-----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, F4SzHNtW6fEaS2re+lZWcZZV4pjxPdDR3ua7rQ5zq2NdZMZKhQjwFhKwwCD/NHhd 8c3p879vNa0NiNLbRwcTpw== 0000950134-01-508629.txt : 20020410 0000950134-01-508629.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950134-01-508629 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 000-05214 FILM NUMBER: 1790284 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 d92287e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE - --------- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 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 Incorporation or Organization) (I.R.S. Employer Identification No.) 2819 WALNUT HILL LANE, DALLAS, TEXAS 75229 ------------------------------------ ---------- (Address of principal executive offices) (Zip code)
(214) 357-6181 (Registrant's Telephone Number, Including Area Code) Indicate by check 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 past 12 months (or for such shorter period 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 ______ As of November 12, 2001, there were 2,977,484 shares of the Registrant's common stock outstanding. - ------------------------------------------------------------------------------ PEERLESS MFG. CO. AND SUBSIDIARIES TABLE OF CONTENTS
PAGE NUMBER ------ PART I: FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at September 30, 2001 and June 30, 2001....................................................................... 1 Condensed Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000.......................................... 2 Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2001 and 2000...................................... 3 Notes to the Condensed Consolidated Financial Statements................................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ................................................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 10 PART II:.OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................................. 12 SIGNATURES....................................................................................... 13
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PEERLESS MFG. CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30, June 30, 2001 2001 ------------- --------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 227 $ 2,577 Short term investments 302 300 Accounts receivable-principally trade-net 31,966 28,987 Inventories 2,250 2,084 Costs and earnings in excess of billings 5,649 6,328 Deferred income taxes 704 704 Other 1,191 751 --------- ---------- Total current assets 42,289 41,731 Property, plant and equipment-net 3,751 3,365 Other assets 1,041 1,060 --------- --------- $47,081 $46,156 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable-trade 12,643 10,172 Billings in excess of costs and earnings 9,444 9,618 Current maturities of long-term debt - 400 Commissions payable 1,511 1,443 Income taxes payable 657 1,754 Accrued liabilities and other 4,135 3,729 --------- -------- Total current liabilities 28,390 27,116 Long-term debt, net of current maturities - 1,200 Deferred income taxes 147 147 Shareholders' equity: Common stock 2,978 2,954 Additional paid-in capital 1,433 1,327 Unamortized value of restricted stock grants (27) (35) Cumulative foreign currency translation adjustment (121) (66) Retained earnings 14,281 13,513 --------- -------- Total shareholders' equity 18,544 17,693 --------- -------- $47,081 $46,156 ========= ========
See accompanying notes to condensed consolidated financial statements. PEERLESS MFG. CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended September 30, ----------------------- 2001 2000 ------- --------- Revenues $23,709 $11,059 Cost of goods sold 16,743 7,982 -------- --------- Gross profit 6,966 3,077 Operating expenses 5,743 3,616 -------- --------- Operating income (loss) 1,223 (539) Other income (expense) Interest expense, net -- (184) Foreign exchange gains (losses) 68 (90) Other, net (72) (31) -------- --------- (4) (305) -------- --------- Earnings (loss) before income tax 1,219 (844) Income tax expense (benefit) 451 (312) -------- --------- Net earnings (loss) 768 (532) ======== ========= Basic earnings (loss) per share $ 0.26 $ (0.18) ========= ========= Diluted earnings (loss) per share $ 0.25 $ (0.18) ========= ==========
See accompanying notes to condensed consolidated financial statements -2- PEERLESS MFG. CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three months ended September 30, ------------------------- 2001 2000 ------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 768 $ (532) Adjustments to reconcile net earnings to cash provided by (used in) operating activities: Depreciation and amortization 143 126 Changes in assets and liabilities: Accounts receivable (2,959) (7,289) Inventories (168) (1,350) Cost and earnings in excess of billings 679 5,538 Other current assets (481) (730) Other assets 24 76 Accounts payable 2,385 3,149 Billings in excess of costs and earnings (174) 1,437 Commissions payable 68 15 Accrued liabilities (669) (87) --------- -------- (1,152) 85 --------- -------- Net cash provided by (used in) operating activities (384) 353 CASH FLOWS FROM INVESTING ACTIVITIES: Net purchases of short-term investments (2) -- Net purchases of property and equipment (529) (5) --------- -------- Net cash used in investing activities (531) (5) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in borrowings (1,600) 886 Proceeds from issuance of common stock 137 40 Dividends paid - (184) --------- -------- Net cash provided by (used in) financing activities (1,463) 742 Effect of exchange rate changes on cash and cash equivalents 28 62 --------- -------- Net increase (decrease) in cash and cash equivalents (2,350) 1,152 Cash and cash equivalents at beginning of period 2,577 561 --------- -------- Cash and cash equivalents at end period $ 227 $ 1,713 ========= ========
See accompanying notes to condensed consolidated financial statements. -3- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. BASIS OF PRESENTATION. These unaudited condensed consolidated financial statements of Peerless Mfg. Co. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the company's annual report on Form 10-K for the fiscal year ended June 30, 2001. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. Operating results for the interim periods are not necessarily indicative of results that may be expected for the fiscal year ending June 30, 2002. Certain fiscal year 2001 items have been reclassified to conform with the fiscal year 2002 presentation. 2. EARNINGS (LOSS) PER SHARE. Basic earnings (loss) per share have been computed by dividing net earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if options or other contracts to issue common shares were exercised or converted into common stock. The following table presents the calculation of earnings (loss) per share for the periods indicated. All share and per share data reflect the two-for-one split of the Company's common stock on October 18, 2001.
Three Months Ended September 30, ------------------------ 2001 2000 ---- ---- Net earnings (loss) $ 768 $ (532) ------- -------- Basic weighted average common shares outstanding 2,968 2,942 Effect of dilutive options 121 -- ------- -------- Diluted weighted average common shares outstanding 3,089 2,942 Net income (loss) per share - basic $ 0.26 $ (0.18) Net income (loss) per share - diluted $ 0.25 $ (0.18)
-4- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The company excluded 0 and 76 outstanding stock options from its calculation of diluted earnings (loss) per share for the three months ended September 30, 2001 and 2000, respectively, because their effect was anti-dilutive. 3. COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) is defined as the change in equity during a period from transactions or other events and circumstances from non-ownership sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The components of comprehensive income (loss) were as follows:
Three Months Ended September 30, ---------------------- 2001 2000 -------- ------- Net earnings (loss) $ 768 $ (532) Foreign currency translation adjustment (55) 62 ------ ------ Comprehensive income (loss) $ 713 $ (470) ====== ======
4. SUPPLEMENTAL CASH FLOW INFORMATION. Net cash flows from operating activities reflects cash payments for interest and income taxes as follows:
Three Months Ended September 30, ---------------------- 2001 2000 -------- ------- Interest paid $ 114 $ 96 Income taxes paid $1,550 $ 90
5. USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. -5- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 6. INVENTORIES. Inventories are stated at the lower of cost or market. Principal components of inventories are as follows:
September 30, June 30, 2001 2001 -------------- -------- Raw materials $ 1,392 $ 1,151 Work in process 490 583 Finished goods 368 350 ------- ------- Total inventories $ 2,250 $ 2,084 ======= =======
7. SEGMENT INFORMATION. The company identifies reportable segments based on management responsibility within the corporate structure. The company has two reportable industry segments: SCR Systems and gas/liquid filtration. The SCR Systems segment produces selective catalytic reduction systems ("SCR") used to separate nitrogen oxide (NOx) emissions from exhaust gases caused by burning hydrocarbon fuels such as coal, gasoline, natural gas and oil. We combine these systems with our components as totally integrated systems. Many of the company's components are packaged on skids complete with instruments, controls and related valves and piping. The gas/liquid filtration segment produces various types of separators and filters used for removing liquids and solids from gases and air. The segment also provides engineering design and services, pulsation dampners, natural gas odorizers, quick-opening closures and parts for its products. In addition to our two primary business segments, we also design, engineer, manufacture and sell packaged boilers and other steam generating equipment through our Texas subsidiary that does business as ABCO Industries ("ABCO"). This equipment is used to produce steam which is used in processes, heating, drying, driving steam turbines and a variety of other applications. ABCO is also used to support the manufacturing needs of other Peerless products. Segment profit and loss is based on revenue, less allocated costs of the segment before allocation of general and administrative costs. There were no sales or transfers between segments. The company does not allocate assets, expenditures for assets or depreciation expense on a segment basis for internal management reporting and, therefore, such information is not presented. Segment information and a reconciliation to operating profit for the three months ended September 30, 2001 and 2000 are presented below. Certain fiscal 2001 items have been reclassified to conform with the fiscal 2002 presentation. -6- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SCR Gas/Liquid Unallocated Systems Filtration Overhead Consolidated ---------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 2001 Revenues from customers $14,513 $ 9,196 $ - $23,709 Segment profit (loss) 3,215 128 (2,120) 1,223 THREE MONTHS ENDED SEPTEMBER 30, 2000 Revenues from customers $ 6,402 $ 4,657 $ - $11,059 Segment profit (loss) 511 (24) (1,026) (539)
-7- PEERLESS MFG. CO. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The company's fiscal year ends on June 30th. References herein to fiscal 2002 and fiscal 2001 refer to our fiscal years ended June 30, 2002 and 2001, respectively. The following table displays the company's statements of operations as a percentage of net revenues:
Three Months Ended September 30, ---------------------- 2001 2000 -------- ------- Net revenues 100.0% 100.0% Cost of revenues 70.6 72.2 ------ ------- Gross margin 29.4 27.8 Operating expenses 24.2 32.7 ------- ------- Operating income (loss) 5.2 (4.9) Interest income (expense), net 0.0 (1.7) Other, net (0.1) (1.0) ------- ------- Earnings (loss) before income taxes 5.1 (7.6) Income tax expense (benefit) 1.9 (2.8) ------- ------- Net earnings (loss) 3.2% (4.8)% ======= =======
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 Net revenues increased $12.6 million, or 114%, from $11.1 million for the three months ended September 30, 2000 to $23.7 million for the three months ended September 30, 2001. The increase in revenues was attributable to both reportable segments. The increased demand for our SCR products caused a 127% increase in revenues from our SCR Systems segment for the three months ended September 30, 2001 compared to the same period of the prior fiscal year. In addition, the increased demand for our gas/liquid filtration products caused revenues from our gas/liquid filtration segment to increase 98% over the same period of the prior fiscal year. Due to the new gas turbine powered electric generating facilities currently under construction in the United States to fulfill our country's demand for electricity, we anticipate the demand for our SCR products will continue to increase. These new generating facilities use clean burning gas, which in turn drives demand for our gas cleaning equipment. Coal fired electric power plants are also contributing to the stronger demand we are seeing for our ammonia handling systems. We provide ammonia storage and delivery systems to be used as part of the NOx reduction systems to be installed at these coal fired plants. -8- PEERLESS MFG. CO. AND SUBSIDIARIES Our backlog of unfilled orders was $69.5 million at September 30, 2001, compared to approximately $24 million at September 30, 2000. The increase is primarily due to significant SCR orders booked during the last nine months. Our gross profit increased $3.9 million, or 126%, from $3.1 million for the three months ended September 30, 2000 to $7.0 million for the three months ended September 30, 2001. Gross profit, as a percentage of sales, increased to 29.4% for the current quarter from 27.8% for the same period in fiscal 2001. The higher gross margin was primarily attributable to increased margins recognized on our SCR revenues. Operating expenses increased by $2.1 million, or 59%, from $3.6 million for the three months ended September 30, 2000 to $5.7 million for the three months ended September 30, 2001. The increase in operating expenses was due the additional costs of engineering and project management required for the increased SCR activities, as well as increased general and administrative expenses to support the overall increase in revenues. Operating expenses decreased as a percentage of sales from 32.7% for the three months ended September 30, 2000 to 24.2% for the same period in the current year. Interest expense decreased by $0.2 million due to the fact that we had no outstanding balances under our revolving line of credit or the ABCO installment note as of September 30, 2001, compared to $6.6 million outstanding under our revolver and $1.9 million outstanding on the ABCO installment note at September 30, 2000. We prepaid, in full, $1.6 million of the ABCO installment note early in the first quarter of fiscal 2002. The lower effective borrowing rate under our credit facilities also contributed to the lower interest expense we incurred. As a result of the factors discussed above, we recorded net earnings for the quarter ended September 30, 2001, of $0.8 million, compared to a net loss of $0.5 million for the same period in fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES Effective August 31, 2001, we entered into a new $10 million revolving line of credit facility that expires in October 2003. The credit line carries a floating interest rate based on the prime rate less 0.25% (5.75% at September 30, 2001) and is secured by substantially all of our assets. Our interest rate is subject to change based on our financial performance. As of September 30, 2001, we had no outstanding balance under the credit line, and $1.9 million outstanding under letters of credit, leaving us with $8.1 million of availability under the credit line. We pay an annual commitment fee of 0.25% of the unused balance under the credit line. The credit line contains financial covenants, restrictions on capital expenditures, acquisitions, asset dispositions, additional debt, and other customary covenants. We have historically been a net provider of cash from operations and have financed our working capital requirements and capital expenditures through the retention of earnings and the use of our short-term credit lines. However, cash was used in operating activities for the first three months of fiscal 2002 in the amount of $0.4 million, compared to cash provided by operating activities of $0.4 million for the same period in fiscal 2001. The change was primarily the result of the increases in accounts payable which were offset by an increase in our accounts receivable and a decrease in our accrued liabilities. The increases in accounts receivable are not attributable to our customers not timely paying us, but rather are directly related to the nature of our business. Because we are engaged in the business of manufacturing custom systems, our progress billing practices are event oriented rather -9- PEERLESS MFG. CO. AND SUBSIDIARIES than date oriented, and vary from contract to contract. We customarily bill our customers after the occurrence of certain project milestones. For example, after we complete engineering drawings for a customized product or after ordering raw materials to produce that product. Once we bill our customer, our accounts receivable balance increases as does our balance of billings in excess of costs and earnings on uncompleted contracts. Consequently, we focus on the difference between our accounts receivable balance and our billings in excess of costs balance to determine our "net working capital impact" related to billings for a particular period. As of September 30, 2001, our net working capital impact was approximately $22.5 million, and as of September 30, 2000, that balance was $17.8 million A period to period analysis of our balance of accounts receivable must also take into account any changes in our backlog (uncompleted orders less revenue recognized under the percentage of completion method). The increase to our accounts receivable balance from September 30, 2000, to September 30, 2001 was directly related to the growth in demand for our products. Because we are engaged in the business of manufacturing custom systems, our balances of accounts receivables, billings in excess of costs and earnings, and costs and earnings in excess of billings change in direct correlation to the quantity and mix of our backlog, as well as the specific terms of each of our customer contracts. Although historically our capital expenditure requirements have not been significant, we may have to increase our level of capital expenditures in the future to expand our manufacturing capacity if the demand for our SCR System continues to increase at the current rate. We believe we maintain adequate liquidity to support existing operations and planned growth, as well as to continue operations during reasonable periods of unanticipated adversity. Management directs additional resources to strategic new product development, market expansion and continuing improvement of existing products to enhance our position as a market leader and to promote planned internal growth and profitability. Although historically we have usually paid quarterly dividends, we announced in January 2001 that we would not pay a dividend for the quarter ending March 31, 2001, and thereafter in order to preserve working capital for future growth. Our Board of Directors has decided to continue the policy of preserving working capital for the quarter ended September 30, 2001. Consequently, no dividend will be paid for that quarter. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued FAS 141 "Business Combinations" ("FAS 141") and FAS 142 "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination initiated after June 30, 2001. FAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. The company will adopt FAS 142 on July 1, 2002. As a result of implementing these new standards, the company will discontinue the amortization of goodwill as of June 30, 2002. -10- PEERLESS MFG. CO. AND SUBSIDIARIES In October 2001, the Financial Accounting Standards Board issued FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") and related literature and establishes a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale. The company is required to adopt FAS 144 for fiscal years beginning after December 15, 2001. The effect of adopting these standards will be immaterial to the company. CAUTION REGARDING FORWARD-LOOKING STATEMENTS The company occasionally makes forward-looking statements concerning its plans, goals, product and service offerings, and anticipated financial performance. These forward-looking statements may generally be identified by introductions such as "outlook" for an upcoming period of time, or words and phrases such as "should", "expect", "hope", "plans", "projected", "believes", "forward-looking" (or variants of those words and phrases) or similar language indicating the expression of an opinion or view concerning the future. These forward-looking statements are subject to risks and uncertainties based on a number of factors and actual results or events may differ materially from those anticipated by such forward-looking statements. These factors include, but are not limited to: the growth rate of the company's revenue and market share; the consummation of new, and the non-termination of, existing contracts; the company's ability to effectively manage its business functions while growing its business in a rapidly changing environment; the company's ability to adapt and expand its services in such an environment; the company's ability to successfully refinance or extend its lines of credit or obtain alternative sources of financing; the company's ability to effectively and efficiently manage its backlog, large contracts for its SCR Systems, inventory levels and processing of sales orders; the quality of the company's plans and strategies; the company's ability to execute such plans and strategies; the company's ability to manage its SCR Systems business if a slowdown occurs in the construction or refurbishment of power plants; the company's ability to adapt to changes in regulatory standards; and the size and value of product warranty claims submitted to the company by customers. In addition, forward-looking statements concerning the company's expected revenue or earnings levels are subject to many additional uncertainties applicable to competitors generally and to general economic conditions over which the company has no control. The company does not plan to generally publicly update prior forward-looking statements for unanticipated events or otherwise and, accordingly, prior forward-looking statements should not be considered to be "fresh" simply because the company has not made additional comments on those forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There were no significant changes in market risk since June 30, 2001. -11- PEERLESS MFG. CO. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits. The following exhibits are filed as part of this report: Exhibit Number Exhibit - -------- --------- 10(i) Employment Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(j) Employment Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. 10(k) Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(l) Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. B. Reports on Form 8-K. None. -12- PEERLESS MFG. CO. AND SUBSIDIARIES 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 14, 2001 /s/ Sherrill Stone --------------------------------------------- Sherrill Stone, Chairman, President and Chief Executive Officer /s/ Robert J. Boutin -------------------------------------------- Robert J. Boutin, Chief Financial Officer (Principal Financial and Accounting Officer) -13- EXHIBIT INDEX Exhibit Number Exhibit - ------- ------------- 10(i) Employment Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(j) Employment Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. 10(k) Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(l) Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. EX-10.(I) 3 d92287ex10-i.txt EMPLOYMENT AGREEMENT - SHERRILL STONE EXHIBIT 10(i) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into to be effective as of the 20th day of July 2001 (the "Effective Date"), between PEERLESS MFG. CO. ("Employer"), and SHERRILL STONE ("Employee"), and amends in part and restates and supersedes in its entirety that certain Employment Agreement between Employer and Employee dated April 29, 1994. SECTION 1. EMPLOYMENT. 1.1 Employment and Term. Subject to the terms and conditions of this Agreement, Employer agrees to employ Employee, and Employee agrees to be employed exclusively by Employer, as Chairman of the Board, President and Chief Executive Officer pursuant to this Agreement. Employee will be employed under this Agreement for a term beginning on the Effective Date and ending on the first anniversary date of the Effective Date, unless Employee's employment is terminated earlier as provided in Section 4 below; provided however, this Agreement shall continue for successive 12 month periods after the first anniversary of the Effective Date unless (a) Employer or Employee gives the other party to this Agreement written notice of termination of this Agreement no less than sixty (60) days prior to the renewal term, or (b) Employee's employment is terminated earlier pursuant to Section 4. Sections 2, 3 and 5 of this Agreement shall survive any termination of Employee's employment with Employer. 1.2 Duties. At all times during the course of Employee's employment with Employer, Employee agrees to perform the duties associated with such position diligently and to devote all of his business time, attention and efforts to the business of Employer. Employee agrees to comply with the policies, procedures and guidelines established by Employer from time to time. Employee agrees to perform his duties faithfully and loyally and to the best of his abilities, and shall use his best efforts to promote the business of Employer. 1.3 Supervision. Employee shall perform the duties of employment under the direction and supervision of Employer's Board of Directors. SECTION 2. NON-COMPETITION. 2.1 Non Competition. --------------- (a) Employee agrees that during the term of his employment with Employer and for a period of one (1) year following termination of his employment (regardless of whether Employee is terminated without Cause (as defined in Section 4.1(c) below), for Cause, voluntarily resigns or otherwise), neither Employee nor any person or entity directly or indirectly controlling, controlled by or under common control with Employee, shall directly or indirectly, on his own behalf or as an employee or other agent of or an investor in another person: (i) engage in any business conducted by Employer during Employee's term of employment with Employer (collectively, the "Business"); (ii) influence or attempt to influence any customer or supplier of Employer or any affiliate of Employer to purchase goods or services related to the Business from any person other than Employer or such affiliate; or 1 (iii) employ or attempt to employ any individuals who are then or have been employees of Employer or any affiliate of Employer during the preceding 12 months, or influence or seek to influence any such employees to leave Employer's or such affiliate's employment. (b) 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 restrictive covenant regarding competition contained in this Section 2.1 shall apply without geographic limitation. (c) Employee acknowledges that his obligations under this Section 2.1 are a material inducement and condition to Employer's entering into this Agreement and the Other Agreements (as defined in Section 5.10 below). Employee acknowledges and agrees that the restrictions set forth in this Section 2.1 are reasonable as to time, geographic area and scope of activity and do not impose a greater restraint than is necessary to protect the goodwill and other business interests of Employer, and Employee agrees that Employer is justified in believing the foregoing. (d) If any provision of this Section 2.1 should be found by any court of competent jurisdiction to be unenforceable by reason of its being too broad as to the period of time, territory, and/or scope, then, and in that event, such provision shall nevertheless remain valid and fully effective, but shall be considered to be amended so that the period of time, territory, and/or scope set forth shall be changed to be the maximum period of time, the largest territory, and/or the broadest scope, as the case may be, which would be found enforceable by such court. (e) Employee acknowledges that Employee's violation or attempted violation of this Section 2.1 will cause irreparable damage to Employer or its affiliates, and Employee therefore agrees that Employer shall be entitled as a matter of right to an injunction, out of any court of competent jurisdiction, restraining any violation or further violation of such agreements by Employee or others acting on his behalf. Employer's right to injunctive relief will be cumulative and in addition to any other remedies provided by law or equity. SECTION 3. CONFIDENTIALITY; NONDISPARAGEMENT; CONFLICT OF INTEREST. 3.1 Confidentiality. --------------- (a) In the course of his employment with Employer, Employee has received and may receive or have access in the future to commercially valuable, confidential or proprietary information ("Confidential Information"). Confidential Information means all information, whether oral or written, previously or hereafter developed, acquired or used by Employer and relating to the business of Employer that is not generally known to others in Employer's area of business, including without limitation (i) any trade secrets, work product, processes, analyses or know-how of Employer; (ii) Employer's advertising, product development, strategic and business plans and information, including customer and prospect lists; (iii) the prices at which Employer has sold or offered to sell its products or services; and (iv) Employer's financial statements and other financial information. 2 (b) Employee acknowledges and agrees that the Confidential Information is and shall be the sole and exclusive property of Employer. Employee shall not use any Confidential Information for his own benefit or disclose any Confidential Information to any third party (except in the course of performing his authorized duties for Employer under this Agreement), either during or subsequent to his employment with Employer. (c) Specifically, Employee agrees that, except as expressly authorized in writing by Employer, or as may be required by law or court order, Employee (i) shall not disclose Confidential Information to any third party, (ii) shall not copy Confidential Information for any reason, and (iii) shall not remove Confidential Information from Employer's premises. Upon termination of his employment with Employer, Employee shall promptly deliver to the Employer all Confidential Information, including documents, computer disks and other computer storage devices and other papers and materials (including all copies thereof in whatever form) containing or incorporating any Confidential Information or otherwise relating in any way to the Employer's business that are in his possession or under his control. (d) Employee acknowledges that Employee's violation or attempted violation of this Section 3.1 will cause irreparable damage to Employer or its affiliates, and Employee therefore agrees that Employer shall be entitled as a matter of right to an injunction, out of any court of competent jurisdiction, restraining any violation or further violation of such agreements by Employee or others acting on his behalf. Employer's right to injunctive relief will be cumulative and in addition to any other remedies provided by law or equity. 3.2. Covenant of Nondisparagement. In consideration of this Agreement and the Other Agreements, Employee agrees and promises that, during the term of and at all times after the termination of this Agreement (regardless of whether Employee is terminated without Cause, for Cause, voluntarily resigns or otherwise), not to make any libelous, disparaging or otherwise injurious statements about or concerning Employer or any of its affiliates, their officers, employees or representatives. Such prohibited statements include any statement that is injurious to the business or business reputation of any of the Employer, its affiliates or their employees or representatives, but does not include reasonable statements of disagreement that Employee makes for the purpose of protecting or enforcing any of his rights or interests hereunder or defending against any claim or claims of Employer, so long as such statements are not slanderous or libelous and are delivered in terms as would ordinarily be considered customary and appropriate. 3.3. Conflict of Interest. Employee agrees that during the term of this Agreement without the prior approval of the Board of Directors of Employer, Employee shall not engage, either directly or indirectly, in any activity which may involve a conflict of interest with Employer or its affiliates (a "Conflict of Interest"), including ownership in any supplier, contractor, subcontractor, customer or other entity with which Employer does business (other than as a shareholder of less than one percent of a publicly traded class of securities) or accept any material payment, service, loan, gift, trip, entertainment or other favor from a supplier, contractor, subcontractor, customer or other entity with which Employer does business and that Employee shall promptly inform the Board of Directors of Employer as to each offer received by Employee to engage in any such activity. Employee further agrees to disclose to Employer any other facts of which Employee becomes aware which might involve or give rise to a Conflict of Interest or potential Conflict of Interest. 3 SECTION 4. TERMINATION. 4.1 Termination by Employer; Non-renewal of Agreement. ------------------------------------------------- (a) Employer may terminate Employee's employment without Cause upon no less than sixty (60) days prior written notice of termination to Employee. In the event that during the term hereof either (i) Employee is terminated by Employer without Cause or (ii) Employer does not renew this Agreement after the first anniversary date of the Effective Date as provided in Section 1.1 above, Employer shall pay Employee, a lump sum payment in an amount equal to one hundred fifty percent (150%) of Employee's then current base salary annualized, plus for a period of 12 successive months after such termination of employment or non-renewal of this Agreement, as applicable, Employer shall provide Employee and his spouse medical and health insurance substantially on the same terms and comparable as a whole to such insurance in effect on the date of Employee's termination of employment or non-renewal, as applicable. In the event of any such termination without Cause, except as aforesaid, Employer shall have no other obligations to pay any base salary or bonus or provide for any benefits to Employee after the effective date of such termination. (b) Employer may discharge Employee for Cause at any time without prior notice. In the event of any such termination, Employer's obligations to pay any base salary or bonus or provide for any benefits to Employee shall terminate immediately upon the effective date of such termination. (c) As used herein, "Cause" shall mean any of the following: (i) the conviction of Employee by a court of competent jurisdiction of any felony or crime involving moral turpitude; (ii) commission by Employee of an intentional material act of fraud to his pecuniary benefit in connection with his duties or in the course of his employment with Employer, as reasonably determined by Employer's Board of Directors; or (iii) the intentional and continued failure by Employee to substantially perform his duties hereunder, or the intentional wrongdoing by Employee resulting in material injury to Employer. No act, or failure to act, on the part of Employee shall be deemed "intentional" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that his action or omission was in the best interests of Employer. 4.2 Termination by Employee. Employee may resign from Employee's employment hereunder (whether for voluntary retirement or otherwise) upon no less than sixty (60) days prior written notice of resignation to Employer. If Employee voluntarily resigns from his employment with Employer during the term hereof for retirement from active working life, Employer shall pay Employee a lump sum payment in an amount equal to one hundred fifty percent (150%) of Employee's then current base salary annualized, plus upon retirement Employee shall be entitled to all benefits (if any) provided by Employer in the ordinary course to other executive officers of Employer at comparable retirement age. In the event of any such voluntary resignation, except as aforesaid in the case of voluntary retirement from active working life, Employer shall have 4 no other obligations to pay any base salary or bonus or provide for any benefits to Employee after the effective date of such resignation. 4.3 Termination on Death of Employee. This Agreement shall terminate automatically upon the death of Employee and all rights of Employee, his heirs, executors and administrators to salary, bonus or benefits shall terminate immediately, except as otherwise provided in Employer's benefits plans in effect at such time. 4.4 Termination by Disability. Employer may terminate Employee's employment hereunder upon Employee becoming Disabled (as defined below). Upon such termination, Employer shall pay Employee a lump sum payment in an amount equal to fifty percent (50%) of Employee's then current base salary annualized, and Employee shall be entitled to all other disability benefits then in effect (if any) provided by Employer to all other executive officers of Employer. For purposes of this Agreement, "Disabled" means any mental or physical impairment lasting more than 180 consecutive or non-consecutive calendar days that prevents Employee from performing the essential functions of his position with or without reasonable accommodation as determined by a physician mutually agreeable to Employee and Employer. Employee agrees to submit to appropriate medical examinations and authorize his physicians to release medical information necessary to determine whether Employee is Disabled for purposes of this Agreement. SECTION 5. MISCELLANEOUS. 5.1 Notice. Any notice required or permitted under this Agreement must be in writing and shall be deemed to have been given when delivered personally or by overnight courier service or three days after being sent by mail, postage prepaid, at the address indicated below or to such changed address as such person may subsequently give such notice of: if to Employer: Peerless Mfg. Co. 2819 Walnut Hill Lane Dallas, Texas 75229 Attn: Chairman, Compensation Committee of the Board of Directors if to Employee: Sherrill Stone 4625 Royal Lane Dallas, Texas 75229 5.2 Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors, and assigns. Except as otherwise provided herein, this Agreement may not be assigned by any party hereto without the prior written consent of the other party hereto, except that Employer shall require any successor, and any corporation or other person which is in control of such successor, to all or substantially all of the business and/or assets of Employer (by purchase, merger, consolidation or otherwise), by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. Failure of Employer to obtain such agreement prior to the effectiveness of any such succession shall be a material breach of this Agreement by Employer. As used in this Agreement, "Employer" shall mean Employer as herein before defined and any successor to its business and/or all or part of its assets as aforesaid which executes and delivers the assumption agreement provided for in this Section 5.2 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 5 5.3 Tax Treatment. In the event that the total compensation paid to Employee, taking into account all cash payments under the Other Agreements or otherwise, shares of stock, accelerated vesting of stock options, and bonuses, if any, is found to constitute "an excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, then Employer shall pay to Employee, in addition to the total compensation paid to Employee, but without duplication, an additional amount which, after reduction for income taxes and excise taxes on such additional amount, is sufficient to provide for the payment of any excise tax that may be due by Employee on the total compensation paid by Employer to Employee. 5.4 Headings. The section headings used herein are for reference and convenience only and shall not enter into the interpretation hereof. 5.5 Counterparts. This Agreement may be executed in one or more counterparts for the convenience of the parties hereto, all of which together shall constitute one and the same instrument. 5.6 Amendment and Waiver. The provisions of this Agreement may be amended or waived only by written agreement of Employer and Employee, and no course of conduct, failure or delay in enforcing the provisions of this Agreement shall effect the validity, binding effect or enforceability of this Agreement. 5.7 Severability. Any provision or portion of a provision of this Agreement that is held to be invalid or unenforceable will be severable, and this Agreement will be construed and enforced as if such provision, or portion thereof, did not comprise a part hereof, and the remaining provisions or portions of provisions will remain in full force and effect. In lieu of each invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be legal, valid, and enforceable. 5.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. 5.9 Disputes. The parties to this Agreement agree that in the event there is a dispute or controversy between them that cannot be settled through direct discussions, it is in the best interests of all for such dispute or controversy to be resolved in the shortest time and with the lowest cost of resolution as practicable. Consequently, any such dispute, controversy or claim between the parties to this Agreement will not be litigated, but instead will be resolved by arbitration in accordance with Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration will be before one neutral arbitrator and will proceed under the Expedited Procedures of said Rules. The arbitration will be held in Dallas, Texas, or such other place as may be selected by mutual agreement. The arbitrator will have the discretion to order a prehearing exchange of information by the parties, and to set limits for both the scope and time period of such exchange. All issues regarding exchange requests will be decided by the arbitrator. Neither party nor the arbitrators may disclose the existence, content or results of any arbitration hereunder, unless required to do so by court or regulatory order, without the prior written consent of both parties. Fees and expenses of the arbitration itself will be borne by the parties equally. The arbitrator will also be authorized to award to the prevailing party all or that fraction of its reasonable costs and fees as is deemed equitable. This provision will not apply to any injunctive relief sought by the Company or any of its affiliate under Section 2 or 3 of this Agreement. 6 5.10 Entire Agreement. 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) and that certain Agreement, of even date herewith, between Employer and Employee regarding certain bonus payments effective upon a "Sale of the Company" (as defined therein) (such two agreements being the "Other Agreements") embody the complete agreement in force between Employer and Employee regarding the subject matter hereof and the same supersede all prior agreements or understandings, whether oral, written or otherwise, between the parties that may have related in any way to the subject matter hereof. EMPLOYER: PEERLESS MFG. CO. By: /s/ ---------------------------------------------- Joseph V. Mariner, Chairman of the Compensation Committee of the Board of Directors of Peerless Mfg. Co. EMPLOYEE: /s/ -------------------------------------------- Sherrill Stone 7 EX-10.(J) 4 d92287ex10-j.txt EMPLOYMENT AGREEMENT - ROY C. CUNY EXHIBIT 10(j) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into to be effective as of the 20th day of July 2001 (the "Effective Date"), between PEERLESS MFG. CO. ("Employer"), and ROY C. CUNY ("Employee"), and amends in part and restates and supersedes in its entirety that certain Employment Agreement between Employer and Employee dated May 26, 2000. SECTION 1. EMPLOYMENT. 1.1 Employment and Term. Subject to the terms and conditions of this Agreement, Employer agrees to employ Employee as Executive Vice President and Chief Operating Officer pursuant to this Agreement. Employee will be employed under this Agreement for a term beginning on the Effective Date and ending on the third anniversary date of the Effective Date, unless Employee's employment is terminated earlier as provided in Section 4 below. Sections 2, 3, and 5 of this Agreement shall survive any termination of Employee's employment with Employer. 1.2 Duties. At all times during the course of Employee's employment with Employer, Employee agrees to perform the duties associated with such position diligently and to devote all of his business time, attention and efforts to the business of Employer. Employee agrees to comply with the policies, procedures and guidelines established by Employer from time to time. Employee agrees to perform his duties faithfully and loyally and to the best of his abilities, and shall use his best efforts to promote the business of Employer. 1.3 Supervision. Employee shall perform the duties of employment under the direction and supervision of Employer's Chief Executive Officer. SECTION 2. 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 one (1) year 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. 1 SECTION 3.________CONFIDENTIALITY; NONDISPARAGEMENT; CONFLICT OF INTEREST. 3.1 Confidentiality. (a) In the course of his employment with Employer, Employee has received and may receive or have access in the future to commercially valuable, confidential or proprietary information ("Confidential Information"). Confidential Information means all information, whether oral or written, previously or hereafter developed, acquired or used by Employer and relating to the business of Employer that is not generally known to others in Employer's area of business, including without limitation (i) any trade secrets, work product, processes, analyses or know-how of Employer; (ii) Employer's advertising, product development, strategic and business plans and information, including customer and prospect lists; (iii) the prices at which Employer has sold or offered to sell its products or services; and (iv) Employer's financial statements and other financial information. (b) Employee acknowledges and agrees that the Confidential Information is and shall be the sole and exclusive property of Employer. Employee shall not use any Confidential Information for his own benefit or disclose any Confidential Information to any third party (except in the course of performing his authorized duties for Employer under this Agreement), either during or subsequent to his employment with Employer. (c) Specifically, Employee agrees that, except as expressly authorized in writing by Employer, or as may be required by law or court order, Employee shall (i) not disclose Confidential Information to any third party, (ii) not copy Confidential Information for any reason, and (iii) not remove Confidential Information from Employer's premises. Upon termination of his employment with Employer, Employee shall promptly deliver to the Employer all Confidential Information, including documents, computer disks and other computer storage devices and other papers and materials (including all copies thereof in whatever form) containing or incorporating any Confidential Information or otherwise relating in any way to the Employer's business that are in his possession or under his control. (d) Employee acknowledges that Employee's violation or attempted violation of this Section 3.1 will cause irreparable damage to Employer or its affiliates, and Employee therefore agrees that Employer shall be entitled as a matter of right to an injunction, out of any court of competent jurisdiction, restraining any violation or further violation of such agreements by Employee or others acting on his behalf. Employer's right to injunctive relief will be cumulative and in addition to any other remedies provided by law or equity. 3.2. Covenant of Nondisparagement. In consideration of this Agreement and the Other Agreements, Employee agrees and promises that, during the term of and at all times after the termination of this Agreement (regardless of whether Employee is terminated without Cause, for Cause, voluntarily resigns or otherwise), not to make any libelous, disparaging or otherwise injurious statements about or concerning Employer or any of its affiliates, their officers, employees or representatives. Such prohibited statements include any statement that is injurious to the business or business reputation of any of the Employer, its affiliates or their employees or representatives, but does not include reasonable statements of disagreement that Employee makes for the purpose of protecting or enforcing any of his rights or interests hereunder or defending against any claim or claims of Employer, so long as such statements are not slanderous or libelous and are delivered in terms as would ordinarily be considered customary and appropriate. 2 3.3. Conflict of Interest. Employee agrees that during the term of this Agreement without the prior approval of the Board of Directors of Employer, Employee shall not engage, either directly or indirectly, in any activity which may involve a conflict of interest with Employer or its affiliates (a "Conflict of Interest"), including ownership in any supplier, contractor, subcontractor, customer or other entity with which Employer does business (other than as a shareholder of less than one percent of a publicly traded class of securities) or accept any material payment, service, loan, gift, trip, entertainment or other favor from a supplier, contractor, subcontractor, customer or other entity with which Employer does business and that Employee shall promptly inform the Chief Executive Officer or the Board of Directors of Employer as to each offer received by Employee to engage in any such activity. Employee further agrees to disclose to Employer any other facts of which Employee becomes aware which might involve or give rise to a Conflict of Interest or potential Conflict of Interest. SECTION 4. TERMINATION. 4.1 Termination by Employer. ----------------------- (a) Employer may terminate Employee's employment without Cause upon no less than sixty (60) days prior written notice of termination to Employee. In the event of any such termination without Cause, Employer shall pay Employee as severance compensation, a lump sum payment in an amount equal to one hundred fifty percent (150%) of Employee's then current base salary annualized. In the event of any such termination without Cause, except as aforesaid, Employer shall have no other obligations to pay any base salary or bonus or provide for any benefits to Employee after the effective date of such termination. (b) Employer may discharge Employee for Cause at any time without prior notice. In the event of any such termination for Cause, Employer's obligations to pay any base salary or bonus or provide for any benefits to Employee shall terminate immediately upon the effective date of such termination. (c) As used herein, "Cause" shall mean any of the following: (i) the conviction of Employee by a court of competent jurisdiction of any felony or crime involving moral turpitude; (ii) commission by Employee of an intentional material act of fraud to his pecuniary benefit in connection with his duties or in the course of his employment with Employer, as reasonably determined by Employer's Board of Directors; or (iii) the intentional and continued failure by Employee to substantially perform his duties hereunder, or the intentional wrongdoing by Employee resulting in material injury to Employer. No act, or failure to act, on the part of Employee shall be deemed "intentional" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that his action or omission was in the best interests of Employer. 4.2 Termination by Employee. Employee may resign from Employee's employment hereunder (whether for voluntary retirement or otherwise) upon no less than sixty (60) days prior written notice of resignation to Employer. If Employee voluntarily resigns from his employment with Employer during the term hereof (whether for voluntary retirement or otherwise), 3 Employer's obligations to pay any base salary or bonus or provide for any benefits shall terminate immediately upon the effective date of such resignation. Upon retirement, Employee shall be entitled to all benefits (if any) provided by Employer in the ordinary course to other executive officers of Employer at comparable retirement age. 4.3 Termination on Death of Employee. This Agreement shall terminate automatically upon the death of Employee and all rights of Employee, his heirs, executors and administrators to salary, bonus or benefits shall terminate immediately, except as otherwise provided in Employer's benefits plans in effect at such time. 4.4 Termination by Disability. Employer may terminate Employee's employment hereunder upon Employee becoming Disabled (as defined below). Upon such termination, Employer shall pay Employee a lump sum payment in an amount equal to fifty percent (50%) of Employee's then current base salary annualized, and Employee shall be entitled to all other disability benefits then in effect (if any) provided by Employer to all other executive officers of Employer. For purposes of this Agreement, "Disabled" means any mental or physical impairment lasting more than 180 consecutive or non-consecutive calendar days that prevents Employee from performing the essential functions of his position with or without reasonable accommodation as determined by a physician mutually agreeable to Employee and Employer. Employee agrees to submit to appropriate medical examinations and authorize his physicians to release medical information necessary to determine whether Employee is Disabled for purposes of this Agreement. SECTION 5. MISCELLANEOUS. 5.1 Notice. Any notice required or permitted under this Agreement must be in writing and shall be deemed to have been given when delivered personally or by overnight courier service or three days after being sent by mail, postage prepaid, at the address indicated below or to such changed address as such person may subsequently give such notice of: if to Employer: Peerless Mfg. Co. 2819 Walnut Hill Lane Dallas, Texas 75229 Attn: Chairman, Board of Directors if to Employee: Roy C. Cuny 4716 Lakeside Colleyville, Texas 76034 5.2 Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors, and assigns. Except as otherwise provided herein, this Agreement may not be assigned by any party hereto without the prior written consent of the other party hereto, except that Employer shall require any successor, and any corporation or other person which is in control of such successor, to all or substantially all of the business and/or assets of Employer (by purchase, merger, consolidation or otherwise), by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. Failure of Employer to obtain such agreement prior to the effectiveness of any such succession shall be a material breach of this Agreement by Employer. As used in this Agreement, "Employer" shall mean Employer as herein before defined and any successor to its business and/or all or part of its assets as aforesaid which 4 executes and delivers the assumption agreement provided for in this Section 5.2 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 5.3 Tax Treatment. In the event that the total compensation paid to Employee, taking into account all cash payments under the Other Agreements or otherwise, shares of stock, accelerated vesting of stock options, and bonuses, if any, is found to constitute "an excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, then Employer shall pay to Employee, in addition to the total compensation paid to Employee, but without duplication, an additional amount which, after reduction for income taxes and excise taxes on such additional amount, is sufficient to provide for the payment of any excise tax that may be due by Employee on the total compensation paid by Employer to Employee. 5.4 Headings. The section headings used herein are for reference and convenience only and shall not enter into the interpretation hereof. 5.5 Counterparts. This Agreement may be executed in one or more counterparts for the convenience of the parties hereto, all of which together shall constitute one and the same instrument. 5.6 Amendment and Waiver. The provisions of this Agreement may be amended or waived only by written agreement of Employer and Employee, and no course of conduct, failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement. 5.7 Severability. Employee acknowledges that his obligations under Section 2.1 are a material inducement and condition to Employer's entering into this Agreement and the Other Agreements (as defined in Section 5.10 below). Employee acknowledges and agrees that the restrictions set forth in Section 2.1 are reasonable as to time, geographic area and scope of activity and do not impose a greater restraint than is necessary to protect the goodwill and other business interests of Employer, and Employee agrees that Employer is justified in believing the foregoing. Any provision or portion of a provision of this Agreement that is held to be invalid or unenforceable will be severable, and this Agreement will be construed and enforced as if such provision, or portion thereof, did not comprise a part hereof, and the remaining provisions or portions of provisions will remain in full force and effect. In lieu of each invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be legal, valid, and enforceable. 5.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. 5.9 Disputes. The parties to this Agreement agree that in the event there is a dispute or controversy between them that cannot be settled through direct discussions, it is in the best interests of all for such dispute or controversy to be resolved in the shortest time and with the lowest cost of resolution as practicable. Consequently, any such dispute, controversy or claim between the parties to this Agreement will not be litigated, but instead will be resolved by arbitration in accordance with Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration will be before one neutral arbitrator and will proceed under the Expedited Procedures of said Rules. The arbitration will be held in Dallas, Texas, or such other place as may be selected by mutual agreement. The arbitrator will have the discretion to order a prehearing exchange of information by the parties, and to set limits for both the scope and time period of such exchange. All issues regarding exchange requests will be decided by the 5 arbitrator. Neither party nor the arbitrators may disclose the existence, content or results of any arbitration hereunder, unless required to do so by court or regulatory order, without the prior written consent of both parties. Fees and expenses of the arbitration itself will be borne by the parties equally. The arbitrator will also be authorized to award to the prevailing party all or that fraction of its reasonable costs and fees as are deemed equitable. Notwithstanding the foregoing, Employee acknowledges that Employee's violation or attempted violation of Section 2 or 3 above will cause irreparable damage to Employer or its affiliates, and Employee therefore agrees that Employer shall be entitled as a matter of right to an injunction, out of any court of competent jurisdiction, restraining any violation or further violation of such agreements by Employee or others acting on his behalf. Employer's right to injunctive relief will be cumulative and in addition to the arbitration provisions of this Section 5.9. 5.10 Entire Agreement. 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) and that certain Agreement, of even date herewith, between Employer and Employee regarding certain bonus payments effective upon a "Sale of the Company" (as defined therein) (such two agreements being the "Other Agreements") embody the complete agreement between Employer and Employee regarding the subject matter hereof and the same supersede all prior agreements or understandings, whether oral, written or otherwise, between the parties hereto that may have related in any way to the subject matter hereof. EMPLOYER: PEERLESS MFG. CO. /s/ ------------------------------------------ Sherrill Stone, Chairman of the Board, Chief Executive Officer and President EMPLOYEE: /s/ ------------------------------------------ Roy C. Cuny 6 EX-10.(K) 5 d92287ex10-k.txt AGREEMENT FOR SHERRILL STONE EXHIBIT 10(k) AGREEMENT THIS AGREEMENT (this "Agreement") is made and entered into to be effective as of the 20th day of July 2001, by and between PEERLESS MFG. CO. (the "Company"), and SHERRILL STONE (the "Executive"), and amends in part and restates and supersedes in its entirety that certain Agreement between the Company and the Executive dated April 29, 1994. WHEREAS, the Executive serves as the Company's Chairman of the Board, President and Chief Executive Officer; WHEREAS, the Executive possesses an intimate knowledge of the business and affairs of the Company, its policies, methods, personnel and plans for the future; 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; WHEREAS, the parties desire to enter into this Agreement to set forth the benefits which the Company will pay to Executive in the event of a "Sale of the Company" or termination of Executive's employment under certain circumstances following a "Change in Control" of the Company (in each case as such terms or events are defined or discussed herein); NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained the parties agree as follows: 1. Term. The term of this Agreement shall continue until the earliest of (i) subject to the proviso at the end of this sentence, 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 resignation (except for those events described in Section 3(a)(2)); provided, however, that during the term of this Agreement, on each anniversary of a Change in Control, the three year period referenced in clause (i) above shall automatically be extended for an additional 12 months unless, not later than 60 calendar days prior to such anniversary date, the Company shall have given written notice to the Executive that it does not wish to have the term extended. 2. Definitions. ----------- (a) Acquiring Person. An "Acquiring Person" shall mean any person 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 trust with respect thereto) or subsidiary of the Company, any person holding Common Stock of the Company for or pursuant to the terms of any such plan, or Donald A. Sillers, Jr. or members of his immediate family. (b) 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. 1 (c) Cause. For "Cause" shall mean any of the following shall have occurred: (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; or (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. (d) 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; 2 (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, 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 both (1) proposed by, and (2) 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. (e) Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended. (f) 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. (g) Disabled. "Disabled" means any mental or physical impairment lasting more than 180 calendar days that prevents Executive from performing the essential functions of his position with or without reasonable accommodation, as determined by a physician mutually agreeable to Executive and the Company. Executive agrees to submit to appropriate medical examinations and authorize his physicians to release medical information necessary to determine whether Executive is "Disabled" for purposes of this Agreement. (h) 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. (i) Purchase Price. "Purchase Price" means the gross value of all cash, securities and other property paid directly or indirectly by an acquiror to a seller or sellers in connection with a Sale of the Company. The value of any securities (whether debt or equity) or other property shall be determined as follows: (i) the value of securities that are freely tradeable in an established public market will be determined on the basis of the average closing market price on the last five trading days preceding one business day prior to the closing of a Sale of the Company and (ii) the value of securities that are not freely tradeable or have no established public market and the value of consideration that consists of other property, will be the fair market value thereof, as reasonably determined by the Company no later than one business day 3 prior to the closing of a Sale of the Company. The Purchase Price will not be deemed to include the principal amount of any indebtedness for borrowed money assumed or acquired, directly or indirectly, by the acquiring party or any of its affiliates in a Sale of the Company or retired, defeased or otherwise cancelled in connection with a Sale of the Company. (j) Sale Bonus. Shall have the meaning set forth in Section 4(a). (k) Sale of the Company. A "Sale of the Company" means the consummation of a sale by the Company to any entity not affiliated with or controlled by the Company of (i) 51% or more of the outstanding capital stock of the Company through purchase, merger, consolidation, combination or otherwise or (ii) all or substantially all of the assets of the Company. (l) 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 for the five most recent full calendar years; 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. (m) Termination Date. The "Termination Date" shall be the effective date upon which the Executive or the Company terminates the employment of the Executive. 3. Rights of Executive Upon Change in Control and Subsequent Termination. (a) The Company shall provide the Executive, within ten days following the Termination Date, Severance Compensation, but without affecting the rights of the Executive or the Company 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 Disabled; 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: 4 (i) an adverse 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 base salary during the Employment Term or any adverse change in the calculation of the annual bonus or incentive compensation 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) 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 (iv) the Company commits any breach (including under Section 6 below) of this Agreement which is not cured within ten calendar days after receipt by the Company of written notice from Executive of such breach. (b) In the event that the total compensation paid to Executive as severance in the event of a Change in Control, taking into account all cash payments, shares of stock, accelerated vesting of stock options, and bonuses, if any, is found to constitute "an excess parachute payment" within the meaning of Section 280G of the Code, then the Company will pay to Executive, in addition to the Severance Compensation, an additional amount which, after reduction for income taxes and excise taxes on such additional amount, is sufficient to provide for the payment of any excise tax that may be due by Executive on the total compensation amount. 5 (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 with the Company prior to the Termination Date, which rights shall be governed by the terms thereof. (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) If any of the events set forth in Section 3(a)(1) or 3(a)(2) occurs 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. Sale Bonus. (a) If a Sale of the Company occurs on or before July 1, 2002, in addition to any other payments, bonuses or amounts that Executive may be entitled to under any other agreements with the Company, Executive will be entitled to a cash payment in an amount equal to (i) the Purchase Price divided by the number of issued and outstanding shares of capital stock of the Company as of the closing of the Sale of the Company, times (ii) 35,000, minus (iii) $910,000 (such amount being, the "Sale Bonus"). The Sale Bonus will be subject to deduction and withholding authorized or required by applicable law. The Sale Bonus will be payable by the Company in full in cash at the closing of a Sale of the Company. However, the Company will have no obligation to pay Executive the Sale Bonus under this Section 4 if (1) a Sale of the Company does not occur on or before July 1, 2002, or (2) even though a Sale of the Company occurs on or before July 1, 2002, prior to the closing of the Sale of the Company, (x) Executive voluntarily terminates his employment with the Company, dies or becomes Disabled, (y) the Company terminates Executive for Cause, or (z) Executive breaches any of the material terms of this Agreement or the terms of the Employment Agreement, dated July 20, 2001, by and between the Company and Executive. The calculation of the Sale Bonus is based in part on the number 6 of issued and outstanding shares of the Company's common stock (clause (ii)) as well as historical trading prices of such shares (clause (iii)) as of the date hereof. Clauses (ii) and/or (iii) of the calculation of the Sale Bonus will be adjusted as is necessary to reflect the same economic terms in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Company's common stock after the date hereof, but will not be adjusted upon the occurrence of any other dilutive event. (b) In the event that the total compensation paid to Executive in the event of a Sale of the Company, taking into account all cash payments, shares of stock, accelerated vesting of stock options, and bonuses, if any, is found to constitute "an excess parachute payment" within the meaning of Section 280G of the Code, then the Company will pay to Executive, in addition to the compensation paid as the Sale Bonus, an additional amount which, after reduction for income taxes and excise taxes on such additional amount, is sufficient to provide for the payment of any excise tax that may be due by Executive on the total compensation amount received by Executive. 5. 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 the acceptance of employment elsewhere after termination shall in no way reduce the amount of Severance Compensation payable hereunder. 6. Successors; Binding Agreement. (a) The Company will require any successor and any corporation or other legal person 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 successor to its business and/or all or part of its assets as aforesaid which executes and delivers the agreement provided for in this Section 6 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. 7 7. 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: Sherrill Stone 4625 Royal Lane Dallas, Texas 75229 If to the Company: Peerless Mfg. Co. 2819 Walnut Hill Lane Dallas, Texas 75229 Attn: Chairman, Compensation Committee of the Board of Directors 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. 8. 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. 9. 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. 10. 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. 11. 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. 8 12. 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. 13. 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. 14. 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, dated July 20, 2001, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 15. Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Texas. 16. Disputes. The parties to this Agreement agree that in the event there is a dispute or controversy between them that cannot be settled through direct discussions, it is in the best interests of all for such dispute or controversy to be resolved in the shortest time and with the lowest cost of resolution as practicable. Consequently, any such dispute, controversy or claim between the parties to this Agreement will not be litigated, but instead will be resolved by arbitration in accordance with Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration will be before one neutral arbitrator and will proceed under the Expedited Procedures of said Rules. The arbitration will be held in Dallas, Texas, or such other place as may be selected by mutual agreement. The arbitrator will have the discretion to order a prehearing exchange of information by the parties, and to set limits for both the scope and time period of such exchange. All issues regarding exchange requests will be decided by the arbitrator. Neither party nor the arbitrators may disclose the existence, content or results of any arbitration hereunder, unless required to do so by court or regulatory order, without the prior written consent of both parties. Fees and expenses of the arbitration itself will be borne by the parties equally. The arbitrator will also be authorized to award to the prevailing party all or that fraction of its reasonable costs and fees as is deemed equitable. 9 IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PEERLESS MFG. CO. By: /s/ JOSEPH V. MARINER --------------------------------------------- Joseph V. Mariner, Chairman of Compensation Committee of the Board of Directors of Peerless Mfg. Co. EXECUTIVE /s/ SHERRILL STONE --------------------------------------------- Sherrill Stone 10 EX-10.(L) 6 d92287ex10-l.txt AGREEMENT FOR ROY C. CUNY EXHIBIT 10(l) AGREEMENT THIS AGREEMENT (this "Agreement") is made and entered into to be effective as of the 20th day of July 2001, by and between PEERLESS MFG. CO. (the "Company"), and ROY C. CUNY (the "Executive"), and amends in part and restates and supersedes in its entirety that certain Agreement between the Company and the Executive dated May 16, 2000. WHEREAS, the Executive serves as a senior executive of the Company; WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the Company, its policies, methods, personnel and plans for the future; 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; WHEREAS, the parties desire to enter into this Agreement to set forth the benefits which the Company will pay to Executive in the event of a "Sale of the Company" or termination of Executive's employment under certain circumstances following a "Change in Control" of the Company (in each case as such terms or events are defined or discussed herein); NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained the parties agree as follows: 1. Term. The term of this Agreement shall continue until the earliest of (i) subject to the proviso at the end of this sentence, 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 resignation (except for those events described in Section 3(a)(2)); provided, however, that during the term of this Agreement, on each anniversary of a Change in Control, the three year period referenced in clause (i) above shall automatically be extended for an additional 12 months unless, not later than 60 calendar days prior to such anniversary date, the Company shall have given written notice to the Executive that it does not wish to have the term extended. 2. Definitions. ----------- (a) Acquiring Person. An "Acquiring Person" shall mean any person 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 trust with respect thereto) or subsidiary of the Company, any person holding Common Stock of the Company for or pursuant to the terms of any such plan, or Donald A. Sillers, Jr. or members of his immediate family. (b) Affiliate and Associate. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and 1 Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act") in effect on the date of this Agreement. (c) Cause. For "Cause" shall mean any of the following shall have occurred: (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; or (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. (d) 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; 2 (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, 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 both (1) proposed by, and (2) 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. (e) Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended. (f) 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. (g) Disabled. "Disabled" means any mental or physical impairment lasting more than 180 calendar days that prevents Executive from performing the essential functions of his position with or without reasonable accommodation, as determined by a physician mutually agreeable to Executive and the Company. Executive agrees to submit to appropriate medical examinations and authorize his physicians to release medical information necessary to determine whether Executive is "Disabled" for purposes of this Agreement. (h) 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. (i) Purchase Price. "Purchase Price" means the gross value of all cash, securities and other property paid directly or indirectly by an acquiror to a seller or sellers in connection with a Sale of the Company. The value of any securities (whether debt or equity) or other property shall be determined as follows: (i) the value of securities that are freely tradeable in an established public market will be determined on the basis of the average closing market price on the last five trading days preceding one 3 business day prior to the closing of a Sale of the Company and (ii) the value of securities that are not freely tradeable or have no established public market and the value of consideration that consists of other property, will be the fair market value thereof, as reasonably determined by the Company no later than one business day prior to the closing of a Sale of the Company. The Purchase Price will not be deemed to include the principal amount of any indebtedness for borrowed money assumed or acquired, directly or indirectly, by the acquiring party or any of its affiliates in a Sale of the Company or retired, defeased or otherwise cancelled in connection with a Sale of the Company. (j) Sale Bonus. Shall have the meaning set forth in Section 4(a). (k) Sale of the Company. A "Sale of the Company" means the consummation of a sale by the Company to any entity not affiliated with or controlled by the Company of (i) 51% or more of the outstanding capital stock of the Company through purchase, merger, consolidation, combination or otherwise or (ii) all or substantially all of the assets of the Company. (l) 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 for the five most recent full calendar years (or such fewer full calendar years if Executive has served less than five full calendar years) prior to the Change in Control; provided, however, that if at any date of determination, Executive has not been employed for a full calendar year, such lump sum amount will equal 299% of Executive's then current salary annualized; 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. (m) Termination Date. The "Termination Date" shall be the effective date upon which the Executive or the Company terminates the employment of the Executive. 3. Rights of Executive Upon Change in Control and Subsequent Termination. (a) The Company shall provide the Executive, within ten days following the Termination Date, Severance Compensation, but without affecting the rights of the Executive or the Company at law or in equity, if, following the occurrence of a Change in Control, any of the following events shall occur: 4 (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 Disabled; 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) an adverse 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 base salary during the Employment Term or any adverse change in the calculation of the annual bonus or incentive compensation 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) 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 5 (iv) the Company commits any breach (including under Section 6 below) of this Agreement which is not cured within ten calendar days after receipt by the Company of written notice from Executive of such breach. (b) In the event that the total compensation paid to Executive as severance in the event of a Change in Control, taking into account all cash payments, shares of stock, accelerated vesting of stock options, and bonuses, if any, is found to constitute "an excess parachute payment" within the meaning of Section 280G of the Code, then the Company will pay to Executive, in addition to the Severance Compensation, an additional amount which, after reduction for income taxes and excise taxes on such additional amount, is sufficient to provide for the payment of any excise tax that may be due by Executive on the total compensation amount. (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 with the Company 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 of employment under the Employment Agreement, dated the date hereof, by and between the Company and the Executive. (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) If any of the events set forth in Section 3(a)(1) or 3(a)(2) occurs 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. 6 4. Sale Bonus. (a) If a Sale of the Company occurs on or before July 1, 2002, in addition to any other payments, bonuses or amounts that Executive may be entitled to under any other agreements with the Company, Executive will be entitled to a cash payment in an amount equal to (i) the Purchase Price divided by the number of issued and outstanding shares of capital stock of the Company as of the closing of the Sale of the Company, times (ii) 17,500, minus (iii) $455,000 (such amount being, the "Sale Bonus"). The Sale Bonus will be subject to deduction and withholding authorized or required by applicable law. The Sale Bonus will be payable by the Company in full in cash at the closing of a Sale of the Company. However, the Company will have no obligation to pay Executive the Sale Bonus under this Section 4 if (1) a Sale of the Company does not occur on or before July 1, 2002, or (2) even though a Sale of the Company occurs on or before July 1, 2002, prior to the closing of the Sale of the Company, (x) Executive voluntarily terminates his employment with the Company, dies or becomes Disabled, (y) the Company terminates Executive for Cause, or (z) Executive breaches any of the material terms of this Agreement or the terms of the Employment Agreement, dated July 20, 2001, by and between the Company and Executive. The calculation of the Sale Bonus is based in part on the number of issued and outstanding shares of the Company's common stock (clause (ii)) as well as historical trading prices of such shares (clause (iii)) as of the date hereof. Clauses (ii) and/or (iii) of the calculation of the Sale Bonus will be adjusted as is necessary to reflect the same economic terms in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Company's common stock after the date hereof, but will not be adjusted upon the occurrence of any other dilutive event. (b) In the event that the total compensation paid to Executive in the event of a Sale of the Company, taking into account all cash payments, shares of stock, accelerated vesting of stock options, and bonuses, if any, is found to constitute "an excess parachute payment" within the meaning of Section 280G of the Code, then the Company will pay to Executive, in addition to the compensation paid as the Sale Bonus, an additional amount which, after reduction for income taxes and excise taxes on such additional amount, is sufficient to provide for the payment of any excise tax that may be due by Executive on the total compensation amount received by Executive. 5. 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 the acceptance of employment elsewhere after termination shall in no way reduce the amount of Severance Compensation payable hereunder. 7 6. Successors; Binding Agreement. (a) The Company will require any successor and any corporation or other legal person 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 successor to its business and/or all or part of its assets as aforesaid which executes and delivers the agreement provided for in this Section 6 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. 7. 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: Roy C. Cuny 4716 Lakeside Colleyville, Texas 76034 If to the Company: Peerless Mfg. Co. 2819 Walnut Hill Lane Dallas, Texas 75229 Attn: Chairman of the Board 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. 8 8. 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. 9. 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. 10. 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. 11. 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. 12. 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. 13. 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. 14. 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, dated July 20, 2001, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 15. Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Texas. 9 16. Disputes. The parties to this Agreement agree that in the event there is a dispute or controversy between them that cannot be settled through direct discussions, it is in the best interests of all for such dispute or controversy to be resolved in the shortest time and with the lowest cost of resolution as practicable. Consequently, any such dispute, controversy or claim between the parties to this Agreement will not be litigated, but instead will be resolved by arbitration in accordance with Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration will be before one neutral arbitrator and will proceed under the Expedited Procedures of said Rules. The arbitration will be held in Dallas, Texas, or such other place as may be selected by mutual agreement. The arbitrator will have the discretion to order a prehearing exchange of information by the parties, and to set limits for both the scope and time period of such exchange. All issues regarding exchange requests will be decided by the arbitrator. Neither party nor the arbitrators may disclose the existence, content or results of any arbitration hereunder, unless required to do so by court or regulatory order, without the prior written consent of both parties. Fees and expenses of the arbitration itself will be borne by the parties equally. The arbitrator will also be authorized to award to the prevailing party all or that fraction of its reasonable costs and fees as is deemed equitable. IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PEERLESS MFG. CO. /s/ SHERRILL STONE --------------------------------------- Sherrill Stone, Chairman of the Board, Chief Executive Officer and President EXECUTIVE /s/ ROY C. CUNY --------------------------------------- Roy C. Cuny 10 -----END PRIVACY-ENHANCED MESSAGE-----