-----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, FOpJY7WITzXeM1QbtxduY2b0UMOI5Xn739/45BtKyb3pz8M8pwPOKKbXiWJNTEv1 8dGZY0g85ZfWHhC8sVKIpA== 0000950134-02-005465.txt : 20020514 0000950134-02-005465.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950134-02-005465 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 02646696 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 d96731e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2002 ================================================================================ 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 MARCH 31, 2002 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________. Commission File Number 0-5214 PEERLESS MFG. CO. (Exact Name of Registrant as Specified in Its Charter) TEXAS 75-0724417 ----- ---------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 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 May 13, 2002, there were 2,983,484 shares of the Registrant's common stock outstanding. ================================================================================ PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 TABLE OF CONTENTS
PAGE NUMBER ------ PART I: FINANCIAL INFORMATION. ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets at March 31, 2002 and June 30, 2001....................................................................... 3 Consolidated Statements of Operations for the three and nine months ended March 31, 2002 and 2001..................................... 5 Consolidated Statements of Cash Flows for the nine months ended March 31, 2002 and 2001........................................... 6 Notes to the Consolidated Financial Statements.......................................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................... 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................... 17 PART II:.OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................. 18 SIGNATURES....................................................................................... 19
2 PART I. FINANCIAL INFORMATION FORWARD-LOOKING STATEMENTS From time to time, Peerless Mfg. Co. and subsidiaries (collectively, the "Company") makes oral and written statements that may constitute "forward-looking statements" (rather than historical facts) as defined in the Private Securities Litigation Reform Act of 1996 (the "Act") or by the Securities and Exchange Commission ("SEC") in its rules, regulations and releases. The Company desires to take advantage of the "safe harbor" provisions in the Act for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements made in this Report on Form 10-Q (this "Report"), as well as those made in other filings with the SEC. Forward-looking statements contained in this Report are based on management's current plans and expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In the preparation of this Report, where such forward-looking statements appear, the Company has sought to accompany such statements with meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those described in the forward-looking statements. Such factors include, but are not limited to, the "Factors That May Affect Our Operating Results," as set forth starting on page 14 of this Report. The Company does not have, and expressly disclaims, any obligation to release publicly any updates or changes in the Company's expectations or changes in events, conditions, or circumstances on which any forward-looking statement is based. ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PEERLESS MFG. CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
March 31, June 30, 2002 2001 --------- -------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 6,016 $ 2,577 Short term investments 305 300 Accounts receivable-principally trade-net 26,738 28,987 Inventories 3,262 2,084 Costs and earnings in excess of billings 10,224 6,328 Other 1,668 1,455 -------- -------- Total current assets 48,213 41,731 Property, plant and equipment-net 4,091 3,365 Other assets 925 1,060 -------- -------- $ 53,229 $ 46,156 ======== ========
See accompanying notes to consolidated financial statements. 3 PEERLESS MFG. CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
March 31, June 30, 2002 2001 ---------- ---------- (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable-trade $ 18,337 $ 10,172 Billings in excess of costs and earnings 6,728 9,618 Current maturities of long-term debt -- 400 Commissions payable 1,465 1,443 Income taxes payable 902 1,754 Accrued liabilities and other 5,086 3,876 ---------- ---------- Total current liabilities 32,518 27,263 Long-term debt, net of current maturities -- 1,200 Shareholders' equity Common stock 2,983 2,954 Additional paid-in capital 1,467 1,327 Other (155) (101) Retained earnings 16,416 13,513 ---------- ---------- Total shareholders' equity 20,711 17,693 ---------- ---------- $ 53,229 $ 46,156 ========== ==========
See accompanying notes to consolidated financial statements. 4 PEERLESS MFG. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Revenues $ 28,864 $ 18,229 $ 78,783 $ 45,671 Cost of goods sold 20,379 12,823 55,928 32,806 ---------- ---------- ---------- ---------- Gross profit 8,485 5,406 22,855 12,865 Operating expenses Sales and marketing 2,120 1,689 6,152 4,358 Engineering and project management 2,056 1,150 5,584 3,243 General and administrative 2,498 1,511 6,802 4,287 ---------- ---------- ---------- ---------- 6,674 4,350 18,538 11,888 ---------- ---------- ---------- ---------- Operating income 1,811 1,056 4,317 977 Other income (expense) Interest income (expense), net 32 (199) 24 (614) Foreign exchange gain (loss) -- (97) 38 (180) Other, net 42 (56) 229 (114) ---------- ---------- ---------- ---------- 74 (352) 291 (908) ---------- ---------- ---------- ---------- Earnings before income taxes 1,885 704 4,608 69 Income tax expense 698 260 1,705 25 ---------- ---------- ---------- ---------- Net earnings $ 1,187 $ 444 $ 2,903 $ 44 ========== ========== ========== ========== Basic earnings per share $ 0.40 $ 0.15 $ 0.98 $ 0.01 ========== ========== ========== ========== Diluted earnings per share $ 0.38 $ 0.15 $ 0.94 $ 0.01 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 5 PEERLESS MFG. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Nine Months Ended March 31, ------------------------- 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 2,903 $ 44 Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 480 288 Gain on sale of property (267) -- Changes in operating assets and liabilities Accounts receivable 2,228 (15,988) Inventories (1,184) 522 Cost and earnings in excess of billings (3,896) 2,721 Other current assets (280) (1,887) Other assets 133 324 Accounts payable 8,137 2,548 Billings in excess of costs and earnings (2,890) 9,293 Commissions payable 22 552 Income tax payable, accrued liabilities and other 354 2,074 ---------- ---------- 2,837 447 ---------- ---------- Net cash provided by operating activities 5,740 491 CASH FLOWS FROM INVESTING ACTIVITIES Net purchases of short-term investments -- (24) Net purchases of property and equipment (1,298) (91) Proceeds from sale of property 405 -- ---------- ---------- Net cash used in investing activities (893) (115) CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (1,600) 1,089 Proceeds from issuance of common stock 189 104 Dividends paid -- (368) ---------- ---------- Net cash provided by (used in) financing activities (1,411) 825 Effect of exchange rate changes on cash 3 121 ---------- ---------- Net increase in cash and cash equivalents 3,439 1,322 Cash and cash equivalents at beginning of period 2,577 561 ---------- ---------- Cash and cash equivalents at end period $ 6,016 $ 1,883 ========== ==========
See accompanying notes to consolidated financial statements. 6 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 1. BASIS OF PRESENTATION. The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The consolidated financial statements of the Company as of March 31, 2002, and for the three and nine months ended March 31, 2002 and 2001 are unaudited and, in the opinion of management, contain all adjustments necessary for the fair presentation of the financial position and results of operations of the Company for the interim periods. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. The results of operations for the three and nine month periods ended March 31, 2002 are not necessarily indicative of the results to be expected for the entire year (see Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Our Operating Results). All dollar and share amounts are in thousands, except per share amounts. 2. EARNINGS PER SHARE. Basic earnings per share have been computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings 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. Per share amounts have been adjusted to reflect a two-for-one stock split effected in the form of a stock dividend on October 18, 2001. The following table presents the calculation of earnings per share for the periods indicated.
Three Months Ended Nine Months Ended March 31, March 31, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net earnings $ 1,187 $ 444 $ 2,903 $ 44 -------- -------- -------- -------- Basic weighted average common shares outstanding 2,983 2,948 2,976 2,944 Effect of dilutive options 103 35 112 24 -------- -------- -------- -------- Diluted weighted average common shares outstanding 3,086 2,983 3,088 2,968 Net income per share - basic $ 0.40 $ 0.15 $ 0.98 $ 0.01 Net income per share - diluted $ 0.38 $ 0.15 $ 0.94 $ 0.01
The weighted average common shares outstanding-diluted computation for the three and nine months ended March 31, 2002, excluded 60,500 and 24,352 outstanding stock options, respectively, because their impact would be anti-dilutive. 7 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 3. COMPREHENSIVE INCOME. Comprehensive income is defined as all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The components of comprehensive income were as follows:
Three Months Ended Nine Months Ended March 31, March 31, --------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net earnings $ 1,187 $ 444 $ 2,903 $ 44 Foreign currency translation adjustment (13) (14) (74) 121 -------- -------- -------- -------- Comprehensive income $ 1,174 $ 430 $ 2,829 $ 165 ======== ======== ======== ========
4. SUPPLEMENTAL CASH FLOW INFORMATION. Net cash flow from operating activities reflects cash payments for interest and income taxes as follows:
Nine Months Ended March 31, -------------------- 2002 2001 -------- -------- Interest paid $ 148 $ 449 Income taxes paid $ 2,486 $ 94
5. INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out) or market. Principal components of inventories are as follows:
March 31, June 30, 2002 2001 --------- -------- Raw materials $ 2,427 $ 1,151 Work in process 620 583 Finished goods 215 350 -------- -------- Total inventories $ 3,262 $ 2,084 ======== ========
6. SEGMENT INFORMATION. The Company identifies reportable segments based on management responsibility within the corporate structure. The Company has three reportable industry segments: SCR Systems, gas/liquid filtration and boilers. Previously, the Company had two reportable segments - SCR Systems and gas/liquid filtration. Segment information for 2001 has been restated on a comparable basis with 2002. 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. Many of the Company's components are packaged on skids 8 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 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 produces pulsation dampeners, natural gas odorizers, quick-opening closures and other parts for its products. The boiler segment produces packaged boilers systems, heat recovery steam generating systems, and other steam generating equipment. Segment profit and loss is based on revenue, the respective gross margin, 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 and nine months ended March 31, 2002 and 2001 are presented below.
GAS/LIQUID UNALLOCATED SCR FILTRATION BOILERS OVERHEAD CONSOLIDATED ---------- ---------- ---------- ----------- ------------ THREE MONTHS ENDED MARCH 31, 2002 Revenue from customers $ 17,159 $ 7,164 $ 4,541 $ -- $ 28,864 Segment profit (loss) 3,693 980 (401) (2,461) 1,811 THREE MONTHS ENDED MARCH 31, 2001 Revenue from customers $ 12,372 $ 5,329 $ 528 $ -- $ 18,229 Segment profit (loss) 2,201 869 (470) (1,544) 1,056
GAS/LIQUID UNALLOCATED SCR FILTRATION BOILERS OVERHEAD CONSOLIDATED ---------- ---------- ---------- ----------- ------------ NINE MONTHS ENDED MARCH 31, 2002 Revenue from customers $ 46,926 $ 21,197 $ 10,660 $ -- $ 78,783 Segment profit (loss) 10,059 1,739 (679) (6,802) 4,317 NINE MONTHS ENDED MARCH 31, 2001 Revenue from customers $ 28,755 $ 15,840 $ 1,076 $ -- $ 45,671 Segment profit (loss) 4,350 2,218 (1,304) (4,287) 977
9 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW We operate our business through three principal business segments, the largest of which is our SCR Systems segment. In this business segment we design, engineer, manufacture and sell highly specialized environmental control systems, which are used for air pollution abatement. These systems convert nitrogen oxide (NOx) emissions from exhaust gases, caused by burning hydrocarbon fuels, such as coal, gasoline, natural gas and oil, into harmless nitrogen and water vapor. These systems are totally integrated systems, complete with instruments, controls and related values and piping, and are packaged on skids. Our second principal business segment is our gas/liquid filtration business. In this business we design, engineer, manufacture and sell specialized products known as "separators" or "filters" which are used for a variety of purposes in cleaning gases and liquids as they move through piping systems. These products are used primarily to remove solid and liquid contaminants from natural gas and saltwater aerosols from combustion intake air of shipboard gas turbine and diesel engines. In our third business segment, we design, engineer, manufacture and sell packaged boilers and other steam generating equipment. This equipment is used to produce steam, used for heating, drying, driving steam engines and a variety of other applications. RESULTS OF OPERATIONS The Company's fiscal year ends on June 30th. References herein to fiscal 2001 and fiscal 2002 refer to our fiscal year ended June 30, 2001, and to our nine months ended March 31, 2002, respectively. The following table displays the Company's statements of operations as a percentage of net revenues:
Three Months Ended Nine Months Ended March 31, March 31, --------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 70.6 70.3 71.0 71.8 -------- -------- -------- -------- Gross margin 29.4 29.7 29.0 28.2 Operating expenses Sales and marketing 7.3 9.3 7.8 9.5 Engineering and project management 7.1 6.3 7.1 7.1 General and administrative 8.7 8.3 8.6 9.4 -------- -------- -------- -------- 23.1 23.9 23.5 26.0 -------- -------- -------- -------- Operating income 6.3 5.8 5.5 2.2 Interest income (expense), net 0.1 (1.1) 0.0 (1.4) Other, net 0.1 (0.8) 0.4 (0.6) -------- -------- -------- -------- Earnings before income taxes 6.5 3.9 5.9 0.2 Income tax expense 2.4 1.5 2.2 0.1 -------- -------- -------- -------- Net earnings 4.1% 2.4% 3.7% 0.1% ======== ======== ======== ========
10 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Revenue for the third quarter of fiscal 2002 was $28.9 million, an increase of $10.6 million, or 58.3%, over the third quarter of fiscal 2001. For the quarter, revenue related to our SCR Systems increased $4.8 million, or 38.7%, gas/liquid filtration segment revenue increased $1.8 million, or 34.4%, and our boiler and other steam generating equipment product sales increased $4.0 million or 760.0%. Our backlog of unfilled orders was approximately $63 million at March 31, 2002, as compared to approximately $65 million at March 31, 2001. Our gross profit increased $3.1 million, or 57.0%, to $8.5 million for the three months ended March 31, 2002, compared to $5.4 million for the same period a year ago. Gross profit, as a percentage of sales, decreased to 29.4% for the three months ended March 31,2002, compared to 29.7% for the same period last year. During the quarter, the Company's revenue derived from its boiler segment increased from 2.9%, for the three months ended March 31, 2001, to 15.7% for the quarter ended March 31, 2002. Traditionally, the Company has recognized a lower margin on its boiler products, versus its other two business segments. Therefore, a shift in the Company's product mix in a particular period could have an impact on the Company's reported margins for that period. The Company expects its margin on its boiler segment to improve through manufacturing efficiencies and increased volume. However, even so, revenue mix shifts in any quarter could continue to impact the Company's reported margin. Operating expenses increased by $2.3 million, or 53.4%, from $4.4 million for the three months ended March 31, 2001, to $6.7 million for the three months ended March 31, 2002. The increase in operating expenses was due to additional costs of engineering and project management required for the increased SCR Systems 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 23.9% for the three months ended March 31, 2001 to 23.1% for the three months ended March 31, 2002. Net interest expense decreased by $231,000 for the three months ended March 31, 2002, as we had no outstanding balances under credit facilities, compared to $7.0 million of revolving debt and $1.7 million of installment debt outstanding as of March 31, 2001. As a result of the factors discussed above, we recorded net earnings for the quarter ended March 31, 2002, of $1,187,000 compared to net earnings of $444,000 for the same period a year ago. 11 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 NINE MONTHS ENDED MARCH 31, 2002 COMPARED TO NINE MONTHS ENDED MARCH 31, 2001 Revenue for the nine months ended March 31, 2002 was $78.8 million, an increase of $33.1 million, or 72.5% over the corresponding period last year. For the period, revenue related to our SCR Systems segment increased $18.2 million, or 63.2%, gas/liquid filtration segment revenue increased $5.3 million, or 33.8%, and our boiler and other steam generating equipment product sales increased $9.6 million, or 890.7%. Our gross profit increased $10.0 million, or 77.6%, to $22.9 million for the nine months ended March 31, 2002, compared to $12.9 million for the same period a year ago. Gross profit, as a percentage of sales, increased to 29.0% for the nine months ended March 31, 2002, compared to 28.2% for the same period last year. During the period, due to product shifts, while we were able to increase our realized margin on our SCR Systems, due to increased volume, this was partially offset by the lower margin we recognized on our boiler products. Operating expenses increased by $6.6 million, or 55.9%, from $11.9 million for the nine months ended March 31, 2001, to $18.5 million for the nine months ended March 31, 2002. The increase in operating expenses was due to additional costs of engineering and project management required for the increased SCR Systems 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 26.0% for the nine months ended March 31, 2001 to 23.5% for the nine months ended March 31, 2002, due to economies of scale, which we would anticipate would continue as our revenue increases. Net interest expense decreased by $638,000 for the nine months ended March 31, 2002, which related primarily to our having less outstanding under our credit facility during the period and a lower effective interest rate. Our installment debt of $1.6 million was prepaid in full during the first quarter of fiscal 2002, and our average debt outstanding under our revolving credit facility was approximately $100,000 during the nine months ended March 31, 2002, compared to an average of $1.8 million under our installment debt and $6.6 million outstanding under our revolving credit facility for the nine months ended March 31, 2001. Other income (expense) includes a one-time gain of approximately $250,000 due to the sale of our facility in Carrollton, Texas. To improve operational efficiencies we consolidated the operations previously performed at our Carrollton facility with the operations performed by our Dallas, Texas facility. As a result of the factors discussed above, net earnings for the nine months ended March 31, 2002 were $2.9 million compared to net earnings of $44,000 for the same period a year ago. LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents were approximately $6.0 million and $2.6 million as of March 31, 2002 and June 30, 2001, respectively. Cash provided by operating activities was approximately $5.7 million for the first nine months ended March 31, 2002, compared to cash provided by operating activities of approximately $491,000 for the same period last year. 12 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 Because we are engaged in the business of manufacturing custom systems, our progress billing practices are event-oriented rather than date-oriented, and vary from contract to contract. We customarily bill our customers after the occurrence of certain project milestones. Billings to customers affect the balance of billings in excess of costs and earnings or the balance of cost and earnings in excess of billings, as well as the balance of accounts receivable. Consequently, we focus on the net amount of these accounts along with accounts payable, to determine our management of working capital. At March 31, 2002, the balance of these working capital accounts was $11.9 million compared to $15.5 million at June 30, 2001, reflecting a reduction of our investment in these working capital items of $3.6 million. In addition, we had net earnings of $2.9 million, and used cash to increase our inventories by $1.2 million during the period. Cash used in investing activities was $893,000 for the nine months ended March 31, 2002, compared to $115,000 for the same period last year. The increase in cash used for the period related to a net increase in purchases of property and equipment, which related primarily to refurbishments of our Abilene facility, offset by the proceeds from the sale of our Carrollton, Texas facility during fiscal 2002. We used approximately $1.4 million in cash related to our financing activities during the period, compared to cash provided by financing activities of approximately $825,000 during the period ended March 31, 2001. The current usage related to the payment in full of our installment debt on our Abilene, Texas facility of $1.6 million, offset by the proceeds from the issuance of common stock, pursuant to employee stock options, of $189,000. We maintain a $10 million revolving line of credit facility that expires in October 2003. The credit line carries a floating interest rate based on the prime or eurodollar rate plus or minus an applicable margin (prime - less .25%, eurodollar - plus 2.65%), and is secured by substantially all of our assets. The margin factor is subject to a reduction schedule based on the Company's obtainment of certain financial performance criteria. As of March 31, 2002, we had no outstanding balances under the credit line, and $2.4 million outstanding under letters of credit, leaving us with $7.6 million of availability under the facility. The facility contains financial covenants, restrictions on capital expenditures, acquisitions, asset dispositions, and additional debt, as well as other customary covenants. 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. 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 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 13 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 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 at that date. 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 Company does not believe that the adoption of these standards will have a material effect on its financial condition or results of operations. FACTORS THAT MAY AFFECT OUR OPERATING RESULTS Investing in our common stock involves a high degree of risk. Any of the following risks could have a material adverse effect on our financial condition, liquidity, results of operations or prospects, financial or otherwise. Reference to these factors in the context of a forward-looking statement or statements shall be deemed to be a statement that any one or more of the following factors may cause actual results to differ materially from those in such forward-looking statement or statements. (See "Forward-looking Statements" above). CHANGES IN THE POWER GENERATION INDUSTRY AND/OR THE ECONOMY COULD HAVE AN ADVERSE IMPACT ON THE SALE OF OUR SCR SYSTEMS AND ON OUR OPERATING RESULTS. The demand for our SCR Systems depends to an extent on the continued construction of power generation plants and upgrade of existing power plants. In the current year, approximately 60% of our consolidated revenues were from sales of SCR Systems for new and refurbished power plants. The power generation industry has experienced cyclical periods of slow growth or decline. Any change in the power plant industry that results in a decline in the construction of power plants or a decline in the upgrading of existing power plants could have a materially adverse impact on our SCR Systems segment revenues and our results of operations. CHANGES IN CURRENT ENVIRONMENTAL LEGISLATION COULD HAVE AN ADVERSE IMPACT ON THE SALE OF OUR SCR SYSTEMS AND ON OUR OPERATING RESULTS. Laws and regulations governing the discharge of materials into the environment or otherwise relating to the protection of the environment or human health have played a part in the increased use of SCR Systems in the United States. These laws include U.S. federal statutes such as the Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, the Clean Water Act and the Clean Air Act, and the regulations implementing them, as well as similar laws and regulations at state and local levels and in other countries. These laws and regulations may change or other jurisdictions 14 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 may not adopt similar laws and regulations. Our SCR Systems business is primarily regulatory driven. This business will be adversely impacted to the extent that current regulations are repealed or amended to significantly reduce the level of required NOx reduction or to the extent that regulatory authorities minimize enforcement. COMPETITION COULD RESULT IN LOWER SALES AND DECREASED MARGINS. We operate in highly competitive markets worldwide. Competition could result in not only a reduction in our sales but also a reduction in the prices that we can charge for our products. To remain competitive we must be able to not only anticipate or respond quickly to our customers' needs and enhance and upgrade our existing products and services to meet those needs, but also continue to price our products competitively. Our competitors may develop cheaper, more efficient products or may be willing to charge lower prices for strategic marketing or to increase market share. Some of our competitors have more capital and resources than we do and may be better able to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements. WE FREQUENTLY ENTER INTO FIXED-PRICED CONTRACTS. IF OUR ACTUAL COSTS EXCEED OUR ORIGINAL ESTIMATES, OUR PROFITS WILL BE REDUCED. The majority of our contracts are on a fixed-price basis. Although we benefit from cost savings, we have limited ability to recover for any cost overruns. Because of the large scale and long duration of our contracts, unanticipated cost increases may occur as a result of several factors, including, but not limited to, (1) increases in the cost, or shortages, of components, materials or labor; (2) unanticipated technical problems; (3) required project modifications not initiated by the customer; and (4) suppliers' or subcontractors' failure to perform. These factors may also delay delivery of our products and our contracts often provide for liquidated damages for late delivery. Unanticipated costs that we cannot pass on to our customers or the payment of liquidated damages under fixed contracts will negatively impact our profits. OUR BACKLOG MAY NOT BE INDICATIVE OF OUR FUTURE REVENUES. Customers may cancel or delay projects for reasons beyond our control. Our firm orders normally contain cancellation provisions, which permit us to recover only our costs and a portion of our anticipated profit in the event a customer cancels its order. If a customer elects to cancel, we may not realize the full amount of revenues included in our backlog. If projects are delayed, the timing of our revenues could be affected and projects may remain in our backlog for extended periods of time. Revenue recognition occurs over long periods of time and is subject to unanticipated delays. If we receive relatively large orders in any given quarter, fluctuations in the levels of our quarterly backlog can result because the backlog in that quarter may reach levels that may not be sustained in subsequent quarters. Our backlog may not be indicative of our future revenues. 15 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 OUR FINANCIAL PERFORMANCE MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER, MAKING IT DIFFICULT FOR US TO ESTIMATE FUTURE REVENUE. Our quarterly revenues and earnings have varied in the past and are likely to vary in the future. Our SCR contracts generally stipulate customer specific delivery terms and may have contract cycles of a year or more, which subjects them to many factors beyond our control. In addition, these contracts are significantly larger in size than our typical filtration contracts, which tend to intensify their impact on our quarterly operating results. Furthermore, as a significant portion of our operating costs are fixed, an unanticipated decrease in our SCR revenues, a delay or cancellation of orders in backlog, or a decrease in the demand for our SCR products, may have a significant impact on our quarterly operating results. Therefore, our quarterly operating results may be subject to significant variations and our operating performance in one quarter may not be a good indicator of our future performance. OUR PRODUCTS ARE COVERED BY WARRANTIES. UNANTICIPATED WARRANTY COSTS OR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We provide warranties on our products generally for terms of 3 years or less. These warranties require us to repair or replace faulty products, meet certain performance standards, among other customary warranty provisions. While we continually monitor our warranty claims and provide a reserve for our estimate of potential warranty issues on an on-going basis, an unanticipated claim could have a material adverse impact on our operations. In some cases, we may be able to subrogate such a claim back to a subcontractor, if the subcontractor supplied the defective product or performed the service, but this may not always be possible. The need to repair or replace products with design or manufacturing defects could temporarily delay the sale of new products and could adversely affect our reputation. In addition, we may be subject to product liability claims involving claims of personal injury or property damage. While we maintain product liability insurance coverage to protect us in the event of such a claim, such coverage may not be adequate to cover the cost of our defense and the potential award in the event of a claim. Additionally, a well-publicized actual or perceived problem could adversely affect our reputation and reduce the demand for our products. LARGE CONTRACTS REPRESENT A SIGNIFICANT PORTION OF OUR ACCOUNTS RECEIVABLE, WHICH INCREASES OUR EXPOSURE TO CREDIT RISK. We continue to closely monitor the credit worthiness of our customers and have not to date experienced any significant credit losses. Significant portions of our sales are to customers who place large orders for custom products and whose activities are related to the power industry. As such, our exposure to credit risk is affected to some degree by conditions within the power industry and governmental and/or political conditions. We try to mitigate our exposure to credit risk, to some extent, by requiring progress payments and letters of credit. However, as some of our exposure is outside our control, unanticipated events could have a materially adverse impact on our operating results. 16 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 THE TERMS AND CONDITIONS OF OUR CREDIT FACILITY MAY IMPOSE RESTRICTIONS ON OUR OPERATIONS. WE MAY NOT BE ABLE TO RAISE ADDITIONAL CAPITAL, IF NEEDED. The terms and conditions of our current $10 million revolving credit facility impose restrictions that affect, among other things, our ability to incur debt, make capital expenditures, merge, sell assets, make distributions, or create or incur liens. Availability of our credit facility is also subject to certain financial covenants. Our ability to comply with the covenants may be affected by events beyond our control and we cannot assure you that we will achieve operating results that meet the requirements of the credit agreement. A breach of any of these covenants could result in a default under our credit facility. In the event of a default, the bank could elect to declare the outstanding principal amount of our credit facility, all interest thereon, and all other amounts payable under our credit facility to be immediately due and payable. Our ability to satisfy any debt obligations will depend upon our future operating performance, which will be affected by prevailing economic, financial and business conditions and other factors, some of which are beyond our control. We anticipate that borrowings from our existing revolving credit facility, or the refinancing of our revolving credit facility, and cash provided by operating activities, would provide sufficient funds to finance capital expenditures, working capital and otherwise meet our operating expenses and service our debt requirements as they become due. However, in the event that we require additional capital, there can be no assurance that we will be able to raise such capital when needed or on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-Liquidity and Capital Resources". ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to foreign currency and interest rate risk. We currently have not entered into any derivative transactions as a means of hedging our exposure to interest rate risks. In addition, we have not, in the past, entered into derivative transactions to hedge our foreign balance sheet accounts or anticipated revenues. As a result, these assets and revenues are currently subject to foreign currency fluctuations. While we are not currently in a borrowing position, and the assets and anticipated revenues (backlog) which are subject to foreign currency fluctuations are relatively immaterial ($4.5 million in assets and $5.5 million in backlog), and in currencies historically not subject to significant fluctuations, the Company will continue to monitor its exposure in these areas. 17 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 PART II. OTHER INFORMATION ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. The following exhibits are filed as part of this report.
Exhibit Number Exhibit ------- ------- 3 (a) Articles of Incorporation, as amended to date (filed as Exhibit 3 (a) to the report of the Company on Form 10-Q for the fiscal quarter ended December 31, 1997, and incorporated herein by reference). 3 (b) Bylaws, as amended to date (filed as Exhibit 3 (b) to the report of the Company on Form 10-K, for the fiscal year ended June 30, 1997, and incorporated herein by reference). 4 (a) Rights Agreement as of May 22, 1997 between Peerless Mfg. Co. and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder Services, LLC) (filed as Exhibit 1 to the Registration Statement of the Company on Form 8-A dated May 22, 1997, and incorporated herein by reference). 4 (b) First Amendment to Rights Agreement as of August 23, 2001 between Peerless Mfg. Co. and Mellon Investor Services, LLC (filed as Exhibit 2 to the Registration Statement of the Company on Form 8-A dated August 30, 2001, and incorporated herein by reference). 10 (m) Employment Agreement dated February 4, 2002, by and between Richard L. Travis and Peerless Mfg. Co., filed herewith. 10 (n) Agreement dated February 4, 2002, by and between Richard L. Travis and Peerless Mfg. Co., filed herewith.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended March 31, 2002. 18 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 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 thereunto duly authorized. PEERLESS MFG. CO. Dated: May 14, 2002 /s/ Sherrill Stone --------------------------------------------- Sherrill Stone, Chairman and Chief Executive Officer /s/ Richard Travis --------------------------------------------- Richard L. Travis, Chief Financial Officer (Principal Financial and Accounting Officer) 19 PEERLESS MFG. CO. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 Index to Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3 (a) Articles of Incorporation, as amended to date (filed as Exhibit 3 (a) to the report of the Company on Form 10-Q for the fiscal quarter ended December 31, 1997, and incorporated herein by reference). 3 (b) Bylaws, as amended to date (filed as Exhibit 3 (b) to the report of the Company on Form 10-K, for the fiscal year ended June 30, 1997, and incorporated herein by reference). 4 (a) Rights Agreement as of May 22, 1997 between Peerless Mfg. Co. and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder Services, LLC) (filed as Exhibit 1 to the Registration Statement of the Company on Form 8-A dated May 22, 1997, and incorporated herein by reference). 4 (b) First Amendment to Rights Agreement as of August 23, 2001 between Peerless Mfg. Co. and Mellon Investor Services, LLC (filed as Exhibit 2 to the Registration Statement of the Company on Form 8-A dated August 30, 2001, and incorporated herein by reference). 10 (m) Employment Agreement dated February 4, 2002, by and between Richard L. Travis and Peerless Mfg. Co., filed herewith. 10 (n) Agreement dated February 4, 2002, by and between Richard L. Travis and Peerless Mfg. Co., filed herewith.
20 EX-10.(M) 3 d96731ex10-m.txt EMPLOYMENT AGREEMENT - RICHARD L. TRAVIS EXHIBIT 10(m) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into to be effective as of February 4, 2002 (the "Effective Date"), between PEERLESS MFG. CO. ("Employer"), and RICHARD L. TRAVIS, JR. ("Employee"). SECTION 1. EMPLOYMENT. 1.1 Employment and Term. Subject to the terms and conditions of this Agreement, Employer agrees to employ Employee as Chief Financial Officer and Vice President-Administration 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 Non Competition. (a) Employee agrees that during the term of his employment 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 currently conducted by 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 (iii) employ or attempt to employ any individuals who are employees of Employer or any affiliate of Employer, 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 Related Agreement (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 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 -2- 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 Related Agreement, both party agree and promise 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 each other or any of the employer's affiliates, their officers, employees or representatives. Such prohibited statements include any statement that is injurious to the business or business reputation of any of 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 -3- 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 percent (100%) 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, incentive compensation or bonus or provide for any benefits to Employee after the effective date of such termination. As used herein, "base salary" excludes any bonus or incentive compensation. (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, incentive compensation 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), -4- Employer's obligations to pay any base salary, incentive compensation 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, incentive compensation 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: Richard L. Travis, Jr. 7067 Inwood Road Dallas, Texas 75209 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. 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), -5- by agreement in form and substance reasonably 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. 5.3 Tax Treatment. In the event that the total compensation paid to Employee, taking into account all cash payments under the Related Agreement 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 -6- 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 arbitrator 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; provided, however, 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. 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" (the "Related Agreement") 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. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -7- EMPLOYER: PEERLESS MFG. CO. /s/ Sherrill Stone ------------------------------ Sherrill Stone, Chairman of the Board and Chief Executive Officer EMPLOYEE: /s/ Richard L. Travis ------------------------------ Richard L. Travis -8- EX-10.(N) 4 d96731ex10-n.txt AGREEMENT - RICHARD L. TRAVIS EXHIBIT 10(n) AGREEMENT THIS AGREEMENT (this "Agreement") is made and entered into to be effective as of the 4th day of February, 2002, by and between PEERLESS MFG. CO. (the "Company"), and RICHARD L. TRAVIS, JR. ("Executive"). WHEREAS, the Board of Directors of the Company (the "Board") believes Executive can contribute substantially to the growth and success of the Company and wishes to offer an inducement to Executive to accept employment with 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 termination of Executive's employment following a "Change in Control" of the Company, except as a result of death, disability, voluntary resignation or termination by the Company for Cause (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) Executive's death, or (iii) 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 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 consecutive or non-consecutive 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 Employee 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 immediately prior to a Change in Control and continuing until the expiration of this Agreement. (i) Severance Compensation. The "Severance Compensation" shall be: (i) A lump sum amount equal to one hundred-fifty percent (150%) 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 that Executive has been an employee of the Company (or such fewer full calendar years if Executive has been an employee less than five full calendar years) prior to the Change in Control; provided, 3 however, that if on the date of determination, Executive has not been an employee of the Company for a full calendar year, such lump sum amount will equal one hundred-fifty percent (150%) of Executive's then current base salary (excluding bonus and incentive compensation) annualized; and (ii) For a period of 12 months, 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. (j) Termination Date. The "Termination Date" shall be the effective date upon which Executive or the Company terminates the employment of Executive with the Company. 3. Rights of Executive Upon Change in Control and Subsequent Termination. (a) The Company shall provide Executive, within ten days following the Termination Date, Severance Compensation, but without affecting the rights of Executive or the Company at law or in equity, if, following the occurrence of a Change in Control, any of the following two events shall occur: (1) the Company terminates Executive's employment during the Employment Term except for any of the following reasons: (i) Executive dies; (ii) Executive becomes Disabled; or (iii) for Cause; or (2) 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 Executive had immediately prior to the Change in Control, any reduction in Executive's base salary (excluding bonus and incentive compensation) 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 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 4 Executive of such change, reduction, alteration or termination, as the case may be; (ii) a determination by 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 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 5 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 Employee 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 Executive to the Company prior to the receipt of Severance Compensation, 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 Executive shall not affect any rights and benefits which 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 5 payable after termination of employment under the Employment Agreement, dated the date hereof, by and between the Company and Executive, as may be amended, restated or modified. (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 Executive provided for in this Agreement. (f) Without limiting the rights of 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 prior to a Change in Control but 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, such event shall be deemed to be a termination or removal of Executive after a Change in Control for purposes of this Agreement and shall entitle Executive to all benefits under this Agreement. 4. No Mitigation Required. In the event that this Agreement or the employment of Executive hereunder is terminated, 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. 5. 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 reasonably satisfactory to 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 a substantial part of its assets as aforesaid which executes and delivers the agreement provided for in this Section 5 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 Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 6. Notice. The Company shall give written notice to Executive within ten days after any Change in Control. Failure to give such notice shall constitute a material breach of this Agreement. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or received after being mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: Richard L. Travis, Jr. 7067 Inwood Road Dallas, Texas 75209 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. 7. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by 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. 8. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Employment Rights. Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or Executive to have Executive remain in the employment of the Company prior to any Change in Control. 11. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 12. Enforcement Fees. All costs of litigation necessary for Executive to defend the validity of this Agreement are to be paid by the Company 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 Executive as a result of the Company's failure to perform this Agreement or any provision thereof or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision thereof as aforesaid. 13. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to Executive is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, including with respect to Executive's rights under that certain Employment Agreement of even date herewith, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 14. Governing Law. This Agreement will be governed by and construed in accordance with the internal 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. 15. 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 arbitrator may disclose the existence, content or results of any 8 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; provided, however, 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. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 9 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 and Chief Executive Officer EXECUTIVE /s/ Richard L. Travis, Jr. ------------------------------------ Richard L. Travis, Jr. 10 -----END PRIVACY-ENHANCED MESSAGE-----