent auditors since September 1999. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting with the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions. Fees for the last fiscal year were as
follows:
. Audit Fees: $298,775
. Other Audit Related Fees: $21,000
. Financial Information Systems Design and Implementation Fees: $0
. All Other Fees: $221,062
On September 20, 1999, the Company dismissed PricewaterhouseCoopers LLP,
the independent accounting firm that the Company previously engaged as the
principal accounting firm to audit the financial statements.
PricewaterhouseCoopers' report on the consolidated financial statements for
the fiscal year ended January 31, 1999 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. On September 16, 1999, the Audit
Committee of the Board of Directors approved the decision to discharge
PricewaterhouseCoopers. During the fiscal year ended January 31, 1999 and for
the period from February 1, 1999 through the date of dismissal, there were no
disagreements with PricewaterhouseCoopers on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.
On September 21, 1999, the Company engaged Ernst & Young LLP as the
principal accountant to audit the consolidated financial statements. The Audit
Committee approved this engagement on September 16, 1999. For the fiscal year
ended January 31, 1999 and for the period from February 1, 1999 to September
20, 1999, the Company did not consult Ernst & Young LLP regarding either (i)
the application of accounting principles to a specified transaction, either
complete or proposed or (ii) the type of audit opinion that might be rendered
on the registrant's consolidated financial statements.
The Company previously provided PricewaterhouseCoopers with a copy of the
above disclosures. PricewaterhouseCoopers furnished the Company with a letter
addressed to the Securities and Exchange Commission (the "SEC") stating that
PricewaterhouseCoopers agrees with the above disclosures. A copy of this
letter was attached as Exhibit 16.1 to the Current Report on Form 8-K filed
with the SEC on September 27, 1999.
Stockholder ratification of the selection of Ernst & Young LLP as the
independent auditors is not required by the Bylaws or otherwise. However, the
Board of Directors is submitting the selection of Ernst & Young LLP to the
stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
of Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee and the Board of Directors in their
discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
Vote Required
An affirmative vote of the majority of shares present in person or by proxy
and entitled to vote is required to approve the above proposal. Abstentions
will be counted for purposes of calculating shares entitled to vote but are
not counted as shares voting and therefore have the effect of a vote against
each such proposal. Broker non-votes have no effect on such proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
6
PROPOSAL THREE
RATIFICATION OF AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN TO
INCREASE THE NUMBER OF AUTHORIZED SHARES BY 250,000 SHARES
In July 1999, the stockholders approved an amendment to the 1996 Equity
Incentive Plan (the "Incentive Plan") to enhance the flexibility of the Board
of Directors and the Compensation Committee in granting stock options to the
Company's employees. The amendment increased the number of shares authorized
for issuance under the Incentive Plan by 1,000,000 shares (the "Share
Increase").
The Company was then sued in December 1999 by the State of Wisconsin
Investment Board ("SWIB"), a holder of more than five percent of the Common
Stock of the Company, in the Court of Chancery of the State of Delaware in New
Castle County. The former Chief Executive Officer, who was a director of the
Company, was also named as a defendant. The complaint alleged that Peerless
wrongfully influenced the passage of Proposal 2 (Increase in the Number of
Shares in the Stock Option Plan) at the July 1999 annual meeting of
stockholders and provided misleading information to SWIB. The former CEO was
alleged to have benefited wrongfully from these actions. Effective as of April
27, 2001, the Company and its former CEO entered into a Settlement Agreement
to conclude the pending claims with SWIB (the "Settlement Agreement").
Pursuant to the Settlement Agreement and Mutual Release by and among the
Company, its former CEO and SWIB entered into and effective as of April 27,
2001, SWIB withdrew its objection to 750,000 shares of the Share Increase and
consented to the issuance of the 750,000 shares under the Incentive Plan. The
Company agreed to seek stockholder ratification of the increase to the
aggregate number of shares of Common Stock authorized for issuance under the
Incentive Plan by the remaining 250,000 shares of the Share Increase. The
Company is informed that SWIB will vote in favor of ratification.
A summary description of the Incentive Plan is contained under Proposal
Four below.
Vote Required
An affirmative vote of the majority of shares present in person or by proxy
at the Annual Meeting and entitled to vote thereon is required to approve the
above proposal. Abstentions will be counted for purposes of calculating shares
entitled to vote but are not counted as shares voting and therefore have the
effect of a vote against each such proposal. Broker non-votes have no effect
on such proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE AMENDMENT
TO THE 1996 EQUITY INCENTIVE PLAN TO INCREASE THE AUTHORIZED SHARES BY 250,000
SHARES.
7
PROPOSAL FOUR
APPROVAL OF AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF AUTHORIZED SHARES BY 500,000 SHARES
The Board of Directors has approved an amendment to the Incentive Plan,
subject to stockholder approval pursuant to this proxy statement, to enhance
the flexibility of the Board of Directors and the Compensation Committee in
granting stock options to the employees. Taking into account the 250,000
shares to be ratified in Proposal Three above, there are currently 3,466,666
shares of the Company's Common Stock authorized for issuance under the
Incentive Plan. The amendment increases the number of shares authorized for
issuance under the Incentive Plan by an additional 500,000 shares to an
aggregate of 3,966,666 shares. The Board of Directors adopted this amendment
to ensure that the Company can continue to grant stock options to all
employees at levels determined appropriate by the Board of Directors and the
Compensation Committee.
On April 30, 2001, options (net of canceled or expired options) covering an
aggregate of 2,118,617 shares of Common Stock had been granted under the
Incentive Plan, and 899,785 shares (plus any shares that might in the future
be returned to the Incentive Plan 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 774,387
shares at exercise prices of $1.34 to $5.38 per share to executive officers.
Options to purchase 389,708 shares at exercise prices of $0.63 to $6.47 per
share were granted to all employees (excluding executive officers) as a group,
and options to purchase 9,999 shares at an exercise price of $2.31 were
granted to current directors Messrs. Barrett and North and former director
Robert V. Adams, none of whom were officers. From August 25, 2000 through
April 17, 2001, the Company did not grant any options pursuant to a
Stipulation obtained by SWIB in the aforementioned lawsuit between the Company
and SWIB, except for 47,000 options granted to two employees on December 18,
2000 on the basis that options were available because of cancellations and
forfeitures without utilizing the disputed options authorized at the July 1999
stockholders annual meeting.
General
The Incentive Plan provides for the grant of both incentive stock options
to selected employees and nonstatutory stock options, restricted stock
purchase awards and stock bonuses collectively, to selected employees,
directors and consultants of the Company and its Affiliates as defined in the
Incentive Plan. 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
employees, directors and consultants of the Company and its Affiliates could
be given an opportunity to purchase Common Stock, 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 153 employees, directors and consultants are
eligible to participate in the Incentive Plan.
Administration
The Board of Directors 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 one or more persons and has delegated the administration of the
8
Incentive Plan to the Compensation Committee of the Board of Directors. In
addition, the Incentive Plan provides that, in the Board of Directors'
discretion, directors who grant awards to employees covered under
Section 162(m) of the Code generally will be "outside directors" as defined in
Section 162(m). See "Federal Income Tax Information" below for a discussion of
the application of Section 162(m).
Eligibility
Incentive stock options may be granted under the Incentive Plan to selected
employees (including officers) of the Company and its Affiliates. In addition,
selected key employees (including officers), directors and consultants are
eligible to receive nonstatutory stock options and other awards under the
Incentive Plan.
No option may be granted under the Incentive Plan to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of the Company or its Affiliates, 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 Proposal Three above and this Proposal Four by the
stockholders, an aggregate of 3,966,666 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 100% of 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 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 and 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) of the Code. However,
pursuant to certain provisions of the Settlement Agreement with SWIB that have
been incorporated into the Bylaws by action of the Board of Directors, the
exercise price of any stock option granted by the Company shall be not less
than 100% of the fair market value of the stock subject to the option on the
date the option is granted without the approval of a majority of the voting
power of all the shares of the voting stock that are present, by proxy or in
person, and voting. This Bylaw may not be altered, amended, or repealed, and a
new Bylaw may not be adopted that has the effect of altering, amending, or
repealing this Bylaw, without the affirmative vote of a majority of the voting
power of all the shares of the voting stock that are present, by proxy or in
person, and voting.
On April 30, 2001, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market System was $1.04 per share.
9
In the event of a decline in the value of the Company's Common Stock, the
Compensation Committee 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 re-priced 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. However, pursuant to certain provisions of the Settlement
Agreement with SWIB that have been incorporated into the Bylaws by action of
the Board of Directors, the exercise price of outstanding stock options may
not be lowered, and outstanding stock options may not be canceled and new
stock options with a lower exercise price substituted therefore, also without
the approval of a majority of the voting power of all the shares of the voting
stock that are present, by proxy or in person, and voting. This Bylaw may not
be altered, amended, or repealed, and a new Bylaw may not be adopted that has
the effect of altering, amending, or repealing this Bylaw, without the
affirmative vote of a majority of the voting power of all the shares of the
voting stock that are present, by proxy or in person, and voting.
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 Compensation Committee, (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 Compensation
Committee.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the
Compensation Committee. 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 Compensation Committee 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 Compensation Committee has the
power to accelerate the time during which an option may be exercised. In
addition, although seldom authorized by the Compensation Committee, 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 ten 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 its Affiliates 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 its
Affiliates, or within the number of months as designated in the option
agreement, 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 twelve 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.
10
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
anti-takeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
Duration, Amendment and Termination
The Compensation Committee 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 Compensation Committee 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 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 under the Exchange Act or satisfy the requirements of Section 422
of the Code. The Compensation Committee 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 Compensation Committee may grant a nonstatutory stock option
that is transferable and, in any case, an optionee may designate in writing a
third party that 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
that the Compensation Committee deems appropriate.
11
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 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.
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 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.
12
Vote Required
An affirmative vote of the majority of shares present in person or by proxy
at the Annual Meeting and entitled to vote thereon is required to approve the
above proposal. Abstentions will be counted for purposes of calculating shares
entitled to vote but are not counted as shares voting and therefore have the
effect of a vote against each such proposal. Broker non-votes have no effect
on such proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1996 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF AUTHORIZED SHARES BY
500,000 SHARES.
13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Common Stock as of April 30, 2001 by: (i) each nominee for director; (ii)
each of the executive officers and individuals named in the Summary
Compensation Table provided below; (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 the outstanding Common Stock.
Beneficial Ownership(1)
--------------------------
Number of Percent of
Beneficial Owner Shares Total
- ---------------- ------------- ------------
State of Wisconsin Investment Board(2)........... 1,906,200 12.78%
P.O. Box 7842
Madison, WI 53707
Kenneth Luskin(3)................................ 1,866,600 12.51%
29229 Heathercliff Road, Suite 5
Malibu, CA 90265
Adam W. Au(4).................................... 916,193 6.12%
Robert G. Barrett(5)............................. 136,189 *
Louis C. Cole(6)................................. 7,238 *
Howard J. Nellor(7).............................. 181,235 1.20%
Robert L. North(8)............................... 32,498 *
William R. Neil(9)............................... 14,117 *
Ronald J. Davis(10).............................. 38,126 *
Carl W. Schlack(11).............................. 8,603 *
All directors and executive officers as a group
(11 persons)(12)................................ 1,376,145 9.00%
- --------
* 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
SEC. Unless otherwise indicated in the footnotes to this table and
subject to community property laws, where applicable, the Company
believes that each of the stockholders named in this table has sole
voting and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on 14,919,495 shares
of Common Stock outstanding on April 30, 2001, adjusted as required by
rules promulgated by the SEC.
(2) This number is based solely upon the Company's review of a Schedule 13G/A
filed with the SEC on February 9, 2001.
(3) This number is based solely upon the Company's review of a Schedule 13D/A
filed with the SEC on January 25, 2001. Mr. Luskin is the control person
of Intrinsic Value Asset Management, Inc. ("IVAM"). As of December 31,
2000, Mr. Luskin personally owned 207,100 shares, representing 1.4% of
the outstanding shares while IVAM owned 1,659,500 shares, representing
11.1% of the outstanding shares.
(4) Includes 60,469 shares issuable pursuant to options exercisable by Mr. Au
within 60 days of April 30, 2001, 1,250 shares issuable pursuant to
options exercisable by Catherine Shum, Mr. Au's spouse, within 60 days of
April 30, 2001 and 5,951 shares of Common Stock of the Company held by
Ms. Shum.
(5) Includes 32,498 shares issuable pursuant to options exercisable within 60
days of April 30, 2001.
(6) These shares are issuable pursuant to options exercisable within 60 days
of April 30, 2001.
(7) Includes 153,000 shares issuable pursuant to options exercisable within
60 days of April 30, 2001.
(8) These shares are issuable pursuant to options exercisable within 60 days
of April 30, 2001.
(9) Includes 9,906 shares issuable pursuant to options exercisable within 60
days of April 30, 2001.
(10) These shares are issuable pursuant to options exercisable within 60 days
of April 30, 2001.
(11) These shares are issuable pursuant to options exercisable within 60 days
of April 30, 2001.
(12) Includes 374,320 shares issuable pursuant to options exercisable within
60 days of April 30, 2001.
14
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the 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. 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. The information regarding compliance with Section 16(a)
is based solely on a review of the copies of such reports furnished to the
Company by the executive officers, directors and ten percent stockholders. The
Company believes that during the fiscal year ended January 31, 2001, all of
the other executive officers, directors and ten percent stockholders complied
with all applicable Section 16(a) filing requirements, with the following
exceptions: (i) Mr. Barrett filed a late Form 5 in March 2001 with respect to
three prior transactions; (ii) Mr. North filed a late Form 5 in March 2001
with respect to three prior transactions; (iii) Mr. Au filed an amended Form 3
in March 2001 with respect to five prior transactions which he further amended
in May 2001 and filed a late Form 5 in March 2001 with respect to one prior
transaction; (iv) Mr. Nellor filed an amended Form 3 with respect to one prior
transaction; (v) Mr. Neil filed a late Form 3 in March 2001; and (vi) Mr.
Retoske filed a late Form 3 in March 2001 which he amended in April 2001.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information with respect to the Company's
executive officers as of April 30, 2001.
Name Age Position
---- --- --------
Howard J. Nellor.. 62 Director, Chief Executive Officer and President
Adam W. Au........ 44 Director of the Company, Vice President and General
Manager of Netreon, Inc.
William R. Neil... 50 Vice President, Finance and Chief Financial Officer
Denis W. Retoske.. 61 Vice President, General Counsel and Secretary
Ronald J. Davis... 53 Vice President, Sales
Carl W. Schlack... 54 Vice President, Corporate Development
Eric Random....... 52 Vice President, Special Projects
Alan D. Curtis.... 41 Vice President, Technology and Architecture
Messrs. Nellor and Au are being considered for re-election to the position
of director of the Company. See "Director Nominee" section for a discussion of
their business experience.
William R. Neil has served as Chief Financial Officer and Vice President of
Finance of Peerless since August 2000. In this capacity, he oversees and
directs all financial planning, reporting, accounting and audit activities. He
also manages the Information Technology and Human Resources departments. From
February 1998 to July 2000, Mr. Neil served as Controller of Peerless. Prior
to that time, he served as Vice President and Chief Financial Officer for
Interactive Medical Technologies, Ltd., Perceptronics, Inc. and Clifford
Electronics, Inc. Mr. Neil obtained his certification as a public accountant
in the State of California during his tenure at Arthur Andersen & Co. Mr. Neil
received a B.S. from California State University, Northridge.
Denis W. Retoske was named Vice President, General Counsel and Secretary of
Peerless in August 2000. In this capacity, Mr. Retoske is responsible for
corporate governance matters, the Company's Intellectual Property, outside
licensing and contracting activities, advising on all legal matters and
overseeing the activities of outside legal counsel. Mr. Retoske joined
Peerless in January 1998 as Contracts Counsel and, in 1999, was named
Director, In-House Counsel. Prior to joining Peerless, Mr. Retoske managed his
own law firm for 16 years, where he represented a number of public and private
companies and individuals in the high technology and health care services
industries, including Peerless. His career also includes 12 years with Xerox
Corporation in a variety of financial positions in RD&E in Rochester, NY and
the Electronics Division in El Segundo, CA, 1 year on the Corporate Finance
Staff of Chrysler Corporation and 5 years active duty in the United States
Marine Corps.
15
Mr. Retoske holds a B.B.A. from the University of Notre Dame, an M.B.A. from
the Wharton School of Finance of the University of Pennsylvania and a J.D.
from Western State University College of Law. He is licensed to practice law
in the State of California and the District of Columbia. He is admitted to
practice before all Federal District Courts in California and Arizona.
Ronald J. Davis is responsible for Worldwide Sales, Marketing and Field
Operations for Peerless Systems Corporation (including Netreon, Inc. and
Peerless Systems Imaging Products, Inc.) and the management of the Peerless KK
Company in Tokyo, Japan. Mr. Davis represents Peerless as a board member of
the Southern California Software Council and as a board member and co-
representative director of the Peerless KK Company in Japan. From 1996 to
1999, Mr. Davis has held the positions of Vice President of Marketing,
Director of Marketing and Director of Strategic Planning for Peerless. Prior
to joining Peerless, Mr. Davis worked at Xerox Corporation for 13 years in
various positions including: Product Business Team Manager, Manager of Market
and Product Planning, Manager of Product Marketing and Manager of the Program
Business Office. In addition, Mr. Davis also has 13 years of related
experience with 3M Corporation. Mr. Davis received a B.S. degree in Business
from the University of Minnesota and an M.B.A. in Marketing from the College
of St. Thomas.
Carl W. Schlack, as Vice President of Corporate Development, is responsible
for the strategic direction of Peerless as well as technology planning and
product marketing. Prior to joining Peerless in November 1999, Mr. Schlack
held strategic and executive positions with Storage Technology, an enterprise-
based storage systems Company and Questra Consulting, a private imaging
software and strategic services firm. During his tenure at Questra, Mr.
Schlack led product and business development efforts in the areas of digital
imaging and Internet communications markets. Mr. Schlack also brings 15 years
of experience from Eastman Kodak, where he managed product and business
development for the Consumer & Commercial Imaging Divisions. He was also the
general manager of the digital color thermal printing business. Prior to his
experience at Eastman Kodak, Mr. Schlack spent 13 years with Xerox
Corporation, most notably as director of High Copy Volume Advanced Planning.
Mr. Schlack holds a B.S. in Electrical Engineering from the University of
Rochester, as well as an A.A.S. in Electrical Engineering, a B.S. in Business
Administration and an M.B.A. from the Rochester Institute of Technology.
Eric Random presently manages Peerless' Kent, WA facility, Peerless Systems
Imaging Products, Inc. in his capacity as Vice President of Special Projects
and Acting General Manager. He is also overseeing a management change at PSIP
that will eventually replace him in the role of Acting General Manager. Prior
to his appointment in August 2000 as Vice President of Special Projects, Mr.
Random was a Senior Architect and member of the Peerless Core Technology team,
responsible for formulating new technology direction. Prior to that, he
spearheaded the development of the PeerlessPage color imaging architecture. He
has a broad background in software development, including operating systems,
4GL languages and user interface. Mr. Random has been with Peerless since 1992
and holds a B.A. from Yale University.
Alan D. Curtis, as Chief Technology Officer ("CTO") and Vice President of
Technology & Architecture, is responsible for new product and technology
definitions, architectures, designs, and planning for the Peerless Imaging
product lines. Prior to his appointment as CTO in February 2000, Mr. Curtis
served as Vice President of Product Development. During his eight year tenure
with Peerless, Mr. Curtis was successful in leading product definition and
development efforts, spearheading software engineering processes and
procedures, directing global products for OEMs and building technical
partnerships. Mr. Curtis also played a major role in Peerless' acquisitions of
HDE, Inc. and Auco, Inc. Prior to Peerless, Mr. Curtis worked for Andersen
Consulting, Xerox Corporation, and two software start-up companies. Mr. Curtis
holds a B.A. from UCLA and an M.S. in Computer Science from the University of
Wisconsin at Madison.
Director Compensation
Directors currently do not receive any cash compensation from the Company
for their services as members 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 adopted resolutions
providing for the
16
automatic grant, under the Incentive Plan of: (i) an option to purchase 26,666
shares of Common Stock to each non-employee director in connection with his
initial election to the Board of Directors; 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 20, 2000, pursuant to the
non-discretionary grant under the Incentive Plan, options to purchase an
aggregate of 6,666 shares of Common Stock were granted to each of Mr. Barrett
and Mr. North at an exercise price of $2.313 per share.
Compensation Committee Interlocks And Insider Participation
The Compensation Committee currently consists of Messrs. Barrett and North.
No member of the Compensation Committee has served as one of the Company's
officers or employees at any time. None of the executive officers serves as a
member of the board of directors or compensation committee of any other
company that has one or more executive officers serving as a member of the
Board of Directors or Compensation Committee.
17
Summary Compensation Table
The following table sets forth for the fiscal years ended January 31, 2001,
January 31, 2000 and January 31, 1999, the compensation earned by the
Company's current Chief Executive Officer, former Chief Executive Officer and
other four most highly compensated executive officers of the Company and its
subsidiaries for the fiscal year ended January 31, 2001 (the "Named Executive
Officers"):
Summary Compensation Table
Long-Term
Compensation
Annual Compensation(/1/) Awards /
------------------------------ Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ------ -------- -------- ------------ ------------ ------------
Howard J. Nellor............. 2001 $186,462 $123,760 $ -- 204,000 $ --
Chief Executive Officer, 2000 -- -- -- -- --
President and Director 1999 -- -- -- -- --
Adam W. Au................... 2001 175,000 96,700 -- 28,475 --
Vice President and General 2000 131,673 -- -- 100,000 --
Manager of Netreon, Inc. 1999 62,300 -- -- -- --
and Director
William R. Neil.............. 2001 150,146 71,825 -- 101,875 --
Vice President, Finance 2000 106,706 20,000 -- 6,625 --
and Chief Financial Officer 1999 91,404 10,000 -- 13,000 --
Ronald J. Davis.............. 2001 164,356 44,355 15,000(/3/) -- --
Vice President, Sales 2000 141,304 -- -- 47,164 --
1999 114,227 12,500 -- 7,000 --
Carl W. Schlack.............. 2001 160,538 26,335 45,455(/4/) 9,412 --
Vice President, Corporate 2000 22,308 4,167 5,329(/4/) 25,000 --
Development 1999 -- -- -- -- --
Edward A. Gavaldon........... 2001 122,831 -- -- 33,500 190,385(/2/)
Former President, Chief 2000 277,404 -- -- 120,000 --
Executive Officer and 1999 199,039 50,000 -- 150,000 --
Chairman of the Board
- --------
(/1/)In accordance with the rules of the SEC, the compensation described in
this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers that are available
generally to all of the salaried employees and perquisites and other
personal benefits received by the Named Executive Officers that do not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus
described in this Table.
(/2/)Mr. Gavaldon is no longer an executive officer of the Company as of April
13, 2000 and in connection with the termination of his employment, the
Company paid him this amount as severance pay.
(/3/)Represents commission pay.
(/4/)Represents relocation housing allowances for Mr. Schlack.
18
STOCK OPTION GRANTS AND EXERCISES
Option/SAR Grants in Fiscal Year 2001. The following table summarizes the
stock options granted under the Incentive Plan to the Named Executive Officers
during the last fiscal year. No SARs were granted during the last fiscal year.
Stock Option Grants Fiscal Year 2001
Individual Grants
-------------------------------------------------------
Potential Realizable Value at
Number of Percentage of Assumed Annual Rates of Stock
Securities Total Options Price Appreciation for Option
Underlying Granted to Term(/4/)
Options Employees in Exercise Price Expiration -----------------------------
Name Granted(/1/) Fiscal 2001(/2/) (per share) Date(/3/) 5% 10%
- ---- ------------ ---------------- -------------- ---------- -----------------------------
Howard J. Nellor........ 204,000 17.38% $3.59 4/13/2010 $ 461,090 $ 1,168,494
Adam W. Au.............. 28,475 2.43 4.88 3/07/2010 87,300 221,236
William R. Neil......... 100,000 8.52 1.63 8/04/2010 102,195 258,983
1,875 0.16 1.34 8/22/2010 1,585 4,016
Ronald J. Davis......... -- -- -- N/A 0 0
Carl W. Schlack......... 9,412 0.80 2.66 5/22/2010 15,721 39,841
Edward A. Gavaldon...... 33,500 2.85 4.88 4/13/2001 8,166 16,331
- --------
(/1/)Represents options granted under the Incentive Plan.
(/2/)Based on an aggregate of 1,174,094 shares of Common Stock which are
subject to options granted to employees during fiscal year 2001.
(/3/)The term of each option grant is generally ten years from the date of
grant. The options may terminate before their expiration dates if the
option holder's status as an employee is terminated or upon the option
holder's death or disability.
(/4/)The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by the rules of the SEC and do not represent
either historical appreciation or the Company's estimate or projection of
the Company's future Common Stock prices.
The following table shows for the fiscal year ended January 31, 2001
certain information regarding options exercised by and held at year-end by the
Named Executive Officers:
Aggregated Option Exercises Fiscal Year 2001 and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at January 31, 2001 January 31, 2001
Acquired on Value ------------------------------ -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ------------- -------------- ----------- -------------
Howard J. Nellor........ -- -- -- 204,000 $ -- $ --
Adam W. Au.............. -- -- 43,559 91,080 -- --
William R. Neil......... -- -- 7,406 113,344 -- --
Ronald J. Davis......... -- -- 29,793 45,207 -- --
Carl W. Schlack......... -- -- 6,250 28,162 -- --
Edward A.
Gavaldon(/1/).......... -- -- 235,564 11,947 -- --
- --------
(/1/)Mr. Gavaldon's unvested options were canceled on April 13, 2001.
19
Employment and Severance Agreements
Mr. Nellor has an arrangement with the Company that provides for
accelerated vesting of options in the event of change in control of the
Company.
Additionally, the Board of Directors has approved a plan whereby each of
Messrs. Neil and Schlack will receive three months of severance pay in the
event of his termination without cause and accelerated vesting of options in
the event of change in control of the Company.
In June 1999, the Company entered into an employment agreement with Adam W.
Au, Vice President and General Manager of Netreon, Inc., a wholly owned
subsidiary of the Company. The agreement provided Mr. Au with an annual salary
of $175,000 with a potential bonus of $100,000 and participation in the
Company's option plans. If Mr. Au is terminated for reasons other than for
Cause (as defined below), death or disability or Mr. Au terminates his
employment for Good Reason (as defined below), he is entitled to all
compensation due under the terms of the employment agreement as if Mr. Au had
remained in the employment of the Company. As defined in the employment
agreement, Cause is the occurrence of one of the following events: (i)
conviction of or guilty plea to a felony charge; (ii) action towards the
Company involving personal dishonesty, theft or fraud; or (iii) willful
failure to abide by the directions of the Board of Directors. As defined in
the employment agreement, Mr. Au has Good Reason to terminate his employment
for (i) the Company's failure to elect, re-elect or maintain Mr. Au in his
position with the Company; (ii) a significant adverse change in the nature or
scope of the duties as described in his agreement; (iii) a reduction in Mr.
Au's base salary; (iv) the Company requires Mr. Au to relocate his principal
location of work outside of Redwood City, California, or (v) material breach
of the employment agreement by the Company.
The Company entered into an employment agreement in January 1995 with
Edward A. Gavaldon. The agreement provided that Mr. Gavaldon would serve as
Chief Executive Officer and President and provided for payment of a base
salary of $175,000 with a bonus of up to $75,000 annually, and participation
in the benefit plans. Effective as of February 1, 1998, the Board of Directors
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 of
Directors increased Mr. Gavaldon's annual base salary to $275,000 and his
potential annual bonus to $200,000. The agreement also provided that all of
Mr. Gavaldon's outstanding options be accelerated in the event of the
acquisition or change in control of the Company or a sale of all or
substantially all of the Company's assets. The employment agreement also
provided that in the event that the Company terminated Mr. Gavaldon without
cause, the Company would be required to pay Mr. Gavaldon certain benefits,
including salary and continued vesting of unvested options.
On April 13, 2000, Mr. Gavaldon resigned his employment with the Company.
Pursuant to his employment agreement and the terms of a severance agreement
which became effective as of April 25, 2000, the Company agreed to continue to
pay Mr. Gavaldon his base salary for a period of thirteen months and to
provide benefits (including continued vesting of unvested options) for one
year following the effective date of the agreement.
20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnification agreements with Messrs.
Barrett and North which provide, among other things, that the Company will
indemnify each of them, 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 the Company's director, officer or other
agent, and otherwise to the fullest extent permitted under Delaware law and
the Bylaws.
On April 11, 2001, the Company entered into a settlement agreement with
Gordon L. Hanson, relating to a suit filed by Peerless against Mr. Hanson on
July 12, 2000 in the United States District Court for the Central District of
California. Pursuant to the settlement agreement but subject to certain
limitations, the Company agreed that it will, at Mr. Hanson's option, during
the six month period beginning April 11, 2001 purchase at a price of $0.75 per
share, the shares of the Company received by Mr. Hanson pursuant to the merger
agreement dated December 7, 1999 under which the Company acquired HDE, Inc.
The Company also agreed to and did file a registration statement for the sale
of Mr. Hanson's shares under the Securities Act of 1933 within three weeks of
the date of the settlement agreement.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
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 Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to each of the 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 Incentive Plan 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 stockholder value, to motivate executive officers to achieve the
Company's business objectives and to reward individual performance. In
carrying out these objectives, the Committee considers the level of
compensation paid to executive officers in positions of companies similarly
situated in size and products, the individual performance of each executive
officer, corporate performance, and the responsibility and authority of each
position relative to other positions within the Company.
The Company's executive compensation package consists of three components:
base salary and related benefits; annual cash bonus incentives; and equity-
based compensation incentives. The Committee reviews each of these components
and develops an incentive compensation package for each of the Company's
executive officers based, in part, upon the review of competitive compensation
information, the recommendations of senior management and other information
available to the Committee.
Base Salary And Benefits
The first component of the Company's executive compensation package is base
salary and related benefits. Each executive officer receives a base salary and
benefits based on competitive compensation information and his or her
responsibilities and performance. The Committee compares the Company's
compensation levels with published surveys of executive compensation at
comparable companies as well as with recent proxy data for
21
publicly-traded companies also involved in the information technology
industry. In order to maximize the incentive elements of the executive
officers' total compensation packages, the Committee sets the base salary and
benefits component of these packages within the competitive range of the
salary and benefits levels of the executive officers of the comparative
companies.
Annual Incentive Bonus
The second component of the Company's executive compensation package is an
annual incentive bonus. In the beginning of fiscal year 2001, the Committee
established bonus compensation formulae for certain of its officers based on
individual criteria. The arrangement provided each executive officer with the
opportunity to earn a cash bonus according to the extent to which he or she
met Company specific goals and objectives. The Committee established the
formulae and criteria for fiscal year 2001, and the Committee determined
whether these criteria were met by the officers.
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 Plan 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 Plan generally have a non-statutory
four 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 four-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 Committee periodically considers the grant of
stock-based compensation to all executive officers. Such grants are made on
the basis of a quantitative and qualitative analysis of individual
performance, the Company's financial performance, and the executive's existing
options. In addition, in certain cases, the Committee has provided for
accelerated vesting of options in connection with the retention of key
personnel or in accordance with agreements.
CEO Compensation
In fiscal year 2001, Mr. Nellor's base salary was $186,462. Mr. Nellor also
received bonuses totalling $123,760. Mr. Nellor was granted such bonuses after
taking into consideration the Company's financial performance since Mr. Nellor
became the Chief Executive Officer and President, and in light of his
individual performance and significant contributions to the Company.
The base salary, annual incentive bonus and stock options for Mr. Gavaldon,
the former Chief Executive Officer, were determined in accordance with the
terms of an employment agreement entered into in July 1996, between Mr.
Gavaldon and the Company. Mr. Gavaldon's employment agreement was the result
of negotiations to induce Mr. Gavaldon to join the Company as its President
and Chief Executive Officer.
22
Other Executive Officer Compensation
At the beginning of fiscal year 2002, the Committee reviewed and/or
established the base salaries of each executive officer based on data
regarding executive compensation of the Company's competitors, including
published survey information, each executive officer's base salary for the
prior fiscal year, past performance, the scope of such officer's
responsibility and other information available to the Committee. In addition,
early in fiscal year 2002, the Committee directed bonus compensation formulae
for all officers based on individual criteria. The Committee further reviewed
the performance for fiscal year 2001 of each executive relative to the Company
performance and determined that bonuses would be awarded for the fiscal year
2001. The Committee also awarded options to certain executive officers for
fiscal year 2001 based upon the attainment of individual performance goals.
The Compensation Committee
Robert G. Barrett
Robert L. North
May 23, 2001
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee (the "Committee") oversees the Company's financial
reporting process on behalf of the Board of Directors and the Committee's
written charter has been approved by the Board of Directors (hereto attached
as Appendix A). In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Company's Annual Report on
Form 10-K for fiscal year ended January 31, 2001 with management, who has the
primary responsibility for the financial statements and the reporting process.
As part of its review, the Committee discussed the quality, and not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements.
The Committee also reviewed the audited financial statements in the
Company's Annual Report on Form 10-K for fiscal year ended January 31, 2001
with Ernst & Young LLP, the Company's independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
under generally accepted accounting principles and SAS 61 (Codification of
Statements on Auditing Standards, AU 380). In addition, the Committee has
discussed with the independent auditors, the auditors' independence from
management and the Company, including the matters in the written disclosures
required by the Independence Standards Board, and considered the compatibility
of non-audit services with the auditors' independence.
The Committee discussed with Ernst & Young LLP the overall scope and plans
for their audits. The Committee meets with Ernst & Young LLP, with and without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls, and the overall quality of its
financial reporting. The Committee held two such meetings with Ernst & Young
LLP during the fiscal year ended January 31, 2001.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the fiscal year ended January
31, 2001 for filing with the Securities and Exchange Commission. The Committee
and the Board of Directors have also recommended, subject to stockholder
approval, the selection of Ernst & Young LLP as the Company's independent
auditors for fiscal year ending January 31, 2002.
The Audit Committee
Robert G. Barrett
Robert L. North
May 23, 2001
23
PERFORMANCE MEASUREMENT COMPARISON
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
[PERFORMANCE GRAPH]
24-Sep-96 31-Jan-97 31-Jan-98 31-Jan-99 31-Jan-00 31-Jan-01
--------- --------- --------- --------- --------- ---------
PEERLESS
Scaled Price..... $100.00 $181.82 $ 98.85 $ 79.55 $ 44.32 $ 7.95
NASDAQ
Scaled Price..... $100.00 $113.62 $133.92 $208.04 $328.07 $231.29
H&Q TECHNOLOGY
Scaled Price..... $100.00 $118.36 $133.38 $221.64 $416.59 $321.88
24
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 Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
Proposals by stockholders to be presented at the Company's 2002 annual
meeting must be received by the Company no later than 120 days prior to May
23, 2002, in order to be considered for inclusion in the Company's proxy
statement and form of proxy for such meeting. Furthermore, proposals by
stockholders submitted outside the process of Rule 14a-8 under the Exchange
Act may be considered untimely and ineligible to properly come before the
Company's 2002 annual meeting if such proposal is not submitted at least 45
days prior to May 23, 2002.
Please return your proxy as soon as possible. Unless a quorum consisting of
a majority of the outstanding shares entitled to vote is represented at the
Annual Meeting, no business can be transacted. Therefore, please be sure to
date and sign your proxy exactly as your name appears on your stock
certificate and return it in the enclosed prepaid return envelope. Please act
promptly to ensure that you will be represented at the Annual Meeting.
AVAILABLE INFORMATION
We are required to file annual, quarterly and special reports and other
information with the SEC. You can read the Company's filings with the SEC over
the Internet at the SEC's website at www.sec.gov. You may read and copy any
document filed with the SEC at its public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at
7 World Trade Center, 13th Floor, New York, NY 10048, and the Chicago Regional
Office located at Northwestern Atrium Center, 500 West Madison Street,
Chicago, IL 60661. You may also obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the Public Reference facilities.
The Company's SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of the Company's
public filings at the Nasdaq National Market you should call (212) 656-5060. A
copy of the Company's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended January 31, 2001 is available without charge upon written
request to: Corporate Secretary, Peerless Systems Corporation, 2381 Rosecrans
Avenue, El Segundo, California 90245.
By Order of the Board of Directors
/s/ Denis W. Retoske
Denis W. Retoske
Vice President, General Counsel and
Secretary
May 23, 2001
25
APPENDIX "A"
PEERLESS SYSTEMS CORPORATION
AUDIT COMMITTEE CHARTER
PREFACE
WHEREAS: This charter governs the operations of the Audit Committee (the
"Committee") for Peerless Systems Corporation, a Delaware corporation (the
"Company") as of June 15, 2000 (the "Effective Date").
. The Committee shall review and reassess the charter at least annually
and obtain the approval of the Board of Directors.
. The Committee shall be appointed by the Board of Directors and shall
comprise at least three directors, each of whom are independent of
management and the Company.
. Members of the Committee shall be considered independent if they have no
relationship that may interfere with the exercise of their independence
from management and the Company.
. All Committee members shall be financially literate, or shall become
financially literate within a reasonable period of time after
appointment to the Committee, and at least one member shall have
accounting or related financial management expertise.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In
so doing, it is the responsibility of the Committee to maintain free and open
communication between and among the Committee, independent auditors, the
internal auditors and management of the Company. In discharging its oversight
role, the Committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities, and personnel of
the Company and the power to retain outside counsel or other experts for this
purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible
for auditing those financial statements. The Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible,
in order to best react to changing conditions and circumstances. The Committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the Committee
in carrying out its oversight responsibilities. The processes are set forth as
a guide with the understanding that the Committee may supplement them as
appropriate.
. The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the Committee, as representatives of the
Company's shareholders. The Committee shall have the ultimate authority
and responsibility to evaluate and, where appropriate, replace the
independent auditors. The Committee shall discuss with
the auditors their independence from management and the Company and the
matters included in the written disclosures required by the Independence
Standards Board. Annually, the Committee shall review and recommend to
the board the selection of the Company's independent auditors, subject
to shareholders' approval.
. The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
Committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting
and financial controls, including the Company's system to monitor and
manage business risk, and legal and ethical compliance programs.
Further, the Committee shall meet separately with the internal auditors
and the independent auditors, with and without management present, to
discuss the results of their examinations.
. The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the Committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the Committee by the independent auditors
under generally accepted auditing standards. The chair of the Committee
may represent the entire Committee for the purposes of this review.
. The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report
on Form 10-K (or the annual report to shareholders if distributed prior
to the filing of Form 10-K), including their judgment about the quality,
not just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the Committee shall discuss the results of
the annual audit and any other matters required to be communicated to
the Committee by the independent auditors under generally accepted
auditing standards.
APPENDIX "B"
PEERLESS SYSTEMS CORPORATION
AMENDED AND RESTATED (AS PROPOSED)
1996 EQUITY INCENTIVE PLAN
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.
(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.
(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.
(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. 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 nine hundred sixty-six thousand six
hundred sixty-six (3,966,666) 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 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 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 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.
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.
(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 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 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 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 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.
PEERLESS SYSTEMS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
June 20, 2001
2381 Rosecrans Avenue
El Segundo, CA 90245
Please detach here
Peerless Systems Corporation Proxy
- --------------------------------------------------------------------------------
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders to be held on June 20, 2001 and appoints Howard J.
Nellor and Denis W. Retoske, or either one of them, with full power of
substitution, as proxy for the undersigned, to vote all shares of Common Stock,
$.001 par value per share, of Peerless Systems Corporation, owned of record by
the undersigned, with all powers the undersigned would have if personally
present at the Annual Meeting of Stockholders of Peerless Systems Corporation to
be held on June 20, 2001 at 2:00 PM (Pacific Daylight Time) at 2381 Rosecrans
Avenue, El Segundo, California 90245, and any adjournments or postponements
thereof for any purpose.
If no choice is specified, the proxy will be voted "FOR" Proposals 1, 2, 3 and
4.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
IN FAVOR OF EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND IN FAVOR OF EACH
OF THE OTHER PROPOSALS.
--------------------
COMPANY #
CONTROL #
--------------------
There are three ways to vote your Proxy:
Your telephone or Internet vote authorizes the Named Proxies to vote your shares
in the same manner as if you marked, signed and returned your Proxy Card.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
. Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 9:00 AM (Pacific Daylight Time) on June 19, 2001.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
. Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/prls/ -- QUICK *** EASY *** IMMEDIATE
. Use the internet to vote your proxy 24 hours a day, 7 days a week, until
10:00 AM (Pacific Daylight Time) on June 19, 2001
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your Proxy Card and return it in the postage-paid envelope
we've provided or return it to PEERLESS SYSTEMS CORPORATION c/o Shareowner
Services/SM/, P.O. Box 64873, St. Paul, MN 55164-0873.
[X] PLEASE MARK VOTE AS IN THIS EXAMPLE.
If you vote by Phone or Internet, please do not mail your Proxy Card.
Please detach here
Proposals
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1. Election of Directors of Peerless Systems Corporation. [ ] FOR ALL [ ] WITHHOLD
NOMINEES ALL NOMINEES
Nominees: 01 Adam W. Au 03 Louis C. Cole 05 Robert L. North (except as marked)
02 Robert G. Barrett 04 Howard J. Nellor
Instruction: To withhold authority to vote for any individual nominee, place an X --------------------------------------------
in the box marked "FOR ALL NOMINEES" and write the number(s) of the nominee(s) in the
box provided to the right. --------------------------------------------
2. Ratification of Selection of Ernst & Young LLP as Independent Auditors. [ ] For [ ] Against [ ] Abstain
3. Ratification of Amendment to 1996 Equity Incentive Plan to increase the Number
of Authorized Shares by 250,000 Shares of Common Stock. [ ] For [ ] Against [ ] Abstain
4. Approval of Amendment to 1996 Equity Incentive Plan to increase the Number of
Authorized Shares by 500,000 Shares of Common Stock. [ ] For [ ] Against [ ] Abstain
This proxy authorizes each of Howard J. Nellor and Denis W. Retoske to vote at his discretion on any other matter that may properly
come before this Annual Meeting or any adjournment thereof.
Address Change? Mark Box [ ] Date_________________________________
Indicate changes below:
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Signature(s) In Box
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF PEERLESS SYSTEMS
CORPORATION