-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I4uBFJ5WR9CTCqx97DNw70UUIOJRWxRNHlPGnG4FZQu29i2+e8NoioScqfNlNWuL mjOps56Nq4cPGLjP1YOf/w== 0000926236-99-000130.txt : 19991117 0000926236-99-000130.hdr.sgml : 19991117 ACCESSION NUMBER: 0000926236-99-000130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEERLESS MANUFACTURING CO CENTRAL INDEX KEY: 0000076954 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 750724417 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05214 FILM NUMBER: 99755602 BUSINESS ADDRESS: STREET 1: 2819 WALNUT HILL LN CITY: DALLAS STATE: TX ZIP: 75229 BUSINESS PHONE: 2143576181 MAIL ADDRESS: STREET 1: P.O. BOX 540667 CITY: DALLAS STATE: TX ZIP: 75354 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (Mark One) x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE ____ SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF ____ THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-5214 PEERLESS MFG. CO. (Exact name of registrant as specified in its charter) Texas 75-0724417 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 2819 Walnut Hill Lane Dallas, Texas 75229 P. O. Box 540667 Dallas, Texas 75354 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (214) 357-6181 None Former name, former address and former fiscal year, if changed since last report. Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 12, 1999 Common stock, $1.00 par value 1,456,492 Shares PEERLESS MFG. CO. INDEX Page Number ------ Part I: Financial Information Item 1: Consolidated Financial Statements Condensed Consolidated Balance Sheets for the periods ended September 30, 1999 and June 30, 1999. 3 Condensed Consolidated Statements of Earnings for for the three months ended September 30, 1999 and 1998. 4 Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 1999 and 1998. 5 Notes to the Condensed Consolidated Financial Statements. 6 - 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 - 11 Part II: Other Information Legal Proceedings 12 Exhibits and Reports 12 - 13 Signatures 14 2 of 14 PART I FINANCIAL INFORMATION Item 1. Financial Statements PEERLESS MFG. CO. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30, 1999 1999 ---------- ---------- Assets: (UNAUDITED) (AUDITED) Current assets: Cash and cash equivalents $ 429,551 $ 210,866 Short term investments 273,343 273,343 Accounts receivable-principally trade-net of allowance for doubtful accounts of $714,387 at September 30, 1999 and $685,330 at June 30, 1999 13,145,145 12,195,037 Inventories: Raw materials 769,975 961,450 Work in process 1,441,236 2,522,182 Finished goods 734,635 247,338 Costs and earnings in excess of billings on uncompleted contracts 3,596,932 3,268,181 Other 1,663,645 777,635 ---------- ---------- Total current assets 22,054,462 20,456,032 Property, plant and equipment-at Cost, less accumulated depreciation 2,028,285 2,102,546 Property held for investment-at Cost, less accumulated depreciation 68,900 68,900 Deferred income taxes 59,613 59,613 Other assets 868,548 791,681 ---------- ---------- $25,079,808 $23,478,772 ========== ========== Liabilities and Stockholders' Equity: Current liabilities: Notes payable $ 600,000 $ 0 Accounts payable-trade 6,673,422 5,626,058 Billings in excess of costs and earnings on uncompleted contracts 508,263 572,970 Commissions payable 1,428,801 1,204,584 Accrued liabilities: Compensation 814,508 1,188,165 Warranty 190,808 313,773 Deferred income taxes 42,736 42,736 Other 381,044 38,669 ---------- ---------- Total current liabilities 10,639,582 8,986,955 Stockholders' equity: Common stock-authorized 10,000,000 shares of $1 par value; issued and outstanding, 1,456,492 shares at September 30, 1999 and 1,452,492 shares at June 30, 1999 1,456,492 1,452,492 Additional paid-in capital 2,573,295 2,539,951 Unamortized value of restricted stock grants (3,171) (4,719) Accumulated other comprehensive income(loss) (117,272) (103,824) Retained earnings 10,530,882 10,607,917 ---------- ---------- 14,440,226 14,491,817 ---------- ---------- $25,079,808 $23,478,772 ========== ========== The accompanying notes are an integral part of these statements.
3 of 14 PEERLESS MFG. CO. CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended September 30, --------------------------- 1999 1998 ---------- --------- Revenues $12,307,071 $9,369,690 Cost of goods sold 8,664,242 6,426,571 ---------- --------- Gross profit 3,642,829 2,943,119 Operating expenses 3,260,580 2,591,155 ---------- --------- Operating income 382,249 351,964 Other income(expense) Interest income 1,577 6,994 Interest expense (8,940) (17,944) Foreign exchange gains(losses) 77,475 (27,504) Other, net (6,845) (2,185) ---------- --------- 63,267 (40,639) ---------- --------- Earnings from operations before Federal income tax 445,516 311,325 Federal income tax Current 159,668 104,704 Deferred (741) 6,868 ---------- --------- 158,927 111,572 ---------- --------- Net earnings 286,589 199,753 ========== ========= Basic and diluted earnings per share $0.20 $0.14 Basic weighted average shares 1,452,796 1,457,492 Dilutive options 8,689 2,981 ---------- --------- Adjusted weighted average shares 1,461,485 1,460,473 ========== ========= Cash dividend per common share $0.125 $0.125 ========== ========= The accompanying notes are an integral part of these statements.
4 of 14 PEERLESS MFG. CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the three months ended September 30, 1999 1998 --------- --------- Cash flows from operating activities: Net earnings $ 286,589 $ 199,753 Adjustments to reconcile earnings to net cash provided by (used in) operating activities: Depreciation and amortization 99,460 94,707 Other 1,548 (5,281) Changes in operating assets and liabilities Accounts receivable (950,108) 3,861,477 Inventories 785,124 40,909 Cost and earnings in excess of billings on uncompleted contracts (328,751) (177,316) Other current assets (886,010) 5,051 Other assets (84,074) (87,979) Accounts payable 1,047,364 (2,227,528) Billings in excess of costs and earnings on uncompleted contracts (64,707) 101,254 Commissions payable 224,217 (106,476) Accrued liabilities (336,309) (807,431) --------- --------- (492,246) 691,387 --------- --------- Net cash provided by (used in) operating activities (205,657) 891,140 Cash flows from investing activities: Net purchases of property and equipment (18,683) (22,619) Cash flows from financing activities: Net change in short-term borrowings 600,000 (200,000) Sales of common stock 37,344 0 Dividends paid (181,562) (182,187) --------- --------- Net cash provided by (used in) financing activities 455,782 (382,187) Effect of exchange rate on cash and cash equivalents (12,757) 27,639 --------- --------- Net increase in cash and cash equivalents 218,685 513,973 Cash and cash equivalents at beginning of period 210,866 428,482 --------- --------- Cash and cash equivalents at end period $ 429,551 $ 942,455 ========= ========= The accompanying notes are an integral part of these statements.
5 of 14 PEERLESS MFG. CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying consolidated financial statements of Peerless Mfg. Co. and its subsidiaries (the "Company") have been prepared without audit. In our opinion, the financial statements reflect all adjustments necessary to present fairly the results of operations for the three months ended September 30, 1999 and 1998, the Company's financial position at September 30, 1999, and June 30, 1999, and cash flows for the three months ended September 30, 1999 and 1998. These adjustments are of a normal, recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our Annual Report Form 10-K, as amended, for the Fiscal year ended June 30, 1999 and the consolidated financial statements and notes included in our June 30, 1999, audited financial statements. 2. The results for interim periods are not necessarily indicative of the results to be expected for the full year. Peerless Mfg. Co. designs and manufactures custom contracted pressure vessels and other products to customer specifications, sales of which are obtained by competitive bids and may result in material sales and profitability increases or decreases when comparing interim periods between years. We generally recognize sales of custom- contracted products at the completion of the manufacturing process, which is normally less than one year. The percentage-of- completion method is used for long-term contracts. 6 of 14 3. We have formal agreements with Bank of America N.A., formerly NationsBank N.A., and Chase Bank of Texas N.A. for $3,500,000 each for an aggregate of $7,000,000 continuing lines of credit, renewable annually. Under the terms of these agreements, loans bear interest at the prevailing prime rate and we are required to pay 1/4 of 1% per annum on the unused portion of the facility. In addition, Chase Bank of Texas provides us a LIBOR rate option. As of September 30, 1999, we had $600,000 outstanding against these lines of credit. Nothing was outstanding at June 30, 1999. 4. We consolidate the accounts of our wholly-owned foreign subsidiaries, Peerless Europe Limited and Peerless Europe B.V. All significant intercompany accounts and transactions have been eliminated in the consolidation. 5. We identify reportable segments based on management responsibility within our corporate structure. We have two reportable industry segments which are set out below: Gas/Liquid Catalytic Unallocated Consolidated Filtration Reduction Corporate Systems Expenses ---------- --------- ----------- ------------ First Quarter 2000 ------------- Revenues from Customers $9,415,000 $2,892,000 - $12,307,000 Segment profit(loss) $891,000 $642,000 ($1,151,000) $382,000 First Quarter 1999 ------------- Revenues from Customers $8,985,000 $385,000 - $9,370,000 Segment profit(loss) $1,273,000 ($53,000) ($868,000) $352,000
7 of 14 Item 2. Management's discussion and analysis of financial condition and results of operations. PEERLESS MFG. CO. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified. Actual results could differ materially from those projected in the forward-looking statements as a result of changes in market conditions, increased competition, global and domestic economic conditions, or other factors. The following discussion and analysis should be read in conjunction with the attached consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the fiscal year ended June 30, 1999. Capital Resources and Liquidity As a general policy, corporate liquidity is maintained at a level adequate to support existing operations and planned internal growth, and to allow continued operations through periods of unanticipated adversity. Cash and equivalents increased $219,000 from June 30, 1999. Net earnings of $287,000, increases in short term borrowings of $600,000, increases in accounts payable of $1,047,000 and commissions payable of $224,000, and decreases in inventory of $785,000 increased cash flow for the period. These positive cash flows were offset by increases in accounts receivable of $950,000; increases in other assets of $970,000 consisting primarily of advances to subcontractors; decreases in accrued liabilities of $336,000 and dividends paid of $182,000. We continue to finance plant expansion, equipment purchases, acquisitions and working capital requirements primarily through the retention of earnings, which is reflected by the absence of long-term debt in our balance sheet. In addition to retained earnings, we have from time to time used two short-term bank credit lines totaling $7,000,000 to supplement working capital. We currently have no material commitments for capital expenditures other than with respect to our established plant and equipment maintenance program. 8 of 14 REVENUE: Revenue increased 31% from $9,370,000 for the three months ended September 30, 1998 to $12,307,000 for the three months ended September 30, 1999. The increase in revenue was attributed primarily to the increased sales of Catalytic Reduction Systems which increased from $385,000 in the first quarter of Fiscal year 1999 to $2,892,000 in the first quarter of Fiscal year 2000. The backlog of uncompleted orders and letters of intent at September 30, 1999 was approximately $25,400,000 as compared to a September 30, 1998 backlog of $21,300,000. Of the $25,400,000 backlog at September 30, 1999, approximately 80% is scheduled to be completed in the current fiscal year. GROSS PROFIT: Gross profit increased 24% from $2,943,000 for the three months ended September 30,1998 to $3,643,000 for the three months ended September 30, 1999. The increased gross profit is primarily attributable to the greater revenue from SCR product sales for the three months ended September 30,1999. Gross profit as a percent of revenue decreased from 31.4% for the first quarter of Fiscal year 1999 to 29.6% for the first quarter of Fiscal year 2000. The gross profit percentage declined because a subcontractor for two major contracts filed bankruptcy and increased our costs to complete the contracts. OPERATING EXPENSES: Operating expenses increased 26% from $2,591,000 for the three months ended September 30, 1998 to $3,261,000 for the three months ended September 30,1999. The increase in operating expenses is due primarily to the increased volume of contracts processed. Operating expenses decreased as a percent of revenue from 27.6% for the first quarter of Fiscal year 1999 to 26.5% for the first quarter of Fiscal year 2000. OTHER INCOME/(EXPENSE): We recognized net other income of approximately $63,000 for the three months ended September 30, 1999 compared to net other expenses of approximately $40,000 for the three months ended September 30, 1998. Foreign exchange gains of approximately $105,000 were the primary contributor to other income. 9 of 14 YEAR 2000 COMPLIANCE: The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as "the Year 2000 Compliance issue". As the Year 2000 approaches, such systems may be unable to accurately process certain date-based information. As the case with most other companies using computers in their operations, we are in the process of addressing the Year 2000 Compliance issue. We began converting our information systems in 1996 through the purchase of a new information system that is already Year 2000 compliant. We have incurred and expended approximately $150,000 through September 30, 1999 for remediation costs associated with our Year 2000 compliance activities to date and we expect to incur and expense an additional $20,000 in the future to remediate our information systems and to write off unamortized costs for systems replaced. In addition to these remediation costs expended, we have also capitalized approximately $340,000 of capital expenditures through September 30, 1999 for the replacement and upgrading of purchased software and hardware for our existing systems. Our new system was implemented during the quarter ending March 31, 1999, and was successfully tested. Time sensitive schedules, purchase orders and invoices were successfully generated. We purchase computer hardware and software products from third parties for incorporation into our products and these third-party products may be affected by the Year 2000 problem. There can be no guarantee; that these products or the systems of other companies on which our systems and operations rely will be timely converted or that the failure of these systems would not have an adverse effect on our systems. We have advised our customers inquiring about this issue to contact our vendors for Year 2000 information. We are in the process of consulting with such vendors in an effort to ascertain whether they have addressed the risk of Year 2000 problems in the systems we currently use. We believe that all Year 2000 remediation efforts for our business will be completed on time and within budget estimates. Should any critical service providers, suppliers or customers be unable to achieve timely compliance, there may be an adverse impact on our operations. Our current assessment of risks, based on the most reasonable worst case scenario, is that there will be no significant adverse impact on our operations or financial performance. We believe that if any disruption to operations does occur, it will be isolated and/or short-term in duration. 10 of 14 INTERNATIONAL MARKETS: Demand for the Company's products in Southeast Asia has declined as a result of the current financial situation there. However, recent economic reports indicate business activity is improving in Southeast Asia. SCR Products: Inquiries for the purchase of SCR environmental protection products have increased. As previously reported, new SCR opportunities are the result of the new gas turbine powered electric generating facilities being built to fill demand for electric power in the U.S. These projects require clean burning gas which in turn creates the opportunity to sell the Company's gas cleaning equipment. Coal fired electric power plants are also adding SCR products to comply with US Government mandated lower NOx emission levels. 11 of 14 PEERLESS MFG. CO. PART II OTHER INFORMATION Item 1 -- Legal proceedings Reference is made to Form 10-K Annual Report, as amended, Item 3, Page 5, "Legal Proceedings" for the Fiscal year ended June 30, 1999. For the three months ended September 31, 1999 there were no material developments or new proceedings filed against the Company. Item 6 -- Exhibits and Reports -- Form 8-K (a) EXHIBITS: References to the Company's SEC File Number 0-05214. 3(a) Articles of Incorporation, as amended to date (filed as Exhibit 3(a) to our Quarterly Report on Form 10-Q, dated December 31, 1997, and incorporated herein by reference). 3(b) Bylaws, as amended to date (filed as Exhibit 3(b) to our Annual Report on Form 10-K, dated June 30, 1997, and incorporated herein by reference). 10(a) Incentive Compensation Plan effective January 1, 1981, as amended January 23, 1991 (filed as Exhibit 10(b) to our Annual Report on Form 10-K, dated June 30, 1991, and incorporated herein by reference). 10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co., effective December 13, 1985 (filed as Exhibit 10(b) to our Annual Report on Form 10-K, dated June 30, 1993, and incorporated herein by reference). 10(c) 1991 Restricted Stock Plan for Non-Employee Directors of Peerless Mfg. Co., adopted subject to shareholder approval May 24, 1991, and approved by shareholders November 20, 1991 (filed as Exhibit 10(e) to our Annual Report on Form 10-K dated June 30, 1991, and incorporated herein by reference). 12 of 14 10(d) Employment Agreement, dated as of April 29, 1994, by and between Peerless Mfg. Co. and Sherrill Stone (filed as Exhibit 10(d) to our Annual Report on Form 10-K for the Fiscal year ended June 30, 1994, and incorporated herein by reference). 10(e) Agreement, dated as of April 29, 1994 by and between Peerless Mfg. Co. and Sherrill Stone (filed as Exhibit 10(e) to our Annual Report on Form 10-K dated June 30, 1994 and incorporated herein by reference). 10(f) Seventh Amended and Restated Loan Agreement, dated as of December 12, 1998, between Bank of America N.A., formerly NationsBank of Texas, N.A., and Peerless Mfg. Co. (filed as Exhibit 10(f) to our Quarterly Report on Form 10-Q, dated December 31, 1998 and incorporated herein by reference). 10(g) Amended and Restated Loan Agreement, dated as of December 12, 1998, by and between Chase Bank of Texas N.A, and Peerless Mfg. Co. (Filed as Exhibit 10(g) to our Quarterly Report on Form 10-Q, dated December 21, 1998 and incorporated herein by reference). 10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted Stock Plan, adopted by the Board of Directors December 31, 1995 and approved by the Shareholders on November 21, 1996 (filed as Exhibit 10(h) to our Annual Report on Form 10-K dated June 30, 1997 and incorporated herein by reference), as amended by Amendment No. 1 dated November 11, 1999.* 10(i) Rights Agreement between Peerless Mfg. Co. and ChaseMellon Shareholder Services, L.L.C., adopted by the Board of Directors May 21, 1997 (filed as Exhibit 1 to our Registration Statement on Form 8-A(File No. 0-05214) and incorporated herein by reference). 10(j) Employment Agreement dated as of July 23, 1999 by and between Peerless Mfg. Co. and G.D. Cornwell.* 10(k) Agreement dated as of July 23, 1999 by and between Peerless Mfg. Co. and G.D. Cornwell.* 21 Our Subsidiaries (filed as Exhibit 21 too our Annual Report on Form 10-K dated June 30, 1999, and incorporated herein by reference). 27 Financial Data Schedule.* *Filed herewith (b) Reports on form 8-K. None. 13 of 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. PEERLESS MFG. CO. Dated: November 12, 1999 /s/ Sherrill Stone /s/ Paul W. Willey By: Sherrill Stone By: Paul W. Willey Chairman, President and Chief Financial Officer Chief Executive Officer /s/ Kent J. Van Houten By: Kent J. Van Houten Controller Chief Accounting Officer 14 of 14 EX-10.H 2 EXHIBIT 10(h) AMENDMENT NO. 1 TO THE PEERLESS MFG. CO. 1995 STOCK OPTION AND RESTRICTED STOCK PLAN WHEREAS, the Peerless Mfg. Co. (the "Company") 1995 Stock Option and Restricted Stock Plan (the "Plan") was previously adopted to attract and retain the best available personnel for positions of substantial responsibility and to provide incentives to such personnel to promote the success of the business of Peerless Mfg. Co. and its subsidiaries; WHEREAS, certain options granted under the Plan are intended to qualify as "incentive stock options" ("Qualified Options") pursuant to Section 422 of the Internal Revenue Code of 1986, as amended from time to time, while certain other options granted under the Plan will constitute nonqualified options ("Nonqualified Options"); WHEREAS, the Compensation Committee ("Compensation Committee") and the Board of Directors of Peerless Mfg. Co., a Texas corporation (the "Company") authorized an additional 20,000 shares of the Company's Common Stock, $1.00 par value per share (the "Additional Shares") for issuance pursuant to Nonqualified Options to be issued pursuant to the Plan, subject to approval of the Nasdaq National MarketR Notification Form for Listing of Additional Shares (the "Nasdaq Application") with respect to such shares; WHEREAS, Compensation Committee and the Board of Directors directed and approved this Amendment to the Plan in order to reflect the addition of the Additional Shares to the Plan. NOW THEREFORE, the following provisions of the Plan are hereby amended and restated as follows, subject to approval of the Nasdaq Application. All terms not defined herein shall have those definitions set forth in the Plan for such terms. Except as amended hereby, all other terms of the Plan remain in full force and effect. Section 4 of the Plan is hereby amended and restated as follows: 4. Shares Subject to the Plan. Except as otherwise provided in Section 19 hereof, the aggregate number of shares of Common Stock issuable upon the exercise of Options or upon the grant of Restricted Stock pursuant to this Plan shall be 100,000 shares, plus an additional 20,000 shares which are issuable only as Nonqualified Options. Such shares may either be authorized but unissued shares or treasury shares. The Corporation shall, during the term of this Plan, reserve and keep available a number of shares of Common Stock sufficient to satisfy the requirements of the Plan. If an Option should expire or become unexercisable for any reason without having been exercised in full, or Restricted Stock should fail to vest and be forfeited in whole or in part for any reason, then the shares that were subject thereto shall, unless the Plan shall have terminated, be available for the grant of additional Options or Restricted Stock under this Plan, subject to the limitations set forth above. Executed, adopted and approved this 11th day of November 1999, to be effective from and after the 10th day of September, 1999, by the Compensation Committee of the Company in accordance with Section 20 of the Plan. COMPENSATION COMMITTEE /s/ JOSEPH V. MARINER Joseph V. Mariner, Chairman /s/ DONALD A. SILLERS,JR. Donald A. Sillers, Jr. /s/ BERNARD S. LEE Bernard S. Lee /s/ DAVID D. BATTERSHELL David D. Battershell EX-10.J 3 EXHIBIT 10(j) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made this 23rd day of July, 1999, between PEERLESS MFG. CO. ("Employer"), and GILBERT DARWYN CORNWELL ("Employee"). Employment 1.1 Employment and Term. Employer agrees to employ Employee as a senior executive pursuant to this Agreement from the date hereof until such employment is terminated as provided herein. This Agreement shall survive any termination of Employee's employment. 1.2 Duties. Employee agrees to devote his time, attention and energies to perform the duties of the offices he holds as may be prescribed from time to time by The Board of Directors and/or the Chief Executive Officer of Employer. 1.3 Supervision. Employee shall perform the duties of employment under the direction and supervision of Employer's Chief Executive Officer. Non-Competition 2.1 During Term. During the period of his employment under this Agreement, Employee shall be employed only by Employer and shall not engage in any activity in competition with Employer. 2.2 After Termination; Non-Competition. Employee agrees that for a period of three (3) years following termination of employment, without regard to the reason for termination, Employee shall not, directly or indirectly, compete with Employer or perform any services for a competitor of Employer, including as an employee, consultant, advisor, owner, partner, participant in a joint venture or corporation, or otherwise. Employee specifically acknowledges that Employer's products are sold in a world market, and that Employee has been engaged with regard to Employer's products and Employer's customers throughout the world without geographic limitation, and accordingly that the non- competition agreement contained in this section shall apply without geographic limitation. Confidentiality 3.1 Confidentiality. All written material (including but not limited to engineered designs, formulas, drawings, studies, reports, calculations, product designs, product specifications, engineering specifications, customer specifications, customers names and customer contacts) of any type pertaining to the business of Employer (the "Material"), the use or application of such Material, or other information with respect to customers of Employer, is confidential, and the sole and exclusive property of Employer without regard to authorship, and shall not be duplicated or removed from Employer's office except as required in connection with performance of Employee's duties hereunder. Upon termination of employment, Employee agrees to return all such Material and all copies thereof (including electronic documents and copies) to Employer and Employee shall not retain any copies (including electronic copies) thereof. Employee further agrees that the design and application of Employee's products is confidential and that during Employee's term of employment and during the non- competition period following termination of employment pursuant to Section 2 of this Agreement, not to divulge any confidential matters or confidential written material to any person not subject to a confidentiality agreement with Employer, except as may be legally required or required by a customer of Employer in connection with the customer's use of Employer's products. Termination 4.1 Termination by Employer. (a) Employer may terminate Employee's employment hereunder without cause or reason with thirty (30) days written notice of termination to Employee. Employer and Employee agree that in the event of any such termination, both parties will use reasonable efforts to determine a mutually acceptable continuing relationship (e.g., retention as an outside consultant). (b) If a mutually acceptable alternative agreement cannot be reached within sixty (60) days after termination, Employee shall receive as severance compensation for a period of one (1) year following termination, a lump sum annual payment in an amount equal to 90% of his then current base salary, plus dividends payable under share grants pursuant to the Employer's Stock Grant Plan, and the full range of Employer benefits. 4.2 Termination by Employee. Employee may terminate Employee's employment hereunder upon thirty (30) days written notice to Employer. 4.3 Termination on Death of Employee. This Employment Agreement shall terminate upon the death of Employee. 4.4 Termination by Disability. Employment may terminate as a result of Employee becoming permanently disabled, mentally or physically, and unable to perform the duties hereunder. Employee shall be paid a minimum of six (6) months salary plus all other existing Employer disability benefits upon such termination. Employee and Employer agree to binding arbitration in the event of disagreements regarding the meaning or intent of this clause. 4.5 Termination by Retirement. Retirement of Employee is anticipated at age 65. Retirement prior to age 65 may occur at the option of Employee. Retirement after age 65 will be at the annual option of the Board of Directors. Retirement benefits shall be all normal benefits provided by the Company. Severance benefits defined by Section 4.1(b) are not to be interpreted as retirement benefits. Miscellaneous 5.1 This Agreement and that certain Agreement of even date herewith between Employer and Employee regarding certain agreements effective upon a change-in-control (as defined therein) are the only agreements in force between Employer and Employee regarding the subject matter hereof and the same supersede all prior agreements. 5.2 This Agreement may only be amended by written amendment signed by Employer and Employee. 5.3 This Agreement shall be governed by the laws of the State of Texas. PEERLESS MFG. CO. ____________________________________ CHAIRMAN BOARD OF DIRECTORS BY ORDER OF THE BOARD OF DIRECTORS EMPLOYEE ____________________________________ Gilbert Darwyn Cornwell EX-10.K 4 EXHIBIT 10(k) AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of the 23rd day of July, 1999, by and between PEERLESS MFG. CO. (the "Company"), and GILBERT DARWYN CORNWELL (the "Executive"). WHEREAS, the Executive serves as a senior executive of the Company; WHEREAS, the Executive possesses knowledge of the business and affairs of the Company, its policies, methods, personnel and plans for the future; and WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company has been substantial and wishes to offer an inducement to the Executive to remain in the employ of the Company; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, this Agreement sets forth benefits which the Company will pay to Executive in the event of termination of Executive's employment, except as a result of death, disability, retirement or termination by the Company for Cause, following a "Change in Control" of the Company (in each case as such terms or events are defined or discussed herein): 1. Term. The term of this Agreement shall continue until the earlier of (i) the expiration of the third anniversary of the occurrence of a Change in Control, (ii) the Executive's death, or (iii) the Executive's earlier voluntary retirement (except for those events described in Section 3(a)(2)); provided, however, that on each anniversary of the Change in Control, the period referenced in Section (i) above shall automatically be extended for an additional year unless, not later than 90 calendar days prior to such anniversay date, the Company shall have given written notice to the Executive that it does not wish to have the term extended. 2. Definitions. (a) Affiliate and Associate. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act") in effect on the date of this Agreement. (b) Cause. For "Cause" shall mean that the Executive shall have committed: (i) The conviction of Executive, by a court of competent jurisdiction, of any felony; (ii) Commission by Executive of an intentional material act of fraud to his pecuniary benefit in connection with his duties or in the course of his employment with the Company, as reasonably determined by the Board; (iii) The intentional and continued failure by Executive to substantially perform his duties hereunder, or the intentional wrongdoing by Executive resulting in material injury to the Company. No act, or failure to act, on the part of Executive shall be deemed "intentional" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. (c) Change in Control. A "Change in Control" of the Company shall have occurred if at any time during the term of this Agreement any of the following events shall occur: (i) The Company is merged, consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 50.1% of the combined voting power to elect Directors of the then outstanding securities of the remaining corporation or legal person or its ultimate parent immediately after such transaction is available to be received by all stockholders on a pro rata basis and is actually received in respect of or exchange for voting securities of the Company pursuant to such transaction; (ii) The Company sells all or substantially all of its assets to any other corporation or other legal person not controlled by or under common control with the Company; (iii) Any person or group (including any "person" as such term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities which when added to any securities already owned by such person would represent in the aggregate 50% or more of the then outstanding securities of the Company which are entitled to vote to elect Directors; (iv) If at any time, the Continuing Directors then serving on the Board cease for any reason to constitute at least a majority thereof; (v) Any occurrence that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A or any successor rule or regulation promulgated under the Exchange Act; or (vi) Such other events that cause a change in control of the Company, as determined by the Board in its sole discretion; provided, however, that a Change in Control of the Company shall not be deemed to have occurred as the result of any transaction having one or more of the foregoing effects if such transaction is proposed by, and includes a significant equity participation of, executive officers of the Company as constituted immediately prior to the occurrence of such transaction or any Company employee stock ownership plan or pension plan. (d) Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) Continuing Director. A "Continuing Director" shall mean a Director of the Company who (i) is not an Acquiring Person, an Affiliate or Associate, a representative of an Acquiring Person or nominated for election by an Acquiring Person, and (ii) was either a member of the Board of Directors of the Company on the date of this Agreement or subsequently became a Director of the Company and whose initial election or initial nomination for election by the Company's stockholders was approved by a majority of the Continuing Directors then on the Board of Directors of the Company. (f) Acquiring Person: An "Acquiring Person" shall mean any person (as defined in Section 2(d)(iii) of this Agreement) that, together with all Affiliates and Associates of such person, is the beneficial owner of 15% or more of the outstanding Common Stock. The term "Acquiring Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan of the Company or subsidiary of the Company, any person holding Common Stock for or pursuant to the terms of any such plan, or Donald A. Sillers, Jr. or members of his immediate family. (g) Employment Term. The "Employment Term" shall be the period of employment under this Agreement commencing on the day prior to a Change in Control and continuing until the expiration of this Agreement. (h) Severance Compensation. The "Severance Compensation" shall be: (i) A lump sum amount equal to 299% of Executive's average annual compensation reported on his Form W-2 paid by the Company includable in gross income during the five most recent full calendar years prior to the Change in Control; provided, however, that in no event shall the Company pay or be obligated to pay that portion of the amount due which would result in any payment to or for the benefit of Executive being an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), in the opinion of tax counsel selected by the Company's independent accountants and acceptable to Executive, and which would result in the imposition of an excise tax under Section 4999 of the Code ("Excess Parachute Payment"). Any payment made pursuant to this Section shall be reduced only in the amount necessary to avoid characterization of such payment as an Excess Parachute Payment and only after reduction, to the extent necessary, of any other payments (other than payments made under this Agreement) which when aggregated with the payments hereunder result in the imposition of such excise tax under Section 4999 of the Code; and (ii) For a period of three years, provide Executive with benefits substantially similar to those which Executive was entitled to receive immediately prior to the date of termination under all of the Company's "employee welfare benefit plans" within the meaning of Section 3(1) of The Employee Retirement Income Security Act of 1974, as amended. Notwithstanding the foregoing provisions of this Section, no benefits shall be provided or payments made pursuant to this subsection to the extent that the effect thereof would result in a reduction of the Severance Payment under subsection (h)(i). (i) Termination Date. The "Termination Date" shall be the date upon which the Executive or the Company effectively terminates the employment of the Executive. 3. Rights of Executive Upon Change in Control Termination (a) The Company shall provide the Executive, within ten days following the Termination Date, Severance Compensation in lieu of compensation to the Executive for periods subsequent to the Termination Date, but without affecting the rights of the Executive at law or in equity, if, following the occurrence of a Change in Control, any of the following events shall occur: (1) the Company terminates the Executive's employment during the Employment Term other than for any of the following reasons: (i) the Executive dies: (ii) the Executive becomes permanently disabled and is unable to work for a period of 180 consecutive days; or (iii) for Cause. (2) the Executive terminates his employment after such Change in Control and the occurrence of at least one of the following events: (i) a change in the positions held by Executive or an adverse change in the nature or scope of the authorities, functions or duties attached to the positions with the Company that the Executive had immediately prior to the Change in Control, any reduction in the Executive's salary during the Employment Term or any reduction in bonus or incentive compensation (based upon the dollar amount of bonus or incentive compensation that the Executive received from the Company for the fiscal year preceding the year in which the Change in Control occurred or for the fiscal year preceding the year in which the Termination Date occurs, whichever is the larger amount) or a significant reduction in scope or value of the aggregate other monetary or nonmonetary benefits to which the Executive was entitled from the Company immediately prior to the Change in Control, any of which is not remedied within ten calendar days after receipt by the Company of written notice from the Executive of such change, reduction, alteration or termination, as the case may be; (ii) a determination by the Executive made in good faith that as a result of a Change in Control and a change in circumstances thereafter significantly affecting his position, changes in the composition or policies of the Board, or of other events of material effect, he has been rendered substantially unable to carry out, or has been substantially hindered in the performance of, the authorities, functions or duties attached to his position immediately prior to the Change in Control, which situation is not remedied within ten calendar days after receipt by the Company of written notice from the Executive of such determination; (iii) a change in the positions held by Executive or the occurrence, as determined by Executive in good faith, of an adverse change in the nature or scope of his authorities, powers, functions, responsibilities or duties as the Chairman of the Board, President and Chief Executive Officer of the Company; any reduction in Salary; any reduction in Executive's bonus or incentive compensation (based upon the greater of the dollar amount of bonus and other incentive compensation that Executive received for the year preceding the Change in Control or the average yearly amount of bonus and incentive compensation that Executive received during the five years preceding the Change in Control); a termination, reduction or alteration of the disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies; or a reduction in scope or value of the aggregate other benefits to which Executive was entitled prior to the Change in Control; (iv) the liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or substantially all of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or substantially all of its business and/or assets have been transferred (directly or by operation of law) shall have specifically assumed all duties and obligations of the Company under this Agreement pursuant to Section 16; (v) the relocation of the Company's principal executive offices, or the requirement by the Company that Executive have as his principal location of work any location not within the greater Dallas, Texas metropolitan area or that he travel away from his office in the course of discharging his duties hereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year) than required of him prior to the Change in Control; or (vi) the Company commits any breach of this Agreement. (b) Notwithstanding the above section or any other provision of this Agreement, in no event shall the Company pay or be obligated to pay the Executive an amount which would be an Excess Parachute Payment. For purposes of this Agreement, the term "Excess Parachute Payment" shall mean any payment or any portion thereof which would be an "excess parachute payment" within the meaning of Section 280G of the Code, and would result in the imposition of an excise tax under Section 4999 of the Code, in the opinion of tax counsel selected by the Company's independent accountants and acceptable to the Executive. If it is established pursuant to a final determination of a court or an Internal Revenue Service administrative appeals proceeding that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, a payment (or portion thereof) made is an Excess Parachute Payment, then, except as hereafter provided, the Executive shall have an obligation to repay the Company upon demand an amount equal to the minimum amount (but without interest) necessary to ensure that no payment made or to be made by the Company pursuant to this Agreement is an Excess Parachute Payment; provided, however, that if, in the opinion of tax counsel selected by the Company's independent accountants and acceptable to the Executive, such repayment will not ensure that no Excess Parachute Payment would be made hereunder, then (1) no such repayment obligation will exist and (2) the Company shall pay to the Executive an additional amount in cash equal to the amount necessary to cause the amount of the aggregate after-tax cash compensation and benefits otherwise receivable by the Executive to be equal to the aggregate after-tax cash compensation and benefits he would have received as if Sections 280G and 4999 of the Code had not been enacted. (c) Upon written notice given by the Executive to the Company prior to the receipt of Severance Compensation, the Executive, at his sole option, may elect to have all or any part of any such amount paid to him, without interest, on an installment basis selected by him. (d) The payment of Severance Compensation by the Company to the Executive shall not affect any rights and benefits which the Executive may have pursuant to any other agreement, policy, plan, program or arrangement of the Company providing benefits to the Executive prior to the Termination Date, which rights shall be governed by the terms thereof, except that payments hereunder after termination shall reduce by an equal amount any sums payable after termination under the Employment Agreement, dated the date hereof, by and between the Company and the Executive. The Company shall provide to the Executive throughout the Employment Term benefits substantially similar to those which the Executive was receiving or entitled to receive immediately prior to the Termination Date. Such benefits as provided by the Company, however, shall be reduced to the extent comparable benefits are actually received by the Executive during the Employment Term as a result of employment other than with the Company. (e) The Company shall have no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment or benefit to or for the benefit of the Executive provided for in this Agreement. (f) Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount thereof on demand at an annualized rate of interest equal to 120% of the then applicable Federal rate determined under Section 1274(d) of the Code, compounded semi-annually (but in no event shall such interest exceed the highest lawful rate). (g) Any termination of Executive's employment or removal of Executive as an elected officer of the Company following the commencement of any discussion authorized by the Board with a third person that ultimately results in a Change in Control involving that person or a different third party shall be deemed to be a termination or removal of Executive after a Change in Control for purposes of this Agreement and shall entitle Executive to all benefits under this Agreement. 4. No Mitigation Required. In the event that this Agreement or the employment of the Executive hereunder is terminated, the Executive shall not be obligated to mitigate his damages nor the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and except for the termination of benefits pursuant to Section 3(d), the acceptance of employment elsewhere after termination shall in no way reduce the amount of Severance Compensation payable hereunder. 5. Successors; Binding Agreement. (a) The Company will require any successor and any corporation or other legal person (including any "person" as defined in Section 2(d)(iii) of this Agreement) which is in control of such successor (as "control" is defined in Regulation 230.405 or any successor rule or regulation promulgated under the Securities Act of 1933, as amended) to all or substantially all of the business and/or assets of the Company (by purchase, merger, consolidation or otherwise), by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a material breach of this Agreement by the Company. Notwithstanding the foregoing, any such assumption shall not, in any way, affect or limit the liability of the Company under the terms of this Agreement or release the Company from any obligation hereunder. As used in this Agreement, "Company" shall mean the Company as herein before defined and any succcssor to its business and/or all or part of its assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 6. Notice. The Company shall give written notice to Executive within ten days after any Change in Control. Failure to give such notice shall constitute a material breach of this Agreement. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or received after being mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Gilbert Darwyn Cornwell 2202 Greenbriar Court Grand Prairie, TX 75050 If to the Company: Peerless Mfg. Co. Attn: Secretary 2819 Walnut Hill Lane Dallas, TX 75229 or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either 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. No agreements or representations, oral or otherwise, express or implied, unless specifically referred to herein, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the substantive laws of the State of Texas, without regard to principles of conflicts of law. 8. Validity. The invalidity or unenforceability of any provision or provisions 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. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Employment Rights. Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company prior to any Change in Control; provided, however, that any termination of employment of the Executive or removal of the Executive as Chairman of the Board and an elected officer of the Company following the commencement of any discussion authorized by the Board of Directors of the Company with a third person that ultimately results in a Change in Control shall be deemed to be a termination or removal of the Executive after a Change in Control for purposes of this Agreement and shall entitle the Executive to all Severance Compensation. Notwithstanding any other provision hereof to the contrary, the Executive may, at any time during the Employment Term, upon the giving of 30 days prior written notice, terminate his employment with the Company. If this Agreement or the employment of the Executive is terminated under circumstances in which the Executive is not entitled to any Severance Compensation, the Executive shall have no further obligation or liability to the Company hereunder or otherwise with respect to his prior or any future employment by the Company. 11. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling; provided, however, that no withholding pursuant to Section 4999 of the Code shall be made unless, in the opinion of tax counsel selected by the Company's independent accountant and acceptable to the Executive, such withholding relates to payments which result in the imposition of an excise tax pursuant to Section 4999 of the Code. 12. Enforcement Fees. All costs of litigation necessary for Executive to defend the validity of this Agreement are to be paid by Employer or its successors or assigns. The Company shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive as a result of the Company's failure to perform this Agreement or any provision thereof or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision thereof as aforesaid. 13. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Executive is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, including with respect to Executive's rights under that certain Employment Agreement of even date herewith, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PEERLESS MFG. CO. ____________________________________ Sherrill Stone Chairman of the Board By Order of the Board of Directors EXECUTIVE ____________________________________ Gilbert Darwyn Cornwell EX-27 5
5 1 3-MOS JUN-30-2000 SEP-30-1999 429,551 273,343 13,859,532 714,387 2,945,846 22,054,462 8,407,790 6,310,605 25,079,808 10,639,582 0 0 0 1,456,492 12,983,734 25,079,808 12,307,071 12,307,071 8,664,242 8,664,242 2,372,722 14,105 8,940 445,516 158,927 286,589 0 0 0 286,589 0.20 0.20
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