CHANGE IN CONTROL SEVERANCE AGREEMENT



                  This Change in Control Severance Agreement (this "Agreement"),

dated as of October 10, 2003 (the "Effective Date") is made by and between

Peerless Systems Corporation (the "Company") and Howard J. Nellor (the

"Executive").



                  WHEREAS, the Executive is currently employed by the Company as

Chief Executive Officer and President; and



                  WHEREAS, the Board of Directors of the Company (the "Board")

has determined that it is in the best interests of the Company to institute

formalized severance arrangements for certain of the executives of 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 mean (i) willful and continued failure by the

Executive to perform his or her duties (other than any such failure resulting

from the Executive's incapacity due to physical or mental illness or

disability), (ii) willful commission of an act of fraud or dishonesty resulting

in economic or financial injury to the Company, (iii) conviction of, or entry by

the Executive of a guilty or no contest plea to, the commission of a felony or a

crime involving moral turpitude, (iv) a willful breach by the Executive of his

or her fiduciary duty to the Company which results in economic or other injury

to the Company, or (v) willful and material breach of the Executive's

confidentiality and non-solicitation covenants. The Company shall provide

written notice to the Executive of its determination that Cause exists and give

the Executive an opportunity to cure such Cause and to have the matter heard by

the Board.



                  "Change in Control" shall mean (i) the acquisition by any

person, entity or group (other than the Company, its subsidiaries or any

employee benefit plan of the Company) of fifty percent (50%) or more of the

combined voting power of the Company's then outstanding securities, (ii) a

change, during any period of two consecutive years, in a majority or more of the

Board, if the new members have not been approved by at least two-thirds of the

incumbent Board, (iii) the consummation by the Company of a merger,

consolidation, reorganization or business combination of the Company, a sale or

other disposition of all or substantially all of the Company's assets or the

acquisition of assets or stock of another entity, in each case other than a

transaction in which the voting securities of the Company 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 the

Company.



                  "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 total and

permanent disability.



                  "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 mean (i) the assignment to the Executive

of any duties materially inconsistent in any respect with the Executive's

position (including status, offices, titles and reporting requirements),

authority, duties or responsibilities, (ii) reduction in the Executive's salary

or targeted bonus opportunity, (iii)

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