E2's Brog has harsh words for fellow Peerless board members

By Lisa Kerner

Charlotte, N.C., Nov. 15 - E2 Investment Partners LLC's Timothy Brog said as a Peerless System Corp. board member he has had to "endure unprofessional and erratic behavior, non-cooperation, lies, lack of judgment and virtually non-existent proper corporate governance."

Following the board's Nov. 2 meeting, Brog said he can "no longer sit idly by" while his fellow board members "continue to destroy stockholder value." Brog also took issue with the fact that the board members have yet to buy stock in Peerless. Brog owns 1,056,760 shares, or 6.1%, of Peerless' outstanding stock.

Brog's comments were made in a lengthy Nov. 14 letter to the board that was included as part of a schedule 13D filing with the Securities and Exchange Commission.

During the Nov. 2 meeting, the board voted to "significantly" increase compensation for each director in a scheme orchestrated by board members Bill Patton and John Reece and in the absence of diligence, the letter stated.

"As a director I am going to benefit from the increase in board compensation. However, as a stockholder of Peerless, like all other stockholders, I am going to suffer because this cost will cause a drag on earnings. If any of you were stockholders yourself, which you are not, you would understand this and might be less greedy," Brog said in the letter.

Brog also said Peerless is in breach of certain material terms of the June 3 settlement agreement among the company, members of the former Peerless Full Value Committee (which includes Brog) and the directors. Specifically, Peerless failed to add an independent director to the board who was approved by Diker Management, a large Peerless stockholder.

Brog took aim at Peerless' corporate governance, which "seems like it is a foreign concept to the board. In fact the board is run by Bill Patton more like a banana republic," Brog's letter stated.

In addition, Brog noted that:

• Motions are made without any clarity of what the board is actually voting on;

• Directors want to vote on the adoption of minutes when they were never at the meeting; and

• Peerless has failed to announce that Bill Patton was named chairman of the board.

Brog said Patton's "erratic and unpredictable behavior" included resigning from and then rejoining the board, as well as changing his mind about Brog becoming chairman of the board.

"If I had known how erratic, unprofessional and deceptive Bill Patton was, I never would have agreed to settle the proxy contest in June 2007. Maybe if I and all the other stockholders were made aware of other instances of Bill Patton's track record of value destruction we would have acted differently," Brog said in his letter.

In closing, Brog urged the board to "terminate the Patton and Reece compensation scheme," immediately appoint a Diker-approved individual to the board of directors and "begin to take full and accurate minutes, and adhere to normal standards of corporate governance."

Peerless is based in El Segundo, Calif., and provides software-based imaging systems for digital document products.

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