Exhibit 10.4
CHANGE IN CONTROL SEVERANCE AGREEMENT
          This Change in Control Severance Agreement (this “Agreement”), dated
as of February 26, 2008 (the “Effective Date”) is made by and among Peerless
Systems Corporation (“Peerless”), T1 Delaware Corporation, a Delaware
corporation and wholly owned subsidiary of Peerless (the “Company”) and Andrew
Lombard (the “Executive”).
          WHEREAS, Executive shall serve as President of the Company pursuant to
an Employment Agreement between Executive and the Company of even date herewith
(the “Employment Agreement”) and incorporated by reference herein; and
          WHEREAS, the Board of Directors of Peerless (the “Board”) has
determined that it is in the best interests of Peerless and the Company to
institute formalized severance arrangements for certain of the executives of
Peerless and the Company, including the Executive.
          NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
Section 1. Definitions.
          For purposes of this Agreement, the following capitalized terms have
the meanings set forth below:
          “Cause” shall have the meaning ascribed to it in the Employment
Agreement.
          “Change in Control” shall mean (i) the acquisition by any person,
entity or group (other than Peerless, its subsidiaries or any employee benefit
plan of Peerless) of fifty percent (50%) or more of the combined voting power of
the then outstanding securities of Peerless, (ii) the involuntary replacement or
termination without cause, at any time during the period of two consecutive
years subsequent to the Effective Date of this Agreement, of the Chief Executive
Officer of Peerless or three (3) or more members of the incumbent Board,
(iii) the consummation by Peerless of a merger, consolidation, reorganization or
business combination of Peerless, a sale or other disposition of all or
substantially all of the assets of Peerless or the acquisition of assets or
stock of another entity, in each case other than a transaction in which the
voting securities of Peerless immediately prior thereto continue to represent at
least fifty percent (50%) of the combined voting power of the outstanding voting
securities of the surviving entity immediately after such transaction, or (iv) a
liquidation or dissolution of Peerless. For avoidance of doubt, the consummation
of the proposed sale of intellectual property and certain other assets of
Peerless to Kyocera-Mita Corporation, as announced on January 10, 2008, shall
not be deemed a Change in Control.
          “Code” shall mean the Internal Revenue Code of 1986, as amended.
          “Covered Termination” shall mean (i) a termination of the Executive’s
employment by the Company without Cause, (ii) the Executive’s resignation of
employment with the Company for Good Reason, or (iii) a termination of
employment by reason of the Executive’s death or Disability.

 

--------------------------------------------------------------------------------

 

          “Disability” shall have the meaning ascribed to it in the Employment
Agreement.
          “Effective Date of Termination” shall have the meaning ascribed to it
in the Employment Agreement.
          “Excise Tax” shall mean the excise tax imposed by Section 4999 of the
Code, together with any interest or penalties imposed with respect to such
excise tax.
          “Good Reason” shall have the meaning ascribed to it in the Employment
Agreement.
          “General Release” shall mean a release substantially in the form
attached hereto as Exhibit A.
Section 2. Term of Agreement.
          The term of this Agreement shall commence on the Effective Date and
continue as long as Executive is employed by the Company.
Section 3. Severance Benefits in Connection with a Change in Control.
          If a Change in Control of Peerless occurs during the term of this
Agreement and there is a Covered Termination of the Executive’s employment
within eighteen (18) months following the Change in Control, then Peerless and
the Company shall provide the Executive with the following payments and
benefits:
          (a) Cash Payments. The Company or Peerless, jointly and severally,
shall be responsible to pay the Executive, (i) on the effective date of
termination, the full amount of any earned but unpaid base salary through the
Effective Date of Termination at the rate in effect on such date, plus (ii) in
accordance with the following paragraph, an amount equal to the Executive’s
annual base salary as in effect immediately prior to the Effective Date of
Termination or the Change in Control (subpart (ii) of this sentence only, the
“Termination Payment”).
          Notwithstanding anything in this Agreement to the contrary, (i) the
Company or Peerless shall have no obligation to pay the Severance Amount unless
on or after the date of “separation from service,” within the meaning of
Section 409A(a)(2)(A)(i) (“Code Section 409A”) of the Internal Revenue Code of
1986, as amended (“Separation from Service”), Executive executes and delivers to
the Company a full general release of claims (excluding claims for amounts
payable under this Agreement), in substantially the form attached hereto as
Exhibit A (the “General Release”), against the Company and the Related Entities
and their respective officers, directors, employees and agents, (ii) The Company
shall pay the Termination Payment and provide any benefits as herein agreed
beginning on the tenth (10th) business day following the receipt of the General
Release , and (iii) the Termination Payment and all other obligations of the
Company and Peerless shall be extinguished if such General Release is not
executed and delivered to the Company within seven (7) business days of the
effective date of termination, the date of “Separation from Service”.

 

--------------------------------------------------------------------------------

 

          (b) Vesting of Stock Options. Notwithstanding the provisions of that
certain Stock Option Agreement between Executive and Peerless executed
concurrently with this Agreement, all unvested stock options thereunder shall
immediately vest and become exercisable in full as of the Effective Date of
Termination, to be exercised in accordance with the terms of the 2005 Incentive
Award Plan and such Stock Option Agreement.
          (c) Restricted Stock.
     Pursuant to the provisions of the Restricted Stock and Repurchase Agreement
between Executive and the Company executed concurrently with this Agreement, all
of the Shares vested as of the Effective Date of Termination shall no longer be
subject to the Repurchase Right.
          (d) Health Benefits. For a period of one (1) year following the
Effective Date of Termination, the Company shall continue to provide to the
Executive and his eligible family members medical and dental insurance benefits
substantially similar to those provided to the Executive and his eligible family
members immediately prior to the Effective Date of Termination; provided,
however, that if the Executive becomes re-employed with another employer and is
eligible to receive medical and dental insurance benefits under another
employer’s plans, the Company’s obligations under this Section 3(d) shall be
reduced to the extent comparable benefits are actually received by the
Executive, and the Executive shall report to the Company any such benefits
actually received. At the termination of the benefits coverage under the
preceding sentence, the Executive and his eligible family members may, at the
Executive’s own expense, be entitled to continuation coverage (“COBRA Coverage”)
pursuant to Section 4980B of the Code, Sections 601-608 of the Employee
Retirement Income Security Act of 1974, as amended, and under any other
applicable law, to the extent required by such laws; provided, however, that the
period of the Executive’s benefits coverage under the first sentence shall be
offset against the period during which the Executive would be entitled to such
COBRA Coverage.
Section 4. Section 280G Parachute Payment Taxes.
          (a) If any payment or distribution to or for the benefit of the
Executive (whether paid or payable or distributed or distributable) pursuant to
the terms of this Agreement or otherwise (a “Payment”) would constitute a
“Parachute Payment” within the meaning of Section 280G of the Code, the Payments
shall be reduced to the extent necessary so that no portion of the Payments
shall be subject to Excise Tax, but only if, by reason of such reduction, the
net after-tax benefit to the Executive shall exceed the net after-tax benefit to
the Executive if no reduction was made.
          (b) All determinations required to be made under Section 4(a),
including whether a reduction of any Payment is required and the assumptions to
be utilized in arriving at such determination, shall be made by the independent
certified public accountants of the Company or Peerless serving immediately
prior to the Change in Control, or such other nationally recognized accounting
firm as may be agreed by the Company, Peerless and the Executive (the
“Accounting Firm”); provided, that the Accounting Firm’s determination shall be
made based upon “substantial authority” within the meaning of Section 6662 of
the Code. Any determination by the Accounting Firm hereunder shall be binding
upon Peerless, the Company

 

--------------------------------------------------------------------------------

 

and the Executive.
Section 5. General Release.
          The Executive acknowledges and agrees that the Executive’s right to
receive payments and benefits under this Agreement is contingent on the
Executive’s compliance with the covenants set forth in this Agreement and the
Executive’s execution and acceptance of the terms and conditions of, and the
effectiveness of the Release. If the Executive fails to comply with the
covenants set forth in this Agreement or if the Executive fails to execute the
Release within seven (7) business days of the Effective Date of Termination or
revokes the Release, then the Executive shall not be entitled to any payments or
benefits under this Agreement.
Section 6. Compliance With Internal Revenue Code Section 409A.
          (a) Short-Term Deferral Exemption. This Agreement is not intended to
provide for any deferral of compensation subject to Code Section 409A and,
accordingly, the benefits provided pursuant to this Agreement are intended to be
paid not later than the later of: (i) the fifteenth day of the third month
following Executive’s first taxable year in which such benefit is no longer
subject to a substantial risk of forfeiture, and (ii) the fifteenth day of the
third month following the first taxable year of the Company in which such
benefit is no longer subject to a substantial risk of forfeiture, as determined
in accordance with Code Section 409A and any Treasury Regulations and other
guidance issued thereunder. The date determined under this subsection is
referred to as the “Short-Term Deferral Date.”
          (b) Compliance with Code Section 409A. Notwithstanding anything to the
contrary herein, in the event that any benefits provided pursuant to this
Agreement are not actually or constructively received by the Executive on or
before the Short-Term Deferral Date, to the extent such benefit constitutes a
deferral of compensation subject to Code Section 409A, then: (i) subject to
clause (ii), such benefit shall be paid upon Executive’s Separation from
Service, with respect to the Company and its affiliates, and (ii) if Executive
is a “specified employee,” as defined in Code Section 409A with respect to the
Company and its affiliates, such benefit shall be paid (without interest) upon
the first day of the seventh month after the date of Executive’s Separation from
Service (or, if earlier, the date of Executive’s death).
Section 7. Miscellaneous.
          (a) Acknowledgement. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Executive’s employment at any time or for any
reason as set forth in the Employment Agreement.
          (b) Dispute Resolution. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in this
Agreement or the breach, termination or invalidity thereof shall be settled in
accordance with Section 8 of the Employment Agreement.
          (c) No Mitigation or Offset.

 

--------------------------------------------------------------------------------

 

               (i) Except as otherwise provided in this Agreement, the Executive
shall not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for herein be reduced by any compensation earned by the
Executive as the result of employment by another employer.
               (ii) The Company’s and Peerless’ obligation to make the payments
provided for in this Agreement and otherwise to perform their respective
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company or
Peerless may have against the Executive or others except as provided in
Section 9.7 of the Employment Agreement, provided that nothing herein shall
preclude the Company or Peerless from separately pursuing recovery from the
Executive based on any such claim.
          (d) Assumption by Successor. Peerless shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of Peerless, whether
pursuant to a Change in Control or otherwise, to expressly assume and agree to
perform the obligations under this Agreement in the same manner and to the same
extent Peerless would be required to perform if no such succession had taken
place.
          (e) Whole Agreement. This Agreement, including all attachments and
documents incorporated by reference herein, constitutes the entire understanding
between the parties in respect of the subject matter contained herein,
superseding all prior agreements, written or oral, concerning said employment
and no representations or statements not incorporated or referred to in this
Agreement shall be binding on either party. This Agreement may not be amended
except in writing by the mutual consents of the parties hereto.
          (f) Choice of Law. All questions concerning the construction,
validation and interpretation of this Agreement shall be governed by the law of
the State of California without regard to its conflict of laws provision.
          (g) Withholding. Peerless and the Company will withhold from any
amounts payable under this Agreement such federal, state, local or foreign taxes
as shall be required to be withheld pursuant to any applicable law or
regulation.
          (h) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
          (i) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
          (j) No Waiver. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive, Peerless and the Company. No waiver by any
party hereto at any time of any breach by another party hereto of or compliance
with, any condition or provision of this Agreement to

 

--------------------------------------------------------------------------------

 

be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
          IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.

          PEERLESS:
      Peerless Systems Corporation,      a Delaware corporation             
By:   Richard L. Roll       Its: Chief Executive Officer              THE
COMPANY:
      T1 Delaware Corporation,      a Delaware corporation              By:  
Richard L. Roll       Its: Chief Executive Officer        EXECUTIVE:
            Andrew Lombard