<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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Commission File Number 0-5214
PEERLESS MFG. CO.
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(Exact name of registrant as specified in its charter)
Texas 75-0724417
- ----------------------------------------- ---------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2819 Walnut Hill Lane, Dallas, Texas 75229
- ----------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 357-6181
---------------------------
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------- -------------------------------------------
Common Stock, par value $1.00 The Nasdaq Stock Market's National Market
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Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
At September 19, 1997, Peerless Mfg. Co. had 1,451,992 shares of common stock,
$1.00 par value outstanding. The Company estimates that the aggregate market
value of the common stock on September 19, 1997 (based upon the closing price
of these shares on Nasdaq) held by non-affiliates was approximately
$20,690,886.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for Annual Meeting of Shareholders
to be held on or about November 20, 1997 (to be filed) are incorporated by
reference into Part III of this Form 10-K.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I
1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4 Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II
5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
PART III
10 Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
13 Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
PART IV
14 Exhibits, Financial Statement Schedule,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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PART I
ITEM 1. BUSINESS.
Peerless Mfg. Co. (the "Company" or "Registrant") was organized in
1933 as a proprietorship and was incorporated as a Texas corporation in 1946.
The Company has wholly owned subsidiaries in the Netherlands, the United
Kingdom and Barbados.
Products and Operations
The Company is engaged in the business of designing, engineering,
manufacturing and selling highly specialized products, referred to as
"separators" or "filters," which are used for a variety of purposes in cleaning
gases and liquids as they move through a piping system. The Company also
packages these products on skids complete with instruments, controls and
related valves and piping. These products are used, among other applications,
to remove solid and liquid contaminants from natural gas, and salt water
aerosols from the combustion intake air of ship board gas turbine and diesel
engines.
The Company also designs, engineers, manufactures and sells
specialized products referred to as "pulsation dampeners." These products are
used primarily to reduce or eliminate vibrations caused by acoustical
pulsations commonly found in piping connected to the reciprocating compressors
generally used to move gases and air. Pulsation dampeners reduce noise levels,
improve efficiency and prolong the life of piping systems.
The Company's products are also used as components in selective
catalytic reduction systems. Selective catalytic reduction equipment is used
to separate nitrogen oxide (NOx) emissions from exhaust gases caused by burning
hydrocarbon fuels such as gasoline, natural gas and oil. Additionally, the
Company sells gas odorization equipment, quick-opening closures, parts for its
products and other miscellaneous items. It also renders certain engineering
services.
While the Company manufactures and stocks a limited number of items of
equipment for immediate delivery, the vast majority of its products are
designed and constructed for specific customer requirements or specifications.
In certain cases, the Company's products and components are designed by the
Company but produced by subcontractors under Company supervision.
The Company markets its products worldwide through manufacturers'
representatives, who sell on a commission basis under the general direction of
an officer of the Company. Additionally, a number of the Company's employees
sell Company products directly to customers. The Company has a sales office in
Singapore with a staff of seven engineering and administrative employees. The
Company's United Kingdom subsidiary, Peerless Europe Ltd., began operations in
January of 1992 and currently has a staff of 13 full-time employees. The
Company's Netherlands subsidiary has two full-time employees.
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Customers and Export Sales
Gas separators and filters are sold to gas producers and gas
gathering, transmission and distribution companies, and to chemical
manufacturers and oil refineries, either directly or through contractors
engaged to build plants and pipelines. Separators and filters are also sold to
manufacturers of compressors, turbines and nuclear and conventional steam
generating equipment. Marine separation/filtration systems are sold primarily
to ship builders. Pulsation dampeners are purchased by customers in the same
industries as purchasers of separators and filters (except ship builders and
steam generating equipment manufacturers). Selective catalytic reduction
equipment is sold to gas turbine operators, refineries and others who desire or
may be required to reduce nitrogen oxide (NOx) emissions.
The Company is not dependent upon any single customer or group of
customers. Due to the custom-designed nature of its business and the nature of
the products it sells, the Company's major customers typically vary from year
to year. During Fiscal 1997, one of the Company's customers accounted for
approximately 12.3% of Company revenues. No other customer accounted for 10%
or more of Company revenues during Fiscal 1997. During Fiscal 1996 and 1995
no single customer accounted for 10% or more of Company revenues.
Sales to foreign customers have been a part of the Company's business
for more than forty years. During Fiscal 1997, foreign sales amounted to
$25,605,000, or 61.7% of total consolidated revenue. Sales in Asia were
approximately $11.0 million, or 26.6%, $5.2 million, or 15.4%, and $8.0
million, or 25.0%, of net sales in Fiscal 1997, 1996 and 1995, respectively.
Due to the custom-designed and project-specific nature of its products, the
Company's sales to any geographic region may vary from year to year. For a
breakdown of the Company's foreign sales by geographic area during Fiscal 1997,
1996 and 1995, see Note I of the Notes to Consolidated Financial Statements.
There are certain risks attendant to the Company's foreign sales.
These include the possibility that foreign purchasers may default in the
payment of amounts due, and that collection of such amounts may be more
difficult than for U.S. customers, that foreign exchange rates may fluctuate
adversely, that the U.S. and foreign governments may impose regulatory burdens
upon exports and imports of the Company's products, and that the Company may be
required to perform its obligations under product warranties, which might
result in added expense due to the requirement that it perform such services in
a foreign country. The Company has not, however, incurred substantial expenses
to date involving these risks.
The Company believes that its credit and collection risks are reduced
to a significant extent because a substantial part of foreign sales are made
either to large, well-established foreign companies or to foreign operations of
domestic companies. When sales are made to smaller foreign enterprises, the
Company generally requires an appropriate guarantee of payment or a letter of
credit from a banking institution. In addition, products sold to foreign
customers are generally priced to provide a higher profit margin, designed in
part to cover the risk of potentially greater warranty costs. In order to
minimize the risks of fluctuating currency exchange rates, the Company
generally requires payment in U.S. dollars (or in the functional
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currency of its foreign subsidiaries) for its foreign product sales. The
Company hedges its exposure, if substantial, to foreign currency fluctuations
on firm commitment sales under contracts that are not denominated in U.S.
dollars.
Backlog
The Company's backlog of incomplete orders at June 30, 1997 was
approximately $20,200,000 compared to approximately $15,300,000 in 1996.
Virtually all of the June 30, 1997 backlog is presently expected to be
completed and shipped in Fiscal 1998. Backlog has been calculated under the
Company's normal practice of including incomplete orders for products that are
deliverable over various periods and that may be changed or cancelled in the
future.
Competition and Other Market Factors
There are a number of competitors in the manufacture and sale of
separators, filters and pulsation dampeners, some of which are larger than the
Company and have greater financial resources. In addition, several smaller
manufacturers also produce custom-designed equipment that is competitive with
the Company's specialized products and services. The Company believes that
performance, reliability and warranty service are the prime competitive factors
in the markets in which it competes. The Company believes that because of its
reputation in those areas, it is a world leader in sales of custom-built
separators, filters and pulsation dampeners.
The markets for the Company's products are highly competitive
worldwide. In addition, competition may increase as larger and better financed
foreign companies become attracted to the market potential for products
manufactured by the Company.
Patents, Licenses and Product Development
The Company considers itself a world leader in the technology required
to design and apply its high efficiency vapor/liquid separation and filtration
equipment. The Company believes it is also a leader in the design, manufacture
and application of high efficiency pulsation dampeners for reciprocating
compressors, and in the production of selective catalytic reduction component
equipment. The Company's expenditures for new product development and
improvements were approximately $554,000 in Fiscal 1997 and $515,000 in Fiscal
1996.
The Company has several patents on its products and processes that are
important to its business. However, other companies are marketing competitive
products which may not infringe upon the Company's patents.
Historically the Company's approach to its international markets was
through licensing arrangements with fabricators throughout the world. However,
in 1992 the Company shifted its emphasis from licensing its foreign sales to a
strategy of focusing on direct international marketing through its Singapore
sales branch and its European subsidiaries, Peerless Europe B.V. and Peerless
Europe Ltd. The Company derives royalty income from older license arrangements
in France and England and engineering fees on certain projects. Royalty and
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engineering fee revenues, included in net sales, are $359,038, $451,620 and
$272,673 in Fiscal 1997, 1996 and 1995, respectively.
Employees
At June 30, 1997, the Company and its subsidiaries had approximately
164 employees.
Raw Materials
The Company purchases the raw materials and component parts essential
to its business from established sources with which it has had commercial
relationships for many years. During the fiscal year ended June 30, 1997, the
Company experienced no unusual problems in purchasing required materials and
parts, and the Company believes that raw materials and component parts will be
available in sufficient quantities for it to meet anticipated demand for its
products. However, conditions may occur from time to time that could make it
difficult to obtain desired materials within timely delivery schedules.
Environmental Regulation
The Company does not believe that its compliance with federal, state
or local statutes or regulations relating to the protection of the environment
has had any material effect upon capital expenditures, earnings or the
competitive position of the Company. The Company's manufacturing processes do
not emit substantial foreign substances into the environment. Regulations
related to nitrous oxide (NOx) emissions have in the past resulted in increased
sales of the Company's component parts for selective catalytic reduction
equipment, and further regulations in that area could increase demand for such
equipment.
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Executive Officers of the Company
The executive officers of the Company on September 19, 1997 are listed
below. Each of these officers has been employed by the Company for at least
five years in the same position or a similar capacity, except as noted:
Name and Age Position
------------ --------
Sherrill Stone, 60 Chairman of the Board, President and
Chief Executive Officer (1)
Edward Perry, 59 Vice President (2)
G. D. Cornwell, 53 Vice President (3)
Kent J. Van Houten, 44 Chief Financial Officer and
Secretary - Treasurer (4)
____________________
(1) Mr. Stone is responsible for formulation of corporate policy,
investment and new business opportunities. Mr. Stone assumed the
duties of Chairman of the Board and Chief Executive Officer of the
Company on March 31, 1993.
(2) Mr. Perry is responsible for marketing, manufacturing and engineering
of filters and separators associated with pressure applications.
(3) Mr. Cornwall is responsible for marketing, manufacturing and
engineering of liquid vapor separators.
(4) Mr. Van Houten is responsible for financial and administrative
operations, and has been employed by the Company since May 22, 1995.
He previously was Manager of Financial Accounting at The Austin
Company.
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ITEM 2. PROPERTIES.
The principal executive offices of the Registrant are located in
Dallas, Texas, on approximately twelve acres of land owned by the Company.
These facilities include two one story buildings, one containing approximately
4,000 square feet of space used for the Company's executive and sales offices,
and the second containing 3,600 square feet used for research and development.
The Company also utilizes 20,000 square feet of a 40,000 square foot building
located on the same site, with the remaining portion leased to other companies.
Rental income from such properties is not material to the Company's results of
operations. The Company owns approximately 21,600 additional square feet of
manufacturing facilities in Denton, Texas, and approximately 29,000 square feet
of manufacturing facilities in Carrollton, Texas. The Company also owns a
79,800 square foot Dallas manufacturing plant which was closed in 1983, and is
now leased to other companies for periods of three years or less.
During Fiscal 1997, the estimated average utilization of the Company's
manufacturing facilities was approximately 85% in Denton, Texas, and 90% in
Carrollton, Texas. Because of the availability and use by the Company of
subcontractors, high utilization rates do not necessarily indicate a capacity
problem. The Company believes that its office and manufacturing facilities are
adequate and suitable for its present requirements. While future needs may
require additional manufacturing facilities, space at the Denton, Texas
location is available for expansion. The Company has also determined that a
number of locations in the immediate area could be leased in the event future
needs require such action.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to
claims arising in the ordinary course of business operations. In addition, the
Company has been named as a defendant in one lawsuit alleging damages suffered
by former employees or independent contractors of the Company.
In Florentino San Miguel v. Carl W. Yarbrough, and Peerless Mfg. Co.,
filed June 28, 1996 in the 211th Judicial District Court, Denton, Texas,
Plaintiff alleged that while employed by the Company he was injured and that
these injuries were caused by the negligence and gross negligence of the
Company. The plaintiff seeks damages including exemplary damages, prejudgment
and postjudgment interest and court costs. At this stage of the lawsuit, the
Company is unable to determine the likelihood of the Company's success. The
Company intends to vigorously defend the case.
In March 1997 the Company entered into a final agreement with Senior
Engineering Company ("Senior"), settling effective April 1, 1997 the action the
Company filed against Senior in Peerless Mfg. Co. v. Senior Engineering Company
on November 13, 1995, in the United States District Court for the Northern
District of Texas. Pursuant to the settlement agreement, the Company and
Senior have established a strategic alliance to cooperate in the marketing and
sales of technology and equipment to the nuclear power generation industry.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the Nasdaq Stock Market's
National Market under the symbol PMFG. The Company's Board of Directors
reviews the financial position of the Company periodically to determine the
advisability of paying dividends. The following table sets forth, for the
periods indicated, the range of the daily high and low closing bid prices for
the Company's Common Stock as reported by Nasdaq Stock Market's National Market
and cash dividends paid per share.
<TABLE>
<CAPTION>
Quarter Ended: Closing Bid Prices Cash Dividends
------------- --------------------
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
Fiscal 1996
-----------
September 30, 1995 $12-3/4 $9-7/8 $.125
December 31, 1995 11-5/8 9-1/4 .125
March 31, 1996 9-3/4 8-3/4 .125
June 30, 1996 11-5/8 9-5/8 .125
Fiscal 1997
-----------
September 30, 1996 $13-3/4 $9-1/4 [$.125
December 31, 1996 14-7/8 11-5/8 .125
March 31, 1997 13-1/4 9-1/2 .125
June 30, 1997 11 9-1/8 .125]
</TABLE>
The number of record holders of the Company's Common Stock on August
15, 1997 was 221. The Company estimates that approximately 700 additional
shareholders own shares in broker names.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data
regarding the Company's results of operations and financial position. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes included elsewhere herein.
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<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 41,486,492 $33,643,998 $ 32,089,132 $ 25,567,560 $ 25,797,270
Gross profit 11,525,289 10,213,237 10,583,128 9,038,606 8,828,398
Earnings before income
taxes 537,996 1,182,148 1,908,661 1,227,959 267,092
Net earnings $ 537,416 $ 789,721 $ 1,226,246 $ 780,275 $ 155,059
============= =========== ============ ============= =============
Earnings per
common share: $ .37 $ .55 $ .85 $ .54 $ .11
============= =========== ============ ============= =============
Total assets $ 19,081,593 $18,191,426 $ 17,156,055 $ 18,022,466 $ 14,261,243
============= =========== ============ ============= =============
Long-term obligations --- --- --- --- ---
Cash dividend per common
share $ .50 $ .50 $ .50 $ .50 $ .50
============= =========== ============ ============= =============
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity And Capital Resources
As a general policy, the Company maintains corporate liquidity at a
level it believes adequate to support existing operations and planned growth,
as well as continue operations during reasonable periods of unanticipated
adversity. Management also intends to direct additional resources to strategic
new product development, market expansion and continuing improvement of
existing products to enhance the Company's position as a market leader and to
promote planned internal growth and profitability.
The Company has historically financed and continues to finance working
capital requirements and any expansion, equipment purchases or acquisitions
primarily through the retention of earnings, which is reflected by the absence
of long-term debt on the Company's consolidated balance sheet. In addition to
retained earnings, the Company has infrequently used short term bank credit
lines of $7,500,000 to supplement working capital. During Fiscal 1996 and
Fiscal 1997, it was necessary for the Company to use its short-term bank credit
lines in order to finance a temporary shortfall in working capital. At June
30, 1997, the Company had no amounts outstanding against its credit lines. The
Company pays an annual commitment fee of 0.25% of the unused balance under the
credit lines. The Company has no material commitments for capital expenditures
other than replacing equipment and maintaining its existing plants and
equipment. During Fiscal 1997 the Company purchased fixed assets totaling
$596,395, consisting primarily of replacement manufacturing equipment, computer
hardware and software, office equipment and building improvements. This is
compared to purchases of $273,593 during Fiscal 1996. The Company believes
that these sources will be sufficient to satisfy its needs in the foreseeable
future.
Working capital was $8,584,400 at June 30, 1997, down from $9,350,600
at June 30, 1996, a decline of 8.2%. This decline was due primarily to the
adverse effects of a third-quarter cost overrun related to a major
international project in the Company's environmental equipment division and to
the early declaration of dividends in Fiscal 1997 rather than in Fiscal 1998,
which resulted in a charge against working capital in Fiscal 1997.
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The following table sets forth certain information related to working
capital for the Company's last three fiscal years:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average working capital as
a percentage of net sales 20.8% 25.6% 27.5%
Annual accounts receivable
turnover(1) 4.3 3.8 6.0
Annual inventory turnover(2) 6.6 5.7 6.7
</TABLE>
(1) Annual accounts receivable turnover is computed by dividing annual net
sales by the average monthly accounts receivable.
(2) Annual inventory turnover is computed by dividing the cost of goods
sold by the average monthly inventory and contract costs.
The average working capital decrease as a percentage of net sales is
related to increased sales volume of approximately $7,842,000 reported in Fiscal
1997 over Fiscal 1996. The increase in annual accounts receivable turnover
reflects improved collection methods by the Company in Fiscal 1997. The increase
in average inventory turnover is due primarily to increased efforts to manage
inventory in Fiscal 1997. Peerless continues to monitor and streamline the
Company's receivable collection and inventory purchasing procedures to enhance
and maximize cash flow.
Results of Operations
The following table sets forth various measures of performance
expressed as percentages of net sales for the Company's last three fiscal
years, as well as the Company's effective income tax rate for the same periods:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross profit margin 27.8% 30.4% 33.0%
Operating expenses 26.8% 26.8% 27.3%
Earnings before income taxes 1.3% 3.5% 6.0%
Effective income tax rate 0.1% 33.2% 35.8%
</TABLE>
Inflation did not have a material impact on the Company's operating
results during the last three fiscal years.
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Comparison of Fiscal 1997 to Fiscal 1996
Net Sales
The Company's net sales increased approximately $7,842,000, or 23.3%,
to $41,486,000 in Fiscal 1997 from $33,644,000 in Fiscal 1996. Compared to
Fiscal 1996, Fiscal 1997 domestic sales increased by 11.5% from $14,244,000 to
$15,886,000. Foreign sales increased from $19,400,000 in Fiscal 1996 to
$25,600,000 in Fiscal 1997, an increase of 32.0%. The increase resulted
primarily from additional sales realized in Asia.
The Company's backlog of unfilled orders increased from $15,300,000 at
June 30, 1996 to $20,200,000 at June 30, 1997.
Sales increased from $2,562,000 in Fiscal 1996 to $3,326,000 in Fiscal
1997 at the Company's Singapore sales office. The backlog of unfilled orders
at June 30, 1997 includes approximately $2,000,000 of orders generated through
the Singapore office. The Company continues to believe that its sales in Asia
are enhanced by its maintenance of a Singapore office.
During Fiscal 1997, Peerless Europe Ltd., the Company's UK subsidiary,
contributed Fiscal 1997 sales revenue of $4,605,000, representing a decrease of
$789,000, or 14.6% below Fiscal 1996 revenue of $5,394,000. This subsidiary
continued to operate solidly during Fiscal 1997, with a year-end backlog of
approximately $2,515,000 as compared with $1,000,000 in Fiscal 1996.
Approximately $800,000 of this increase is attributable to Peerless Europe Ltd.
assuming certain sales of Peerless Europe B.V. in Fiscal 1997.
Peerless Europe B.V., the Company's Dutch subsidiary, continued its
efforts during Fiscal 1997 to implement the Company's direct marketing strategy
in Europe. Sales revenue decreased from $2,105,000 in Fiscal 1996 to
$1,332,000 in Fiscal 1997. Peerless Europe B.V. is winding down its operations,
which will be continued by Peerless Europe Ltd., the Company's U.K. subsidiary.
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $6,013,000 in Fiscal 1996 to $9,632,000 in Fiscal 1997. During
Fiscal 1997, the SCR division, which designs and manufactures equipment used to
remove nitrogen oxide (NOx) emissions caused by boilers, gas burners, turbines
and internal combustion engines, ended the year with a backlog of unfilled
orders of approximately $2,123,000, a decrease from the Fiscal 1996 backlog of
$4,838,000.
Gross Profit Margin
The Company's gross profit margin decreased from 30.4% of net sales in
Fiscal 1996 to 27.8% of net sales in Fiscal 1997. The decrease resulted from a
change in product mix of orders completed in Fiscal 1997 and adverse effects of
a cost overrun related to a major international project in the Company's
environmental equipment division in the third quarter.
Operating Expenses
Operating expenses increased from $9,009,000 in Fiscal 1996 to
$11,118,000 in Fiscal 1997. However, operating expenses as a percent of sales
held steady at 26.8% in Fiscal 1996
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and 26.8% in Fiscal 1997. This increase in operating expenses was primarily due
to increased sales and additional personnel hired to support the increased
level of sales anticipated by the Company.
Income Tax
The Company's effective income tax rate decreased from 33.2% in Fiscal
1996 to 0.1% in Fiscal 1997. This decrease resulted from foreign deferred tax
benefits offsetting domestic tax expenses. The Company anticipates that it
will not be able to continue utilizing these deferred tax benefits to the same
extent and expects that the Company's effective income tax rates will return to
historical levels in Fiscal 1998. For a further discussion of the Company's
federal income taxes, see Note H to the Company's Consolidated Financial
Statements.
Comparison of Fiscal 1996 to Fiscal 1995
Net Sales
The Company's net sales increased approximately $1,555,000, or 4.8%,
to $33,644,000 in Fiscal 1996 as compared to $32,089,000 in Fiscal 1995.
Compared to Fiscal 1995, Fiscal 1996 domestic sales decreased by 1.0% from
$14,389,000 to $14,244,000. Foreign sales increased from $17,700,000 in Fiscal
1995 to $19,400,000 in Fiscal 1996, an increase of 9.6%. The increase was
primarily the result of additional sales realized in Europe.
The Company's backlog of unfilled orders decreased slightly from
$15,875,000 at June 30, 1995 to $15,300,000 at June 30, 1996.
Sales decreased from $3,346,000 in Fiscal 1995 to $2,562,000 in Fiscal
1996 at the Company's Singapore sales office. The backlog of unfilled orders
at June 30, 1996 includes approximately $510,000 of orders generated through
the Singapore office. The Company continues to believe that its sales in Asia
are enhanced by its maintenance of a Singapore office.
During Fiscal 1996, Peerless Europe Ltd., the Company's UK subsidiary,
contributed Fiscal 1996 sales revenue of $5,394,000, representing an increase
of $1,760,000, or 48.4% over Fiscal 1995 revenue of $3,634,000. This
subsidiary continued to operate solidly during Fiscal 1996, with a year-end
backlog of approximately $1,000,000.
Peerless Europe B.V., the Company's Dutch subsidiary which became
operational as a trading company late in Fiscal 1993, continued its efforts
during Fiscal 1996 to implement the Company's direct marketing strategy in
Europe. Sales revenue increased from $1,155,000 in Fiscal 1995 to $2,105,000
in Fiscal 1996.
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $3,696,000 in Fiscal 1995 to $6,013,000 in Fiscal 1996. During
Fiscal 1996, the SCR division, which designs and manufactures equipment used to
remove nitrogen oxide (NOx) emissions caused by boilers, gas burners, turbines
and internal combustion engines, experienced an
13
<PAGE> 16
improvement in its order intake activity and ended the year with a backlog of
unfilled orders of approximately $4,838,000.
Gross Profit Margin
The Company's gross profit margin decreased from 33.0% of net sales in
Fiscal 1995 to 30.4% of net sales in Fiscal 1996. The decrease resulted from a
change in product mix of orders completed in Fiscal 1996.
Operating Expenses
Operating expenses increased from $8,770,000 in Fiscal 1995 to
$9,009,000 in Fiscal 1996. However, operating expenses as a percent of sales
decreased slightly from 27.3% in Fiscal 1995 to 26.8% in Fiscal 1996, due
primarily to the increase in net sales.
Income Tax
The Company's effective income tax rate decreased from 35.8% in Fiscal
1995 to 33.2% in Fiscal 1996. For a further discussion of the Company's federal
income taxes, see Note H to the Company's Consolidated Financial Statements.
Outlooks and Uncertainties
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements refer to events that could occur in the future or may be
identified by the use of words such as "expect," "intend," "plan," "believe,"
correlative words, and other expressions indicating that future events are
contemplated. Such statements are subject to inherent risks and uncertainties,
and actual results could differ materially from those projected in the
forward-looking statements as a result of certain of the risk factors set forth
below and elsewhere in this Annual Report on Form 10-K. In addition to the
other information contained in this Annual Report on Form 10-K, investors should
carefully consider the following risk factors.
Competition. The Company operates in highly competitive markets worldwide.
The Company competes with manufacturers and sellers of separators, filters and
pulsation dampeners, some of which are larger than the Company and have greater
financial resources. In addition, several smaller manufacturers also produce
custom-designed equipment that is competitive with the Company's specialized
products and services. Competition may also increase as larger and better
financed foreign companies become attracted to the market potential for products
manufactured by the Company. There can be no assurance that the Company will be
able to compete successfully with current or future competitors.
Foreign Operations. The Company derives a significant portion of its
revenues from foreign sales, particularly in Asia. The Company is subject to
risks of doing business abroad, including
14
<PAGE> 17
the possibility that foreign purchasers may default in the payment of amounts
due, and that collection of such amounts may be more difficult than for U.S.
customers, adverse fluctuations in currency exchange rates, that the U.S. and
foreign governments may impose regulatory burdens upon exports and imports of
the Company's products, and that the Company may be required to perform its
obligations under product warranties, which might result in added expense due
to the requirement that it perform such services in a foreign country. The
occurrence of any one or more of the foregoing could adversely affect the
Company's operations.
Concentrations of Credit Risk. The Company continues to closely monitor the
creditworthiness of its customers and has never experienced significant credit
losses; however, a significant portion of the Company's sales are to customers
whose activities are related to the oil and gas industry, including some who
are located in foreign countries. The Company generally extends credit to
these customers. Its exposure to credit risk is affected by conditions within
the oil and gas industry, and with respect to foreign sales, collection may be
more difficult in the event of a default. However, substantially all foreign
sales are made to large, well-established companies and the Company generally
requires collateral or guarantees on foreign sales to smaller companies.
15
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1997 AND 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS
ENDED JUNE 30, 1997, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JUNE 30, 1997,
1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 1997, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Peerless Mfg. Co.
We have audited the accompanying consolidated balance sheets of Peerless Mfg.
Co. and Subsidiaries as of June 30, 1997 and 1996, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Peerless Mfg. Co.
and Subsidiaries as of June 30, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
September 2, 1997
17
<PAGE> 20
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 772,553 $ 2,082,329
Short-term investments 259,007 246,659
Accounts receivable - principally trade - net of allowance for
doubtful accounts of $312,450 and $100,000 in 1997
and 1996, respectively 9,671,067 8,404,331
Inventories 2,993,855 2,972,456
Costs and earnings in excess of billings on uncompleted contracts 1,871,817 1,403,199
Deferred income taxes 269,721 226,214
Other 298,605 240,214
----------- -----------
TOTAL CURRENT ASSETS 16,136,625 15,575,402
PROPERTY, PLANT AND EQUIPMENT - AT COST, less
accumulated depreciation 1,527,856 1,213,859
PROPERTY HELD FOR INVESTMENT - AT COST, less
accumulated depreciation 888,383 948,775
OTHER ASSETS 528,729 453,390
----------- -----------
$ 19,081,593 $ 18,191,426
=========== ===========
</TABLE>
18
<PAGE> 21
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 5,054,532 $ 4,325,595
Billings in excess of costs and earnings on uncompleted
contracts 363,257 -
Commissions payable 779,474 566,766
Accrued expenses
Compensation 656,082 549,210
Warranty reserve 406,903 286,384
Other 291,953 496,847
----------- -----------
TOTAL CURRENT LIABILITIES 7,552,201 6,224,802
DEFERRED INCOME TAXES 99,962 86,768
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock - authorized, 4,000,000 shares of $1 par value;
issued and outstanding, 1,451,992 and 1,446,742 shares in
1997 and 1996, respectively 1,451,992 1,446,742
Additional paid-in capital 2,535,221 2,489,879
Unamortized value of restricted stock grants (44,625) (33,750)
Cumulative foreign currency translation adjustment (93,944) 23,842
Retained earnings 7,580,786 7,953,143
----------- -----------
11,429,430 11,879,856
----------- -----------
$ 19,081,593 $ 18,191,426
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 22
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES $41,486,492 $33,643,998 $32,089,132
COST OF GOODS SOLD 29,961,203 23,430,761 21,506,004
------------ ------------ ----------
GROSS PROFIT 11,525,289 10,213,237 10,583,128
OPERATING EXPENSES
Marketing and engineering 9,129,347 7,524,363 7,011,380
General and administrative 1,988,618 1,485,113 1,758,432
------------ ------------ ----------
11,117,965 9,009,476 8,769,812
------------ ------------ ----------
OPERATING PROFIT 407,324 1,203,761 1,813,316
OTHER INCOME (EXPENSE)
Interest income 24,687 45,559 93,974
Interest expense (55,475) (16,858) (8,040)
Foreign exchange gains (losses) 103,583 (28,628) (56,368)
Other, net 57,877 (21,686) 65,779
------------ ------------ ----------
130,672 (21,613) 95,345
------------ ------------ ----------
EARNINGS BEFORE INCOME TAXES 537,996 1,182,148 1,908,661
INCOME TAX EXPENSE (BENEFIT)
Current 65,766 397,023 661,046
Deferred (65,186) (4,596) 21,369
------------ ------------ ----------
580 392,427 682,415
------------ ------------ ----------
NET EARNINGS $ 537,416 $ 789,721 $ 1,226,246
============ ============ ==========
Earnings per common share $.37 $.55 $.85
=== === ===
Weighted average number of common shares outstanding 1,454,045 1,446,742 1,442,039
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 23
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Unamortized foreign
Additional value of currency
Common paid-in restricted translation
stock capital stock grants adjustment
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balances as of July 1995 1,436,742 $2,383,870 $ (49,841) $ (76,063)
Net earnings - - - -
Issuance of 12,000 shares of common stock 12,000 123,000 (135,000) -
Forfeiture of 2,000 shares of common stock (2,000) (18,500) 20,500 -
Translation adjustment - - - 132,173
Cash dividends paid ($.50 per share) - - - -
Amortization of restricted stock grants - - 67,234 -
Income tax benefit related to restricted stock plans - 5,058 - -
--------- --------- ---------- ----------
Balances as of June 30, 1995 1,446,742 2,493,428 (97,107) 56,110
Net earnings - - - -
Translation adjustment - - - (32,268)
Cash dividends paid ($.50 per share) - - - -
Amortization of restricted stock grants - - 63,357 -
Income tax expense related to restricted stock plans - (3,549) - -
--------- --------- ---------- ----------
Balances as of June 30, 1996 1,446,742 2,489,879 (33,750) 23,842
Net earnings - - - -
Issuance of 8,000 shares of common stock 8,000 72,250 (80,250) -
Forfeiture of 4,000 shares of common stock (4,000) (38,750) 42,750 -
Stock options exercised 1,250 10,312 - -
Translation adjustment - - - (117,786)
Cash dividends paid ($.50 per share) - - - -
Cash dividends declared ($.125 per share) - - - -
Amortization of restricted stock grants - - 26,625 -
Income tax benefit related to restricted stock plans - 1,530 - -
--------- --------- ---------- ----------
Balances as of June 30, 1997 $1,451,992 $2,535,221 $ (44,625) $ (93,944)
========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Retained
earnings Total
-------- -----
<S> <C> <C>
Balances as of July 1995 $7,381,682 $11,076,390
Net earnings 1,226,246 1,226,246
Issuance of 12,000 shares of common stock - -
Forfeiture of 2,000 shares of common stock - -
Translation adjustment - 132,173
Cash dividends paid ($.50 per share) (721,122) (721,122)
Amortization of restricted stock grants - 67,234
Income tax benefit related to restricted stock plans - 5,058
--------- ----------
Balances as of June 30, 1995 7,886,806 11,785,979
Net earnings 789,721 789,721
Translation adjustment - (32,268)
Cash dividends paid ($.50 per share) (723,384) (723,384)
Amortization of restricted stock grants - 63,357
Income tax expense related to restricted stock plans - (3,549)
--------- ----------
Balances as of June 30, 1996 7,953,143 11,879,856
Net earnings 537,416 537,416
Issuance of 8,000 shares of common stock - -
Forfeiture of 4,000 shares of common stock - -
Stock options exercised - 11,562
Translation adjustment - (117,786)
Cash dividends paid ($.50 per share) (727,149) (727,149)
Cash dividends declared ($.125 per share) (182,624) (182,624)
Amortization of restricted stock grants - 26,625
Income tax benefit related to restricted stock plans - 1,530
--------- ----------
Balances as of June 30, 1997 $7,580,786 $11,429,430
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 24
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 537,416 $ 789,721 $ 1,226,246
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 370,525 416,207 386,364
Deferred income taxes (65,185) (4,596) 21,369
Foreign exchange loss (gain) (103,583) 28,628 56,368
Other 1,530 (2,342) 5,058
Changes in operating assets and liabilities
Accounts receivable (1,586,991) 508,764 (323,226)
Inventories (11,463) (154,231) 1,695,052
Cost and profit in excess of billings
on uncompleted contracts (468,618) (1,287,644) 115,555
Other current assets (59,501) (285,196) 108,174
Other assets (40,466) 156,025 (195,985)
Accounts payable 791,364 1,240,661 464,022
Billings in excess of costs and earnings
on uncompleted contracts 363,257 (197,010) (1,624,268)
Commissions payable 212,708 57,254 6,981
Accrued expenses 22,497 266,563 (133,144)
------------- ------------- -----------
(573,926) 743,083 582,320
------------- ------------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (36,510) 1,532,804 1,808,566
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of short-term investments (12,348) (24,691) 415,017
Purchase of property and equipment (596,395) (273,593) (339,199)
------------- ------------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (608,743) (298,284) 75,818
</TABLE>
22
<PAGE> 25
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock $ 11,562 $ - $ -
Net changes in short-term borrowings - - (260,400)
Dividends paid (727,149) (723,384) (721,122)
------------ ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (715,587) (723,384) (981,522)
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS 51,064 9,446 25,691
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,309,776) 520,582 928,553
Cash and cash equivalents at beginning of year 2,082,329 1,561,747 633,194
------------ ----------- -----------
Cash and cash equivalents at end of year $ 772,553 $ 2,082,329 $ 1,561,747
============ =========== ===========
Supplemental information on cash flows:
- --------------------------------------
Interest paid $ 55,475 $ 16,858 $ 9,597
Income taxes paid $ 379,347 $ 138,018 $ 1,059,500
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 26
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Peerless Mfg. Co. designs, engineers, and manufactures specialized products
for the removal of contaminants from gases and liquids and for air pollution
abatement. The Company's products are manufactured principally at plants
located in Dallas, Texas and are sold worldwide with the principal markets
located in the United States and Europe. Primary customers are equipment
manufacturers, engineering contractors and operators of power plants.
Consolidation
The Company consolidates the accounts of its wholly-owned foreign
subsidiaries, Peerless Europe Limited (Europe Limited), Peerless
International N.V. (International) and Peerless Europe B.V. (Europe B.V.).
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Depreciable Assets
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally by the straight-line method.
Revenue Recognition
The Company generally recognizes sales of custom-contracted products at the
completion of the manufacturing process. The percentage-of-completion
method is used for significant long-term contracts.
Percentage-of-completion is generally determined using the actual labor
24
<PAGE> 27
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
incurred to date as compared to management's estimate of total labor to be
incurred on each contract.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees, and related
interpretations.
Earnings Per Common Share
Earnings per common share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
year. The dilutive effect of stock options is not material.
Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per
Share, is effective for financial statements issued after December 15, 1997.
The adoption of SFAS 128 is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
Foreign Currency
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange and statements of earnings items
are translated at the weighted average exchange rates for the year. The
resulting translation adjustments are made directly to a separate component
of stockholders' equity. Gains and losses from foreign currency
transactions, such as those resulting from the settlement of foreign
receivables or payables, are included in the consolidated statements of
earnings.
From time to time, the Company enters into forward exchange contracts in
anticipation of future movements in certain foreign exchange rates and to
hedge against foreign currency fluctuations. Realized and unrealized gains
and losses on these contracts are included in net
25
<PAGE> 28
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
income, except that gains and losses on contracts to hedge specific foreign
currency commitments are deferred and accounted for as part of the
underlying transaction.
Reclassifications
Certain prior years' amounts have been reclassified to conform with the 1997
presentation.
Financial Instruments
The carrying amounts of cash and cash equivalents and short-term investments
approximate fair value because of the short-term nature of these items.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
26
<PAGE> 29
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE B - CONCENTRATIONS OF CREDIT RISK
A significant portion of the Company's sales are to customers whose
activities are related to the oil and gas industry, including some who are
located in foreign countries. The Company generally extends credit to these
customers. Its exposure to credit risk is affected by conditions within the
oil and gas industry. Also, with respect to foreign sales, collection may
be more difficult in the event of a default.
However, the Company closely monitors extensions of credit and has never
experienced significant credit losses. Substantially all foreign sales are
made to large, well-established companies. The Company generally requires
collateral or guarantees on foreign sales to smaller companies.
Sales to one customer accounted for approximately 12.3% of revenues for the
year ended June 30, 1997. No single customer accounted for more than 10% of
revenues in 1996 or 1995.
NOTE C - INVENTORIES AND UNCOMPLETED CONTRACTS
Principal components of inventories are as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $1,084,890 $1,094,774
Work in process 1,586,213 1,591,289
Finished goods 322,752 286,393
---------- ----------
$2,993,855 $2,972,456
========= =========
</TABLE>
At June 30, 1997 and 1996, progress payments of $318,043 and $296,431
respectively, have been offset against inventories and costs of uncompleted
contracts.
27
<PAGE> 30
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE D - PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR INVESTMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Buildings $ 1,380,241 $ 1,418,842
Equipment 2,432,792 2,300,777
Furniture and fixtures 1,585,930 1,114,583
----------- -----------
5,398,963 4,834,202
Less accumulated depreciation (4,131,323) (3,880,559)
----------- -----------
1,267,640 953,643
Land 260,216 260,216
----------- -----------
$ 1,527,856 $ 1,213,859
=========== ===========
</TABLE>
Property held for investment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Buildings $ 1,641,769 $ 1,641,776
Equipment 158,171 158,171
------------ ------------
1,799,940 1,799,947
Less accumulated depreciation (1,440,967) (1,380,582)
------------ ------------
358,973 419,365
Land 529,410 529,410
------------ ------------
$ 888,383 $ 948,775
============ ============
</TABLE>
28
<PAGE> 31
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE E - CREDIT ARRANGEMENT
The Company has banking agreements for unsecured revolving lines of credit
in the combined amount of $7,500,000 due upon demand, with interest at the
banks' prime lending rate (8.50% at June 30, 1997), payable monthly. The
banks charge usage fees at an annual rate of .25% of the average daily
unused portion of the line. At June 30, 1997 and 1996, no amounts were
outstanding under the lines. The Company had letters of credit outstanding
under separate arrangements of $3,597,646 and $3,259,533 at June 30, 1997
and 1996, respectively. Other assets with a cost of approximately $566,000
were pledged against the letters of credit outstanding at June 30, 1997.
NOTE F - STOCKHOLDERS' EQUITY
The Company has a 1985 restricted stock plan (the 1985 Plan) under which
75,000 shares of common stock were reserved for awards to employees.
Restricted stock grants made under the 1985 Plan vest over a five-year
period. The Company awarded 12,000 shares (fair value at date of grant of
$135,000) in fiscal 1995 and 8,000 shares (fair value at date of grant of
$80,250), of which 3,000 shares were subsequently forfeited, in fiscal 1997.
Compensation expense for stock grants is charged to earnings over the
five-year restriction period and amounted to $26,625, $63,357 and $67,234 in
fiscal 1997, 1996, and 1995, respectively. The tax effect of differences
between compensation expense for financial statement and income tax purposes
is charged or credited to additional paid-in capital.
In December 1995, the Company adopted a stock option and restricted stock
plan (the 1995 Plan), which provides for a maximum of 100,000 shares of
common stock to be issued. Stock options are granted at market value, vest
generally over four years, and expire ten years from date of grant.
At June 30, 1997, 67,250 shares of common stock were available for issuance
under the 1995 Plan, and 4,750 shares were available under the 1985 Plan.
The Company has adopted the disclosure provisions of SFAS 123. It applies
APB 25 and related interpretations in accounting for stock options issued
and, therefore, does not recognize compensation expense for stock options
granted at or greater than market value. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date
for awards under this plan consistent with the methodology prescribed by
SFAS 123, the effect on net earnings and earnings per share would have been
as follows:
29
<PAGE> 32
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
<TABLE>
<CAPTION>
Year ended Year ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net earnings - as reported $537,416 $789,721
Net earnings - pro forma 527,012 784,896
Earnings per share - as reported .37 .55
Earnings per share - pro forma .36 .54
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 45%; risk-free interest rates ranging
from 4.6% to 5.3%; dividend yield of 3.7% in fiscal 1997 and 5.4% in
fiscal 1996; and expected lives of five years.
Additional information with respect to options outstanding under the plan is
as follows:
<TABLE>
<CAPTION>
Number of Weighted
shares average
underlying exercise
Stock options options price
------------- --------- --------
<S> <C> <C>
Outstanding at June 30, 1995 - $ -
Granted 34,000 9.25
------
Outstanding at June 30, 1996 34,000 9.25
Granted 2,500 13.33
Exercised (1,250) 9.25
Canceled/forfeited (3,750) 9.25
------
Outstanding at June 30, 1997 31,500 9.57
======
Exercisable at June 30, 1997 9,250 9.25
=====
Exercisable at June 30, 1996 -
======
</TABLE>
The weighted-average remaining life of options outstanding at June 30, 1997
was 9.08 years. The weighted average fair-value at grant date for options
granted in 1997 was $1.82
30
<PAGE> 33
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
On May 21, 1997, the Board of Directors declared a dividend of one common
share purchase right for each outstanding share of common stock to
shareholders of record at the close of business on June 2, 1997. Each Right
entitles the registered holder to purchase from the Company one common share
at a price of $30.00, subject to adjustment, as more fully set forth in a
Rights Agreement dated May 22, 1997.
The Rights will become exercisable only in the event that any person or group
of affiliated persons acquires, or obtains the right to acquire, beneficial
ownership of 20% or more of the outstanding common shares or commences a
tender or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 20% or more of such outstanding
common shares. The rights are redeemable under certain circumstances at $.01
each and expire in May 2007.
31
<PAGE> 34
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan to provide eligible employees with a
retirement savings plan. All employees are eligible to participate in the
plan upon completing 90 days of service. Company contributions are
voluntary and at the discretion of the Board of Directors of the Company.
The Company's contribution expense for the years ended June 30, 1997, 1996
and 1995 was $119,500, $109,000 and $103,000, respectively.
NOTE H - FEDERAL INCOME TAXES
Deferred taxes are provided for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities. The temporary differences that give rise to the deferred tax
assets or liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets
Restricted stock grants $ 13,938 $ 19,125
Inventories 28,362 16,052
Foreign subsidiaries' net operating loss carryforwards 145,157 15,371
Accrued expenses 243,090 311,237
Other 52,701 70,158
---------- ----------
483,248 431,943
Less valuation allowance (29,710) (160,405)
---------- --------
453,538 271,538
Deferred tax liabilities
Property, plant and equipment (110,396) (88,491)
Uncompleted contracts (135,006) (39,014)
Other (3,504) (4,587)
---------- ----------
(248,906) (132,092)
---------- ---------
Net deferred tax asset $ 204,632 $ 139,446
========== =========
</TABLE>
Deferred tax assets and liabilities included in the balance sheet are as
follows:
32
<PAGE> 35
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE H - FEDERAL INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
--------- --------
<S> <C> <C>
Current deferred tax asset $269,721 $226,214
Noncurrent deferred tax asset 34,873 -
Noncurrent deferred tax liability (99,962) (86,768)
-------- --------
$204,632 $139,446
======= =======
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Federal
Current $ 41,765 $ 348,830 $ 581,976
Deferred (65,185) (4,596) 21,369
State 24,000 48,193 79,070
--------- -------- --------
$ 580 $ 392,427 $ 682,415
========= ======== ========
</TABLE>
The valuation allowance relates to deferred tax assets of foreign
subsidiaries. These assets are recoverable only from future income of the
respective foreign subsidiaries. Because of a recapitalization of Europe
Limited and a reorganization of European operations, the Company concluded
at June 30, 1997 that it was more likely than not that certain of the
deferred tax assets are recoverable, and the valuation allowance was
reduced. Utilization of foreign net operating carryforwards reduced income
tax expense by approximately $130,000, $19,000 and $55,000 for 1997, 1996
and 1995, respectively.
The effective income tax rate varies from the statutory rate due to the
following:
<TABLE>
<CAPTION>
As a percentage
of pretax earnings
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Income tax expense at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in income taxes resulting from
State tax, net of federal benefits 2.9 2.8 2.9
Foreign sales corporation exclusions (10.2) (1.5) (3.1)
Change in valuation allowance (24.3) 3.5 (1.4)
Other (2.3) (5.6) 3.4
----- ---- ----
Income tax expense at effective rate .1% 33.2% 35.8%
==== ==== ====
</TABLE>
33
<PAGE> 36
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations consist of a dominant industry segment, the
designing and manufacturing of specialized products for the removal of
contaminants from gases and liquids and for air pollution abatement,
principally in the United States and the United Kingdom.
Information about the Company's operations in different geographic areas as
of and for the years ended June 30, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
United United
States Kingdom Other Eliminations Consolidated
--------------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
----
Net sales to unaffiliated
customers $35,553,000 $4,601,000 $1,332,000 - $41,486,000
Transfers between
geographic areas 889,000 4,000 - (893,000) -
---------- --------- --------- ---------- ----------
Total $36,442,000 $4,605,000 $1,332,000 $ (893,000) $41,486,000
========== ========= ========= ========== ==========
Operating profit (loss) $ 549,000 $ (129,000) $ (12,000) (1,000) $ 407,000
========== ========= ========= ========== ==========
Identifiable assets $18,129,000 $2,790,000 $1,027,000 $(2,144,000) $19,082,000
========== ========= ========= ========== ==========
1996
----
Net sales to unaffiliated
customers $26,775,000 $4,764,000 $2,105,000 $ - $33,644,000
Transfers between
geographic areas 984,000 630,000 - (1,614,000) -
---------- --------- --------- ---------- ----------
Total $27,759,000 $5,394,000 $2,105,000 $(1,614,000) $33,644,000
========== ========= ========= =========== ==========
Operating profit (loss) $ 1,119,000 $ 145,000 $ (39,000) $ (21,000) $ 1,204,000
========== ========= ========= ========== ==========
Identifiable assets $17,244,000 $2,112,000 $1,599,000 $(2,764,000) $18,191,000
========== ========= ========= ========== ==========
</TABLE>
34
<PAGE> 37
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION - CONTINUED
<TABLE>
<CAPTION>
United United
States Kingdom Other Eliminations Consolidated
--------------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1995
----
Net sales to unaffiliated
customers $27,673,000 $3,261,000 $1,155,000 - $32,089,000
Transfers between
geographic areas 479,000 373,000 - (852,000) -
---------- --------- --------- ---------- ----------
Total $28,152,000 $3,634,000 $1,155,000 $ (852,000) $32,089,000
========== ========= ========= ========== ==========
Operating profit (loss) $ 1,764,000 $ (13,000) $ 9,000 $ 5,000 $ 1,765,000
========== ========= ========= ========== ==========
Identifiable assets $16,048,000 $2,113,000 $1,237,000 $(2,242,000) $17,156,000
========== ========= ========= ========== ==========
</TABLE>
Transfers between the geographic areas primarily represent intercompany
export sales and are accounted for based on established sales prices between
the related companies. In computing operating profit (loss), no allocations
of general corporate expenses have been made.
Identifiable assets of geographic areas are those assets related to the
Company's operations in each area. United States assets consist of all
other operating assets of the Company.
Export sales account for a significant portion of the Company's revenues and
are summarized by geographic area as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
North and South America (excluding U.S.A.) $ 5,899,000 $ 5,864,000 $ 3,817,000
Europe 5,213,000 6,627,000 5,055,000
Asia 11,023,000 5,188,000 8,008,000
Other 3,470,000 1,756,000 826,000
----------- ----------- ------------
$25,605,000 $19,435,000 $17,706,000
========== ========== ==========
</TABLE>
35
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Peerless Mfg. Co.
In connection with our audit of the consolidated financial statements of
Peerless Mfg. Co. and Subsidiaries referred to in our report dated September 2,
1997, which is included in Part II of this form, we have also audited Schedule
II for each of the three years in the period ended June 30, 1997. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
September 2, 1997
36
<PAGE> 39
PEERLESS MFG. CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
June 30,
<TABLE>
<CAPTION>
Additions
Balance at ----------------------------------
beginning of Charged to Charged to Balance at
Description period expenses other accounts(1) Deductions(2) end of period
----------- ------------- ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1997
- ----
Allowance for doubtful accounts $100,000 $ 249,612 $ - $ 37,162 (2) $ 312,450
======= ======= ====== ======== ========
Deferred tax valuation allowance $160,405 $ - $ - $ 130,695 (3) $ 29,710
======= ======== ====== ======== ========
1996
- ----
Allowance for doubtful accounts $ 99,082 $ 44,307 $ 852 $ 44,241 (2) $ 100,000
======= ======== ====== ======== ========
Deferred tax valuation allowance $121,091 $ 39,314 $ - $ - $ 160,405
======= ======== ====== ======== ========
1995
- ----
Allowance for doubtful accounts $ 85,827 $ 55,401 $ - $ 42,146 (2) $ 99,082
======= ======== ====== ======== ========
Deferred tax valuation allowance $147,071 $ - $ - $ 25,980 (3) $ 121,091
======= ======== ====== ======== ========
</TABLE>
(1) Collections on accounts previously written off.
(2) Write offs.
(3) Utilization and/or revaluation of net operating loss carryovers.
37
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information concerning the Company's Directors, reference is made
to the information set forth under the caption "Election of Directors" and
"Common Stock Ownership of Management and Certain Beneficial Owners" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held
November 20, 1997 (the "Proxy Statement"), which information is incorporated
herein by reference.
For information concerning the Company's Executive Officers, see Item
1, "Business - Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning the Company's executive compensation,
reference is made to the information set forth under the caption "Executive
Compensation" in the Proxy Statement, which information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning the security ownership of certain
beneficial owners and management, reference is made to the information set
forth under the caption "Election of Directors" and "Common Stock Ownership of
Management and Certain Beneficial Owners" in the Proxy Statement, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning certain relationships and related
transactions, reference is made to the information set forth under the caption
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement, which information is incorporated herein by reference.
38
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM
8-K.
(a) 1. All Financial Statements: see Item 8 "Financial Statements
and Supplementary Data" in Part II of this Report.
2. Financial Statement Schedule and Exhibits filed in Part IV of
this report are as follows:
SCHEDULES*:
II - Valuation and Qualifying Account - Years Ended
June 30, 1997, 1996 and 1995
*All other schedules are omitted because the required
information is inapplicable or the information is presented in
the financial statements and the related notes.
(b) Reports on Form 8-K: None
(c) Exhibits: see Index to Exhibits, pages 41-42.
39
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /s/ SHERRILL STONE
---------------------------
Sherrill Stone, Chairman,
President, and Chief
Executive Officer
Date: September 26, 1997.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date:
September 26, 1997 /s/ SHERRILL STONE
-------------------------------------------
Sherrill Stone, Chairman of the
Board, President, Director and
Chief Executive Officer
September 26, 1997 /s/ KENT J. VAN HOUTEN
-------------------------------------------
Kent J. Van Houten, Treasurer,
Principal Financial Officer and
Principal Accounting Officer
September 26, 1997 /s/ DONALD A. SILLERS
-------------------------------------------
Donald A. Sillers, Jr., Director
September 26, 1997 /s/ J. V. MARINER
-------------------------------------------
J. V. Mariner, Director
September 26, 1997 /s/ BERNARD S. LEE
-------------------------------------------
Bernard S. Lee, Director
September 26, 1997 /s/ D. D. BATTERSHELL
-------------------------------------------
D. D. Battershell, Director
40
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENT SCHEDULES:
II Valuation and Qualifying Accounts - Years
Ended June 30, 1997, 1996 and 1995 (included in Item 8)
EXHIBITS:
3(a) The Company's Articles of Incorporation, as amended to date (filed
as Exhibit 1 to the Company's Registration Statement on Form S-1,
Registration No. 2-35767) and amended by the Company's December
12, 1990 Form 8 amending Exhibit 3(a) to the Company's Annual
Report on Form 10-K dated June 30, 1990, and incorporated herein
by reference).
3(b) The Company's Bylaws, as amended to date.*
10(a) Incentive Compensation Plan effective January 1, 1981, as amended
January 23, 1991 (filed as Exhibit 10(b) to the Company's Annual
Report on Form 10-K, dated June 30, 1991, and incorporated herein
by reference).
10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co., effective
December 13, 1985 (filed as Exhibit 10(b) to the Company's Annual
Report on Form 10-K, dated June 30, 1993, and incorporated herein
by reference).
10(c) 1991 Restricted Stock Plan for Non-Employee Directors of Peerless
Mfg. Co., adopted subject to shareholder approval May 24, 1991,
and approved by shareholders November 20, 1991 (filed as Exhibit
10(e) to the Company's Annual Report on Form 10-K dated June 30,
1991 and incorporated herein by reference).
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C>
10(d) Employment Agreement, dated as of April 29, 1994, by and between
the Company and Sherrill Stone (filed as Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994 and incorporated herein by reference).
10(e) Agreement, dated as of April 29, 1994, by and between the Company
and Sherrill Stone (filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994 and
incorporated herein by reference).
10(f) Fifth Amended and Restated Loan Agreement, dated as of February 3,
1997, between NationsBank of Texas, N.A. and the Company (filed as
Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 and incorporated herein by
reference).
10(g) Loan Agreement, dated as of March 7, 1997, by and between Texas
Commerce Bank National Association and the Company (filed as
Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for
quarter ended March 31, 1997 and incorporated herein by
reference).
10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted Stock Plan,
adopted by the Board of Directors December 31, 1995 and approved
by the Shareholders of the Company November 21, 1996.*
21 Subsidiaries of the Company.*
27 Financial Data Schedule.*
</TABLE>
- --------------
* Filed herewith
42
<PAGE> 1
EXHIBIT 3(b)
AMENDED AND RESTATED
BYLAWS
OF
PEERLESS MFG. CO.
As Adopted and in Effect on May 21, 1997
ARTICLE I
OFFICES
Section 1. The registered office shall be located in the City of
Dallas, County of Dallas, State of Texas.
Section 2. The corporation may also have offices at such other
places, either within or without the State of Texas, as the board of directors
may from time to time determine or as the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All annual meetings of shareholders shall be held at
such place, within or without the State of Texas, as may be designated by the
board of directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof. Special meetings of shareholders may be
held at such place, within or without the State of Texas, and at such time as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. The annual meetings of shareholders shall be held on
a date to be determined from time to time by the board of directors. At the
annual meeting the shareholders shall elect a board of directors and transact
such other business as may properly be brought before the meeting.
In order to properly submit any business to an annual meeting of
shareholders, including, without limitation, a nomination for the election to
the board of directors by a shareholder, a shareholder must give timely notice
in writing to the secretary of the corporation. To be considered timely, a
shareholder's notice must be delivered either in person or by United States
certified mail, postage prepaid, and received at the principal executive
offices of the corporation (a) not less than one hundred twenty (120) days nor
more than one hundred fifty (150) days before the first anniversary date of the
corporation's proxy statement in connection with the last annual meeting of
shareholders or (b) if no annual meeting has been called after the expiration
of more than thirty (30) days from the date for such meeting contemplated at
the time of the previous year's proxy statement, not less than a reasonable
time, as determined by the board of directors, prior to the date of the
applicable annual meeting.
1
<PAGE> 2
The secretary of the corporation will deliver any shareholder
proposals and nominations received in a timely manner for review by the board
of directors or a committee designated by the board of directors.
A shareholder's notice to submit business to an annual meeting of
shareholders will set forth (i) the name and address of the shareholder, (ii)
the class and number of shares of stock beneficially owned by such shareholder,
(iii) the name in which such shares are registered on the stock transfer books
of the corporation, (iv) a representation that the shareholder intends to
appear at the meeting in person or by proxy to submit the business specified in
such notice, (v) any material interest of the shareholder in the business to be
submitted, and (vi) a brief description of the business desired to be submitted
to the annual meeting, including the complete text of any resolutions to be
presented at the annual meeting, and the reasons for conducting such business
at the annual meeting. In addition, the shareholder making such proposal will
promptly provide any other information reasonably requested by the corporation.
Notwithstanding the foregoing provisions of this bylaw, a shareholder
who seeks to have any proposal included in the corporation's proxy statement
will comply with the requirements of Regulation 14A under the Securities
Exchange Act of 1934, as amended.
Section 3. Special meetings of shareholders may be called by (a)
the president or the board of directors or (b) the holders of at least ten
percent (10%) of all shares entitled to vote at a special meeting, unless the
articles of incorporation provide for a number of shares greater than or less
than ten percent (10%), in which event a special meeting may be called by the
holders of at least the percentage of shares specified in the articles of
incorporation.
Section 4. Written or printed notice stating the place, day and
hour of a meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the day of the meeting, except in the
case of a special meeting called by the requsite number shareholders as
provided in Section 3 of this Article, in which case the notice must be given
not less than fifty (50) nor more than sixty (60) days before the day of such
meeting, either personally or by mail, by or at the direction of the president,
the secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at such. When a meeting of shareholders is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. When a meeting is adjourned for less than
thirty (30) days, it shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement at the meeting at which the adjournment is taken.
Section 5. Any notice required to be given to any shareholder,
under any provision of the Texas Business Corporation Act, as amended (the
"TBCA"), or the articles of incorporation or bylaws, need not be given to the
shareholder if (a) notice of two (2) consecutive annual meetings and all
notices of meetings held during the period between those annual meetings, if
any, or (b) all (but in no event less than two) payments (if sent by first
class mail) of distributions or interest on securities during a 12-month period
have been mailed to that person, addressed at
2
<PAGE> 3
his address as shown on the share transfer records of the corporation, and have
been returned undeliverable. Any action or meeting taken or held without
notice to such a person shall have the same force and effect as if the notice
had been duly given, and if the action taken by the corporation is reflected in
any articles or document filed with the Secretary of State, such articles or
document may state that notice was duly given to all persons to whom notice was
required to be given. If such a person delivers to the corporation a written
notice setting forth his then current address, the requirement that notice be
given to that person shall be reinstated.
Section 6. Business transacted at any special meeting shall be
confined to the purposes stated in the notice thereof.
Section 7. The holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at meetings
of shareholders except as otherwise provided in the articles of incorporation.
If, however, a quorum shall not be present or represented at any meeting of
shareholders, the shareholders present in person or represented by proxy shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified and called. The shareholders present at a duly
organized meeting may continue to transact business notwithstanding the
withdrawal of some shareholders prior to adjournment, but in no event shall a
quorum consist of the holders of less than one-third of the shares entitled to
vote and thus represented at such meeting.
Section 8. The vote of the holders of a majority of the shares
entitled to vote and thus represented at a meeting at which a quorum is present
shall be the act of the meeting of shareholders, unless the vote of a greater
number is required by law, the articles of incorporation or bylaws.
Section 9. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class are limited or denied by the articles of incorporation or the TBCA. At
any election for directors, every shareholder entitled to vote at any such
election shall have the right to vote, in person or proxy, the number of shares
owned by him for as many persons as there are directors to be elected and for
whose election he has a right to vote, and shareholders of the corporation are
expressly prohibited from cumulating their votes in any election for directors
of the corporation.
Section 10. A shareholder may vote in person or by proxy executed
in writing by the shareholder. A telegram, telex, cablegram or similar
transmission by the shareholder, or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for the purposes of this section. No proxy shall be
valid after eleven (11) months from the date of its execution unless otherwise
provided in the proxy. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled
with an interest.
3
<PAGE> 4
Section 11. The officer or agent having charge of the stock
transfer books shall make, at least ten (10) days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and number of shares held by each, which list, for a period of ten
(10) days prior to such meeting, shall be kept on file at the registered office
or principal place of business of the corporation and shall be subject to
inspection by any shareholder at any time during the usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer book shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer book or to vote at any such meeting of shareholders. However, failure
to prepare and to make available such list in the manner provided above shall
not affect the validity of any action taken at the meeting.
Section 12. Any action required by law to be taken at a meeting
of shareholders, or any action which may be taken at a meeting of shareholders,
may be taken without a meeting, without prior notice, and without a vote, if a
consent in writing, setting forth the action so taken shall be signed and bear
the date of the signature by shareholders having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted with respect to the subject matter thereof.
Section 13. In advance of any meeting of shareholders, the board
of directors may appoint any persons, other than nominees for office, as
inspectors of election to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, the chairman of any such meeting
may, and on the request of any shareholder or his proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be
either one (1) or three (3). If appointed at a meeting on the request of one
or more shareholders or proxies, the majority of shares present shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the board of directors in advance of the
meeting, or at the meeting by the person acting as chairman. The inspectors of
election shall (a) determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; (b) receive
votes, ballots or consents; (c) hear and determine all challenges and questions
in any way arising in connection with the right to vote; (d) count and tabulate
all votes or consents and determine the result; and (e) do such acts as may be
proper to conduct the election or vote with fairness to all shareholders. The
inspectors of election shall perform their duties impartially, in good faith,
to the best of their ability and as expeditiously as is practical. If there
are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. On request of the chairman of the meeting or of any shareholder or his
proxy, the inspectors shall make a report in writing of any challenge or
question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them is prima facie evidence
of the facts stated therein. At every meeting of the shareholders, the
chairman
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of the board, or in his absence, or in the event that the board of directors
has not designated a chairman of the board, the president, or in his absence,
the vice president designated by the president, or, in the absence of such
designation, a chairman (who shall be one of the vice presidents, if any is
present) chosen by a majority in interest of the shareholders present in person
or by proxy and entitled to vote, shall act as chairman. The secretary of the
corporation, or in his absence, an assistant secretary, shall act as secretary
of all meetings of the shareholders. In the absence at such meeting of the
secretary or assistant secretary, the chairman may appoint another person to
act as secretary of the meeting.
Section 14. Subject to the provisions required herein for notice
of meetings, shareholders may participate in and hold a meeting of
shareholders, by means of conference by telephone or similar communications
equipment, provided all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this Section 14 shall
constitute presence in person at such meeting, except where a person
participates in a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE III
DIRECTORS
Section 1. The number of directors of the corporation shall be
five (5). Directors need not be residents of the State of Texas or
shareholders of the corporation. No decrease in the number of directors shall
have the effect of reducing the term of any incumbent director. A director may
only be removed from office for "cause" (as defined below), at a meeting of
shareholders called expressly for that purpose by the affirmitive vote of
shareholders holding sixty six and two-thirds percent (66 2/3%) or more of the
issued and outstanding shares then entitled to vote at any election of the
directors. For purposes of this Section, "cause" shall mean the willful
engaging by the director in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the corporation. For purpose of this
provision, no act or failure to act, on the part of the director, shall be
considered willful unless it is done, or omitted to be done, by the director in
bad faith or without reasonable belief that the director's action or omission
was in the best interests of the corporation.
The directors will be divided into three classes designated as Class
I, Class II, and Class III. Class I will consist of one director, and each of
Class II and Class III will consist of two directors. Each Class of directors
will stand for election at the 1997 annual shareholders' meeting for the
following terms: Class I director will be elected for a one-year term; Class
II directors will be elected for a two-year term; and Class III directors will
be elected for a three-year term. At each following annual shareholders'
meeting, commencing with the 1998 annual stockholders' meeting, each of the
successors to the directors of the Class whose term will expire at such annual
meeting will be elected for a term running until the third annual meeting
succeeding his or her election and until his or her successor has been duly
elected and qualified.
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Section 2. Vacancies in the board of directors shall exist in
the case of the happening of any of the following events: (a) the death,
resignation or removal of any director; (b) the authorized number of directors
is increased or (c) at any annual or special meeting of shareholders at which
any director is elected, the shareholders fail to elect the full authorized
number of directors to be voted for at that meeting. The board of directors
may declare vacant the office of a director in either of the following cases:
(a) if he is adjudged incompetent by an order of court, or finally convicted of
a felony or (b) if within sixty (60) days after notice of his election, he does
not accept the office either in writing or by attending a meeting of the board
of directors. Any vacancy occurring in the board of directors may be filled by
election at an annual meeting or at a special meeting of shareholders called
for that purpose or by the affirmative vote of a majority of the remaining
directors though less than a quorum of the board of directors, or by a sole
remaining director. Any directorship to be filled by reason of an increase in
the number of directors may be filled by election at an annual meeting or at a
special meeting of shareholders called for that purpose, or may be filled by
the board of directors for a term of office continuing only until the next
election of one or more directors by the shareholders; provided that the board
of directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders. A director elected
to fill a vacancy shall be elected to the unexpired term of his predecessor in
office.
Section 3. The business and affairs of the corporation shall be
managed by its board of directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the articles of incorporation or by these bylaws directed or required to be
exercised and done or authorized or approved by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. Meetings of the board of directors, regular or
special, may be held either within or without the State of Texas. Any regular
or special meeting is valid, wherever held, if held on written consent of all
members of the board given either before or after the meeting and filed with
the secretary of the corporation.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the shareholders at the annual meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the shareholders to fix the time and place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the shareholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from time to time
be determined by the board of directors.
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Section 7. Special meetings of the board of directors may be
called by the president and shall be called by the secretary on the written
request of two (2) directors. Written notice of special meetings of the board
of directors shall be given personally, or sent by mail or by other form of
written communication, to each director at least three (3) days before the date
of the meeting. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the board of directors need be specified in
the notice or waiver of notice of such meeting.
Section 8. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business and the act of the
majority of the directors present at a meeting duly held at which a quorum is
present shall be the act of the board of directors, unless a greater number is
required by law or the articles of incorporation or as otherwise set forth in
these bylaws. Each director present at a meeting will be deemed to have
assented to any action taken at the meeting unless his dissent to the action is
entered in the minutes of the meeting, or unless he shall file his written
dissent thereto with the secretary of the meeting or shall forward such dissent
by registered mail to the secretary of the corporation immediately after such
meeting. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. At such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified and called.
Section 9. Any action required or permitted to be taken at a
meeting of the board of directors or any committee thereof may be taken without
a meeting if a consent in writing, setting forth the action taken, is signed by
all of the members of the board of directors or the committee, as the case may
be, and such consent shall have the same force and effect as a unanimous vote
at a meeting. Subject to the provisions required herein for notice of
meetings, members of the board of directors or members of any committee
designated by the board of directors may participate in and hold a meeting of
such board or committee by means of conference by telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 9 shall constitute presence in person at such meeting, except where a
person participates in a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 10. No director shall be disqualified from holding his
office or be liable to the corporation or to any shareholder or creditor
thereof for any loss incurred by this corporation under or by reason of any
contract, transaction or act, or be accountable for any gains or profits he may
have realized therein as a result of any contract or transaction between this
corporation and such director or between this corporation and any other
corporation, partnership, association or other organization in which such
director or officer is a director or officer or has a financial interest.
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COMMITTEES OF DIRECTORS
Section 11. The board of directors, by resolution adopted by a
majority of the full board, may designate from among its members one or more
committees, each of which, to the extent provided in such resolution, shall
have and may exercise all of the authority of the board of directors, except
that no such committee shall have the authority of the board of directors in
reference to amending the articles of incorporation (except that a committee
may exercise the authority of the board of directors vested in accordance with
Article 2.13 of the TBCA); proposing a reduction of the stated capital of the
corporation in the manner permitted by Article 4.12 of TBCA; approving a plan
of merger or share exchange of the corporation; recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
property and assets of the corporation otherwise than in the usual and regular
course of its business; recommending to the shareholders a voluntary
dissolution of the corporation or a revocation thereof; amending, altering or
repealing the bylaws of the corporation or adopting new bylaws of the
corporation; filling vacancies in the board of directors or any such committee;
filling any directorship to be filled by reason of an increase in the number of
directors; electing or removing officers of the corporation or members of any
such committee, fixing the compensation of any member of such committee; or
altering or repealing any resolution of the board of directors that, by its
terms, provides that it shall not be amended or repealed. Unless the
resolution designating a particular committee so provides, no committee of the
board of directors shall have the authority to authorize a distribution or to
authorize the issuance of shares of the corporation. Vacancies in the
membership of any such committee shall be filled by the board of directors at a
regular or special meeting of the board of directors. Any such committee shall
keep regular minutes of its proceedings and report the same to the board of
directors when required. The designation of a committee of the board of
directors and the delegation thereto of authority shall not operate to relieve
the board of directors, or any member thereof, of any responsibility imposed by
law. Each director shall be deemed to have assented to any action of the
executive committee or any other committee, unless he shall, within seven (7)
days after receiving actual or constructive notice of such action, deliver his
written dissent thereto to the secretary of the corporation. Members of such
committee shall serve at the pleasure of the board of directors.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
CHAIRMAN OF THE BOARD
Section 13. The board of directors may, in its discretion, choose
a chairman of the board who shall preside at meetings of shareholders and of
the directors and shall be an ex officio member of all standing committees.
The chairman of the board shall have such other powers and
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shall perform such other duties as shall be designated by the board of
directors. The chairman of the board shall be a member of the board of
directors, but no other officers of the corporation need be a director. The
chairman of the board shall serve until his successor is chosen and qualified,
but he may be removed at any time by the affirmative vote of a majority of the
board of directors.
ARTICLE IV
NOTICES AND REQUESTS
Section 1. Notices and requests to directors, officers or
shareholders shall be in writing and delivered personally or mailed to the
directors, officers or shareholders at their addresses appearing on the books
of the corporation. Notice or request by mail shall be deemed to be given and
received at the time when deposited in the United States mail, addressed to the
addressee at his address as it appears on the records of the corporation, with
adequate postage thereon prepaid; notice or request by personal delivery shall
be deemed to be given and received at the time when same shall be actually
received by the person to whom addressed. Notices and requests to directors
and officers may also be given by telegram, and shall be deemed delivered when
same shall be deposited at a telegraph office for transmission and all
appropriate fees therefor have been paid.
Section 2. Whenever any notice is required to be given to any
shareholder or director under the provisions of the statutes or of the articles
of incorporation or of these bylaws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such notice.
Section 3. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall consist of a
president and a secretary and such other officers as may be elected or
appointed by the board of directors. Any two or more offices may be held by
the same person.
Section 2. The board of directors, at its first meeting after
each annual meeting of shareholders, shall choose a president, a secretary and
such other officers as they deem appropriate, none of whom need be a member of
the board.
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Section 3. Such other officers and assistant officers and agents
as may be deemed necessary may be elected or appointed by the board of
directors to hold office for such period, have such authority and perform such
duties as are provided by the bylaws or as the board of directors may
determine.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed from time to time by the board of directors.
Section 5. Each officer of the corporation shall hold office
until he shall resign or shall be removed or otherwise disqualified to serve,
or his successor shall be chosen and qualified. Any officer or agent may be
removed by the board of directors, with or without cause, whenever in its
judgment the best interest of the corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise shall be filled by the board of
directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of
the corporation, shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. In the absence of the chairman of the board
or in the event the board of directors shall not have designated a chairman of
the board, the president shall preside at meetings of shareholders and the
board of directors.
Section 7. He shall execute bonds, mortgages and other contracts
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. The vice presidents in the order of their seniority,
or otherwise, as determined by the board of directors, shall, in the absence or
disability of the president, perform the duties and exercise the powers of the
president. They shall perform such other duties and have such other powers as
the board of directors shall prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board
of directors and all meetings of shareholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing
committees, when required. Except as may be otherwise provided in these
bylaws, he shall give, or cause to be given, notice of all meetings of
shareholders and special meetings of the board of directors, and shall perform
such other duties as may be prescribed by the board of directors or president,
under whose supervision he shall be.
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Section 10. The assistant secretaries in the order of their
seniority, or if there be none, the treasurer, acting as assistant secretary,
or otherwise, as determined by the board of directors, shall, in the absence or
disability of the secretary, perform the duties and exercise the powers of the
secretary. They shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe. Assistant secretaries
may be appointed by the president without prior approval of the board of
directors.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
monies and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 12. He shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors at
its regular meetings or when the board of directors so requires an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give
the corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 14. The assistant treasurers in the order of their
seniority, or otherwise, as determined by the board of directors, or the
secretary acting as assistant treasurer shall, in the absence or disability of
the treasurer, perform the duties and exercise the powers of the treasurer.
They shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The corporation shall deliver certificates
representing all shares to which shareholders are entitled. Certificates
representing shares shall be signed by the president or any vice president and
the secretary or any assistant secretary of the corporation, or any other
officers of the corporation so authorized by the board of directors and may be
sealed with the seal of the corporation, if any, or a facsimile thereof. No
certificate shall be issued for any share until the consideration therefor has
been fully paid. Each certificate representing shares shall state upon the
face thereof that the corporation is organized under the laws of the State of
Texas, the name
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of the person to whom issued, the number and class and the designation of the
series, if any, which said certificate represents, and the par value of each
share represented by such certificate or a statement that the shares are
without par value. If the corporation is authorized to issue shares of more
than one class, each certificate representing shares issued by the corporation
(a) shall conspicuously set forth on the face or back of the certificate a full
statement of all of the designations, preferences, limitations and relative
rights of the shares of each class authorized to be issued and if the
corporation is authorized to issue shares of any preferred or special class in
series, the variations in the relative rights and preferences of the shares of
each such series to the extent that they have been fixed and determined and the
authority of the board of directors to fix and determine the relative rights
and preferences of subsequent series; or (b) shall conspicuously state on the
face or back of the certificate that such a statement is set forth in the
articles of incorporation on file in the office of the Secretary of State, and
the corporation will furnish a copy of such statement to the record holder of
the certificate without charge on written request to the corporation at its
principal place of business or registered office.
Each certificate representing shares issued by the corporation (a)
shall conspicuously set forth on the face or back of the certificate a full
statement of the limitation or denial of preemptive rights contained in the
articles of incorporation, or (b) shall conspicuously state on the face or back
of the certificate that (i) such a statement is set forth in the articles of
incorporation on file in the office of the Secretary of State and (ii) the
corporation will furnish a copy of such statement to the record holder of the
certificate without charge on request to the corporation at its principal place
of business or registered office.
Each certificate representing shares restricted as to transfer or
registration of the transfer, as permitted by the TBCA (a) shall conspicuously
contain a full or summary statement of the restriction on the face of the
certificate, or (b) shall contain such statement on the back of the certificate
and conspicuously refer to the same on the face of the certificate, or (c)
shall conspicuously state on the face of or back of the certificate that such a
restriction exists pursuant to a specified document and (i) that the
corporation will furnish to the record holder of the certificate, without
charge, upon written request to the corporation at its principal place of
business or registered office a copy of the specified document, or (ii) if such
document is one required or permitted to be and has been filed under the TBCA,
that such specified document is on file in the office of the Secretary of State
and contains a full statement of such restriction. The definitions of the
terms "conspicuous" and "conspicuously" are set forth in the TBCA.
Section 2. The signatures of the authorized officers of the
corporation upon a certificate may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at
the date of the issuance.
Section 3. Where a certificate has been lost, apparently
destroyed or wrongfully taken and the owner fails to notify the corporation of
that fact within a reasonable time after he has notice of it, and the
corporation registers a transfer of the shares represented by the certificate
before receiving such a notification, the owner is precluded from asserting
against the
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corporation any claim for registering the transfer or any claim to a new
certificate. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, destroyed or
wrongfully taken, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing
such issuance of a new certificate or certificates, the board of directors may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed and/or to satisfy any other
reasonable requirements imposed by the board of directors. If, after the
issuance of a new certificate as a replacement for a lost, destroyed or
wrongfully taken certificate, a bona fide purchaser of the original certificate
presents it for registration of transfer, the corporation must register the
transfer unless registration would result in over-issue. In addition to any
rights on the indemnity bond, the corporation may recover the new certificate
from the person to whom it was issued or any person taking under him except a
bona fide purchaser.
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. When a transfer of shares is requested and there
is reasonable doubt as to the right of the person seeking the transfer, the
corporation or its transfer agent, before recording the transfer of the shares
on its books or issuing any certificate therefor, may require from the person
seeking the transfer reasonable proof of his right to the transfer. If there
remains a reasonable doubt of the right to the transfer, the corporation may
refuse a transfer unless the person gives adequate security or a bond of
indemnity executed by a corporate surety or by two individual sureties
satisfactory to the corporation as to form, amount and responsibility of
sureties. The bond shall be conditioned to protect the corporation, its
officers, transfer agents and registrars, or any of them, against any loss,
damage, expense or other liability to the owner of the shares by reason of the
recordation of the transfer or the issuance of a new certificate for shares.
CLOSING OF TRANSFER BOOKS AND RECORD DATE
Section 5. For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive a distribution by the corporation (other than a
distribution involving a purchase or redemption by the corporation of any of
its own shares) or a share dividend, or in order to make a determination of
shareholders for any other proper purposes (other than determining shareholders
entitled to consent to action by shareholders proposed to be taken without a
meeting of shareholders), the board of directors may provide that the share
transfer records shall be closed for a stated period not to exceed, in any
case, sixty (60) days. If the share transfer records shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such records shall be closed for at least ten (10)
days immediately preceding such meeting. In lieu of
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closing the share transfer records, the board of directors may fix in advance a
date as the record date for any such determination of shareholders, such date
in any case to be not more than sixty (60) days, and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the share transfer records are not closed and no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive a distribution (other than
a distribution involving a purchase or redemption by the corporation of any of
its own shares) or a share dividend, the date on which the notice of the
meeting is mailed or the date on which the resolutions of the board of
directors declaring such distribution or share dividend is adopted, as the case
may be, shall be the record date for such determination of shareholders. When
a determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to
any adjournment thereof, except where the determination has been made through
the closing of share transfer records and the stated period of closing has
expired, in which case the board of directors shall make a new determination,
as hereinbefore provided.
Section 6. Distributions made by the corporation, whether in
liquidation or from earnings, profits, assets or capital, including all
distributions payable but not paid to the holder of the shares, his heirs,
successors or assigns but that have been held in suspense by the corporation or
that were paid or delivered by it into an escrow account or to a trustee or
custodian, shall be payable by the corporation, escrow agent, trustee or
custodian to the holder of the shares as of the record date determined for that
distribution as provided in Section 5 of this Article, or to his heirs,
successors or assigns.
CORPORATE RECORDS AND REPORTS
Section 7. The corporation shall keep books and records of
account and shall keep minutes of the proceedings of its shareholders, its
board of directors and each committee of its board of directors. The
corporation shall keep at its registered office or principal place of business,
or at the office of its transfer agent or registrar, a record of the original
issuance of shares issued by the corporation and a record of each transfer of
those shares that have been presented to the corporation for registration of
transfer. Such records shall contain the names and addresses of all past and
current shareholders of the corporation and the number and class of shares
issued by the corporation and held by each of them. Any books, records,
minutes, and share transfer records may be in written form or in any other form
capable of being converted into written form within a reasonable time. Any
person who shall have been a shareholder for at least six (6) months
immediately preceding his demand, or shall be the holder of at least five
percent (5%) of all the outstanding shares of the corporation, upon written
demand stating the purpose thereof, shall have the right to examine, in person
or by agent, accountant or attorney, at any reasonable time or times, for any
proper purpose, its relevant books and records of account, minutes and share
transfer records, and to make extracts therefrom.
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REGISTERED SHAREHOLDERS
Section 8. The corporation shall be entitled to recognize the
exclusive rights of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of Texas.
ARTICLE VII
GENERAL PROVISIONS
Section 1. The board of directors may authorize and the
corporation may make distributions, and pay share dividends, subject to any
restrictions in the articles of incorporation and limitations set forth in the
TBCA.
Section 2. The board of directors may by resolution create a
reserve or reserves out of surplus or designate or allocate any and all of its
surplus in any manner for any proper purpose or purposes, and may increase,
decrease or abolish any such reserve in the same manner.
Section 3. When shares are registered on the books of the
corporation in the names of two (2) or more persons as joint owners with the
right of survivorship, after the death of a joint owner and before the time
that the corporation receives actual written notice that parties other than the
surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the corporation may record on its books and otherwise
effect the transfer of those shares to any person, firm or corporation
(including the surviving joint owner, individually) and pay any distributions
made in respect of those shares, in each case as if the surviving joint owner
or owners were the absolute owners of the shares. In permitting such a
transfer by and making any distributions to such a surviving joint owner or
owners before the receipt of written notice from other parties claiming an
interest in those shares or distributions, the corporation shall be discharged
from all liability for the transfer or payment so made; provided, however, that
the discharge of the corporation from liability and the transfer of full legal
and equitable title of the shares in no way shall affect, reduce or limit any
cause of action existing in favor of any owner of an interest in those shares
or distributions against the surviving owner or owners.
CHECKS
Section 4. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness issued in the name of or
payable to the corporation shall be signed or endorsed by such officer or
officers or such other person or persons as the board of directors may from
time to time designate.
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FISCAL YEAR
Section 5. The fiscal year of the corporation shall end on June
30 of each year until such date is changed by resolution of the Board of
Directors.
SEAL
Section 6. The corporate seal, if any, shall have inscribed
thereon the name of the corporation, and be in a form approved by the board of
directors. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
ARTICLE VIII
AMENDMENT OF BYLAWS
Section 1. The board of directors may amend or repeal these
bylaws, or adopt new bylaws at any regular meeting of the board of directors or
at any special meeting of the board of directors if notice of such amendment,
repeal or adoption of new bylaws is contained in the notice of such meeting,
unless (a) the articles of incorporation or the TBCA reserves the power
exclusively to the shareholders in whole or in part, or (b) the shareholders,
in amending, repealing or adopting a particular bylaw, expressly provide that
the board of directors may not amend or repeal that bylaw.
Section 2. The shareholders may amend or repeal these bylaws, or
adopt new bylaws upon the affirmitive vote of the holders of at least sixty six
and two thirds percent (66 2/3%) of the issued and outstanding shares then
entitled to vote on such amendment, unless the articles of incorporation or a
bylaw adopted by the shareholders provide otherwise as to all or some portion
of these bylaws, even though the bylaws may also be amended, repealed or
adopted by the board of directors.
ARTICLE IX
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. As utilized in this Article, the following terms
shall have the meanings indicated:
(a) The term "corporation" includes any domestic or
foreign predecessor entity of the corporation in a merger,
consolidation or other transaction in which the liabilities of the
predecessor are transferred to the corporation by operation of law and
in any other transaction in which the corporation assumes the
liabilities of the predecessor, but does not specifically exclude
liabilities that are the subject matter of this Article.
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(b) The term "director" means any person who is or was a
director of the corporation and any person who, while a director of
the corporation, is or was serving at the request of the corporation
as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise.
(c) The term "expenses" include court costs and
attorneys' fees.
(d) The term "official capacity" means: (i) when used
with respect to a director, the office of director in the
corporation, and (ii) when used with respect to a person other than a
director, the elective or appointive office in the corporation held by
the officer or the employment or agency relationship undertaken by the
employee or agent on behalf of the corporation, but (iii) in both (i)
and (ii) above does not include service for any other foreign or
domestic corporation or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise.
(e) The term "proceeding" means any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such an
action, suit or proceeding and any inquiry or investigation that could
lead to such an action, suit or proceeding.
Section 2. The corporation shall indemnify a person who was, is
or is threatened to be made a named defendant or respondent in a proceeding
because the person is or was a director only if it is determined, in accordance
with Section 6 of this Article that the person (a) conducted himself or herself
in good faith; (b) reasonably believed: (i) in the case of conduct in the
official capacity as a director of the corporation, that the conduct was in the
corporation's best interests, and (ii) in all other cases, that the conduct
was at least not opposed to the corporation's best interests; and (iii) in the
case of any criminal proceeding, had no reasonable cause to believe the conduct
was unlawful.
Section 3. A director shall not be indemnified by the
corporation as provided in Section 2 of this Article for obligations resulting
from a proceeding (a) in which the director is found liable on the basis that a
personal benefit was improperly received by the director, whether or not the
benefit resulted from an action taken in the person's official capacity, or (b)
in which the person is found liable to the corporation, except to the extent
permitted in Section 5 of this Article.
Section 4. The termination of a proceeding by judgment, order,
settlement or conviction or on a plea of nolo contendere or its equivalent is
not of itself determinative that the person did not meet the requirements set
forth in Section 2 of this Article. A person shall be deemed to have been
found liable in respect of any claim, issue or matter only after the person
shall have been so adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom.
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Section 5. A person may be indemnified by the corporation as
provided in Section 2 of this Article against judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses actually
incurred by the person in connection with the proceeding; but if the person is
found liable to the corporation or is found liable on the basis that a personal
benefit was improperly received by the person, the indemnification (a) shall be
limited to reasonable expenses actually incurred by the person in connection
with the proceeding, and (b) shall not be made in respect of any proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of the person's duty to the corporation.
Section 6. A determination of indemnification under Section 2 of
this Article shall be made (a) by a majority vote of a quorum consisting of
directors who at the time of the vote are not named defendants or respondents
in the proceeding; (b) if such a quorum cannot be obtained, by a majority vote
of a committee of the board of directors, designated to act in the matter by a
majority vote of all directors, consisting solely of two (2) or more directors
who at the time of the vote are not named defendants or respondents in the
proceeding; (c) by special legal counsel selected by the board of directors or
a committee thereof by a vote as set forth in subsection (a) or (b) of this
Section 6, or, if such a quorum cannot be obtained and such a committee cannot
be established, by a majority vote of all directors; or (d) by the shareholders
in a vote that excludes the shares held by directors who are named defendants
or respondents in the proceeding.
Section 7. Authorization of indemnification and determination as
to reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special legal
counsel, authorization of indemnification and determination as to
reasonableness of expenses shall be made in the manner specified by subsection
(c) of Section 6 of this Article for the selection of special legal counsel. A
provision contained in the articles of incorporation, the bylaws, a resolution
of shareholders or directors, or an agreement that makes mandatory the
indemnification described in Section 2 of this Article shall be deemed to
constitute authorization of indemnification in the manner required herein, even
though such provision may not have been adopted or authorized in the same
manner as the determination that indemnification is permissible.
Section 8. The corporation shall indemnify a director against
reasonable expenses incurred by the director in connection with a proceeding in
which the director is a named defendant or respondent because the person is or
was a director if the director has been wholly successful, on the merits or
otherwise, in the defense of the proceeding.
Section 9. If, upon application of a director, a court of
competent jurisdiction determines, after giving any notice the court considers
necessary, that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director has met the requirements set forth in Section 2 of this Article or has
been found liable in the circumstances described in Section 3 of this Article,
the corporation shall indemnify the director to such further extent as the
court shall determine; but if the person is found liable to the corporation or
is found liable on the basis that personal benefit was improperly received by
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the person, the indemnification shall be limited to reasonable expenses
actually incurred by the person in connection with the proceeding.
Section 10. Reasonable expenses incurred by a director who was,
is or is threatened to be made a named defendant or respondent in a proceeding
may be paid or reimbursed by the corporation in advance of the final
disposition of the proceeding and without the determination specified in
Section 6 of this Article or the authorization or determination specified in
Section 7 of this Article, after the corporation receives a written affirmation
by the director of a good faith belief that the standard of conduct necessary
for indemnification under this Article has been met and a written undertaking
by or on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met that standard or if it is ultimately
determined that indemnification of the director against expenses incurred by
him in connection with that proceeding is prohibited by Section 5 of this
Article. A provision contained in the articles of incorporation, these bylaws,
a resolution of the shareholders or directors, or an agreement that makes
mandatory the payment or reimbursement permitted under this Section shall be
deemed to constitute authorization of that payment or reimbursement.
Section 11. The written undertaking required by Section 10 of
this Article shall be an unlimited general obligation of the director, but need
not be secured. It may be accepted without reference to financial ability to
make repayment.
Section 12. Notwithstanding any other provision of this Article,
the corporation may pay or reimburse expenses incurred by a director in
connection with an appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
Section 13. An officer of the corporation shall be indemnified by
the corporation as and to the same extent provided by Sections 7, 8 and 9 of
this Article for a director and is entitled to seek indemnification under those
sections to the same extent as a director. The corporation may indemnify and
advance expenses to an officer, employee or agent of the corporation to the
same extent that it may indemnify and advance expenses to directors under this
Article.
Section 14. The corporation may indemnify and advance expenses to
persons who are not or were not officers, employees or agents of the
corporation but who are or were serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise, to the same extent that it may indemnify and advance expenses to
directors under this Article.
Section 15. The corporation may indemnify and advance expenses to
an officer, employee, agent or person identified in Section 14 of this Article
and who is not a director to such further extent, consistent with law, as may
be provided by the articles of incorporation, these bylaws, general or specific
action of the board of directors or contract or as permitted or required by
common law.
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Section 16. The corporation may purchase and maintain insurance
or another arrangement on behalf of any person who is or was a director,
officer, employee or agent of the corporation or who is or was serving at the
request of the corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, against any liability
asserted against such person and incurred by such person in such a capacity or
arising out of the status as such a person, whether or not the corporation
would have the power to indemnify such person against that liability under this
Article. If the insurance or other arrangement is with a person or entity that
is not regularly engaged in the business of providing insurance coverage, the
insurance or arrangement may provide for payment of a liability with respect to
which the corporation would not have the power to indemnify the person only if
including coverage for the additional liability has been approved by the
shareholders of the corporation. Without limiting the power of the corporation
to procure or maintain any kind of insurance or other arrangement, the
corporation may, for the benefit of persons indemnified by the corporation (a)
create a trust fund, (b) establish any form of self-insurance, (c) secure its
indemnity obligations by grant of a security interest or other lien on the
assets of the corporation, or (d) establish a letter of credit, guaranty or
surety arrangement. The insurance or other arrangement may be procured,
maintained or established within the corporation or with any insurer or other
person deemed appropriate by the board of directors, regardless of whether all
or part of the stock or other securities of the insurer or other person are
owned in whole or part by the corporation. In the absence of fraud, the
judgment of the board of directors as to the terms and conditions of the
insurance or other arrangement and the identity of the insurer or other person
participating in an arrangement shall be conclusive and the insurance or
arrangement shall not be voidable and shall not subject the directors approving
the insurance or arrangement to liability, on any ground, regardless of whether
directors participating in the approval are beneficiaries of the insurance or
arrangement.
Section 17. Any indemnification of or advance of expenses to a
director in accordance with this Article shall be reported in writing to the
shareholders with or before the notice or waiver of notice of the next meeting
of shareholders or with or before the next submission to shareholders of a
consent to action without a meeting and, in any case, within the twelve (12)
month period immediately following the date of the indemnification or advance.
Section 18. For purposes of this Article, the corporation is
deemed to have requested a director to serve an employee benefit plan whenever
the performance by the director of the director's duties to the corporation
also imposes duties on, or otherwise involves services by, the director to the
plan or participants or beneficiaries of the plan. Excise taxes assessed on a
director with respect to an employee benefit plan pursuant to applicable law
shall be deemed to be fines. Action taken or omitted by the director with
respect to an employee benefit plan in the performance of the director's duties
or for a purpose reasonably believed by the director to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the corporation.
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EXHIBIT 10(h)
PEERLESS MFG. CO.
1995 STOCK OPTION
AND RESTRICTED STOCK PLAN
1. Purpose of the Plan. This Plan shall be known as the Peerless
Mfg. Co. 1995 Stock Option and Restricted Stock Plan. The purpose of the Plan
is to attract and retain the best available personnel for positions of
substantial responsibility and to provide incentives to such personnel to
promote the success of the business of Peerless Mfg. Co. and its subsidiaries.
Certain options granted under this Plan are intended to qualify as
"incentive stock options" pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended from time to time, while certain other options granted
under the Plan will constitute nonqualified options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the
Corporation.
(b) "Common Stock" shall mean the Common Stock, $1.00 par
value per share, of the Corporation. Except as otherwise provided herein, all
Common Stock issued pursuant to the Plan shall have the same rights as all
other issued and outstanding shares of Common Stock, including but not limited
to voting rights, the right to dividends, if declared and paid, and the right
to pro rata distributions of the Corporation's assets in the event of
liquidation.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(d) "Committee" shall mean the committee described in
Section 20 that administers the Plan.
(e) "Corporation" shall mean Peerless Mfg. Co., a Texas
corporation.
(f) "Date of Grant" shall mean the date on which an
Option is granted pursuant to this Plan or, if the Committee so determines, the
date specified by the Committee as the date the award is to be effective.
(g) "Disinterested Director" shall mean a director who is
not, during the one year prior to service as an administrator of the Plan, or
during such service, granted or awarded an Option or Restricted Stock pursuant
to the Plan or any other plan of the Corporation or any of its affiliates
(except as provided in Section 20(c) of this Plan and as may be permitted by
Rule 16b-3 promulgated under the Exchange Act).
<PAGE> 2
(h) "Employee" shall mean any officer or other key
employee of the Corporation or one of its Subsidiaries (including any director
who is also an officer or key employee of the Corporation or one of its
Subsidiaries).
(i) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(j) "Fair Market Value" shall mean the closing sale price
(or average of the quoted closing bid and asked prices if there is no closing
sale price reported) of the Common Stock on the date specified as reported by
NASDAQ/NMS or by the principal national stock exchange on which the Common
Stock is then listed. If there is no reported price information for the Common
Stock, the Fair Market Value will be determined by the Committee, in its sole
discretion. In making such determination, the Committee may, but shall not be
obligated to, commission and rely upon an independent appraisal of the Common
Stock.
(k) "Nonqualified Option" shall mean any Option that is
not a Qualified Option.
(l) "Option" shall mean a stock option granted pursuant
to Section 6 of this Plan.
(m) "Optionee" shall mean any Employee or director who
receives an Option.
(n) "Participant" shall mean an Employee or director who
receives an Option or Restricted Stock pursuant to this Plan.
(o) "Plan" shall mean the Peerless Mfg. Co. 1995 Stock
Option and Restricted Stock Plan, as amended from time to time.
(p) "Qualified Option" shall mean any Option that is
intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Code.
(q) "Restricted Stock" shall mean Common Stock awarded to
an Employee or director pursuant to Section 7 of this Plan.
(r) "Rule 16b-3" shall mean Rule 16b-3 of the rules and
regulations under the Exchange Act as Rule 16b-3 may be amended from time to
time and any successor provisions to Rule 16b-3 under the Exchange Act.
(s) "Selection Procedure" shall mean the procedure set
forth in Section 8 hereof that the Committee is required to follow in granting
Options and Restricted Stock awards.
(t) "Subsidiary" shall mean any now existing or
hereinafter organized or acquired company of which more than fifty percent
(50%) of the issued and outstanding voting
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stock is owned or controlled directly or indirectly by the Corporation or
through one or more Subsidiaries of the Corporation.
3. Term of Plan. The Plan has been adopted by the Board and
shall become effective on the date it is approved by the shareholders of the
Corporation by the affirmative votes of the holders of a majority of the shares
of Common Stock then issued and outstanding, and shall continue in effect until
terminated pursuant to Section 20(a).
4. Shares Subject to the Plan. Except as otherwise provided in
Section 19 hereof, the aggregate number of shares of Common Stock issuable upon
the exercise of Options or upon the grant of Restricted Stock pursuant to this
Plan shall be 100,000 shares. Such shares may either be authorized but
unissued shares or treasury shares. The Corporation shall, during the term of
this Plan, reserve and keep available a number of shares of Common Stock
sufficient to satisfy the requirements of the Plan. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
or Restricted Stock should fail to vest and be forfeited in whole or in part
for any reason, then the shares that were subject thereto shall, unless the
Plan shall have terminated, be available for the grant of additional Options or
Restricted Stock under this Plan, subject to the limitations set forth above.
5. Eligibility. Qualified Options may be granted under Section 6
of the Plan to such Employees of the Corporation or its Subsidiaries as shall
be determined by the Committee pursuant to Selection Procedure. Nonqualified
Options may be granted under Section 6 of the Plan to such Employees and
directors of the Corporation or its Subsidiaries as shall be determined by the
Committee pursuant to the Selection Procedure. Restricted Stock may be granted
under Section 7 of the Plan to such Employees and directors of the Corporation
or its Subsidiaries as shall be determined by the Committee pursuant to the
Selection Procedure. Subject to the limitations and qualifications set forth in
this Plan (including Section 8), the Committee shall also determine the number
of Options or shares of Restricted Stock to be granted, the number of shares
subject to each Option or Restricted Stock grant, the exercise price or prices
of each Option, the vesting and exercise period of each Option and the vesting
and/or forfeiture provisions relating to Restricted Stock, whether an Option
may be exercised as to less than all of the Common Stock subject thereto, and
such other terms and conditions of each Option or grant of Restricted Stock, if
any, as are consistent with the provisions of this Plan. In connection with
the granting of Qualified Options, the aggregate Fair Market Value (determined
at the Date of Grant of a Qualified Option) of the shares with respect to which
Qualified Options are exercisable for the first time by an Optionee during any
calendar year (under all such plans of the Optionee's employer corporation and
its parent and subsidiary corporations as defined in Section 424(e) and (f) of
the Code, or a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies (collectively, such corporations described in this
sentence are hereinafter referred to as "Related Corporations")) shall not
exceed $100,000 or such other amount as from time to time provided in Section
422(d) of the Code or any successor provision.
6. Grant of Options. Except as provided in Section 20(c), the
Committee shall determine the number of shares of Common Stock to be offered
from time to time pursuant to
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Options granted hereunder and shall grant Options under the Plan. The grant of
Options shall be evidenced by Option agreements containing such terms and
provisions as are approved by the Committee and executed on behalf of the
Corporation by an appropriate officer.
7. Restricted Stock. The Committee shall determine the number of
shares of Common Stock to be granted as Restricted Stock from time to time
under the Plan. The grant of Restricted Stock shall be evidenced by Restricted
Stock agreements containing such terms and provisions as are approved by the
Committee and executed on behalf of the Corporation by an appropriate officer.
8. Selection Procedure. From time to time, the Chief Executive
Officer of the Corporation (the "CEO") shall recommend to the Committee (a)
individuals he or she believes should receive Options and/or Restricted Stock
grants, (b) the amount of shares of Common Stock he or she believes should be
subject to each recommended Option and Restricted Stock award, and (c) with
respect to any recommended Option, whether the Option should be a Qualified
Option or a Nonqualified Option (the recommendations set forth in (a), (b) and
(c) above are hereinafter referred to as the "Grant Recommendations"). In
addition, the Committee may, at any time, request the CEO to make Grant
Recommendations. The Committee shall consider any Grant Recommendation;
provided, however, the Committee shall not be required to follow a Grant
Recommendation. In addition, the Committee may, at any time, grant Options and
Restricted Stock awards to any eligible individual irrespective of whether the
CEO has made a Grant Recommendation with respect to the individual.
9. Time of Grant. The date of grant of an Option under the Plan
shall be the date on which the Committee awards the Option or Restricted Stock
or, if the Committee so determines, the date specified by the Committee as the
date the award is to be effective. Notice of the grant shall be given to each
Participant to whom an Option or Restricted Stock is granted promptly after the
date of such grant.
10. Price. The Option price for each share of Common Stock
subject to an Option (the "Exercise Price") granted pursuant to Section 6 of
the Plan shall be determined by the Committee at the Date of Grant; provided,
however, that (a) the Exercise Price for any Option shall not be less than 100%
of the Fair Market Value of the Common Stock at the Date of Grant, and (b) if
the Optionee owns on the Date of Grant more than 10 percent of the total
combined voting power of all classes of stock of the Corporation or its parent
or any of its subsidiaries, as more fully described in Section 422(b)(6) of the
Code or any successor provision (such shareholder is referred to herein as a
"10-Percent Stockholder"), the Exercise Price for any Qualified Option granted
to such Optionee shall not be less than 110% of the Fair Market Value of the
Common Stock at the Date of Grant. The Committee in its discretion may award
shares of Restricted Stock under Section 7 of the Plan to Participants without
requiring the payment of cash consideration for such shares.
11. Vesting. Subject to Section 13 of this Plan, each Option and
Restricted Stock award under the Plan shall vest in accordance with the vesting
provisions set forth in the applicable Option agreement or Restricted Stock
agreement. The Committee may, but shall not
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<PAGE> 5
be required to, permit acceleration of vesting upon any sale of the Corporation
or similar transaction. A Participant's Option agreement or Restricted Stock
agreement may contain such additional provisions with respect to vesting as the
Committee shall specify.
12. Exercise. A Participant may pay the Exercise Price of the
shares of Common Stock as to which an Option is being exercised by the delivery
of cash, check or, at the Corporation's option, by the delivery of shares of
Common Stock having a Fair Market Value on the date immediately preceding the
exercise date equal to the Exercise Price.
If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, as amended, any Option granted
under the Plan may be exercised by a broker-dealer acting on behalf of an
Optionee if (a) the broker-dealer has received from the Optionee or the
Corporation a fully- and duly-endorsed agreement evidencing such Option,
together with instructions signed by the Optionee requesting the Corporation to
deliver the shares of Common Stock subject to such Option to the broker-dealer
on behalf of the Optionee and specifying the account into which such shares
should be deposited, (b) adequate provision has been made with respect to the
payment of any withholding taxes due upon such exercise, and (c) the
broker-dealer and the Optionee have otherwise complied with Section 220.3(e)(4)
of Regulation T, 12 CFR Part 220, or any successor provision.
13. When Qualified Options May be Exercised. No Qualified Option
shall be exercisable at any time after the expiration of ten (10) years from
the Date of Grant; provided, however, that if the Optionee with respect to a
Qualified Option is a 10-Percent Stockholder on the Date of Grant of such
Qualified Option, then such Option shall not be exercisable after the
expiration of five (5) years from its Date of Grant. In addition, if an
Optionee of a Qualified Option ceases to be an employee of the Corporation or
any Related Corporation for any reason, such Optionee's vested Qualified
Options shall not be exercisable after (a) 90 days following the date such
Optionee ceases to be an employee of the Corporation or any Related
Corporation, if such cessation of service is not due to the death or permanent
and total disability (within the meaning of Section 22(e)(3) of the Code) of
the Optionee, or (b) twelve months following the date such Optionee ceases to
be an employee of the Corporation or any Related Corporation, if such cessation
of service is due to the death or permanent and total disability (as defined
above) of the Optionee. Upon the death of an Optionee, any vested Qualified
Option exercisable on the date of death may be exercised by the Optionee's
estate or by a person who acquires the right to exercise such Qualified Option
by bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both the remaining option term of the
Qualified Option and twelve months after the date of the Optionee's death.
This Section 13 only provides the outer limits of allowable exercise dates with
respect to Qualified Options; the Committee may determine that the exercise
period for a Qualified Option shall have a shorter duration than as specified
above.
14. Option Financing. Upon the exercise of any Option granted
under the Plan, the Corporation may, but shall not be required to, make
financing available to the Participant for the purchase of shares of Common
Stock pursuant to such Option on such terms as the Committee shall specify.
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15. Withholding of Taxes. The Committee shall make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Corporation is required by any law or
regulation of any governmental authority to withhold in connection with any
Option or Restricted Stock including, but not limited to, withholding the
issuance of all or any portion of the shares of Common Stock subject to such
Option or Restricted Stock until the Participant reimburses the Corporation for
the amount it is required to withhold with respect to such taxes, canceling any
portion of such issuance in an amount sufficient to reimburse the Corporation
for the amount it is required to withhold or taking any other action reasonably
required to satisfy the Corporation's withholding obligation.
16. Conditions Upon Issuance of Shares. The Corporation shall not
be obligated to sell or issue any shares upon the exercise of any Option
granted under the Plan or to deliver Restricted Stock unless the issuance and
delivery of shares shall comply with all provisions of applicable federal and
state securities laws and the requirements of any stock exchange upon which
shares of the Common Stock may then be listed.
As a condition to the exercise of an Option or the grant of
Restricted Stock, the Corporation may require the person exercising the Option
or receiving the grant of Restricted Stock to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of applicable federal and state securities laws.
The Corporation shall not be liable for refusing to sell or
issue any shares covered by any Option or for refusing to issue Restricted
Stock if the Corporation cannot obtain authority from the appropriate
regulatory bodies deemed by the Corporation to be necessary to lawfully sell or
issue such shares. In addition, the Corporation shall have no obligation to
any Participant, express or implied, to list, register or otherwise qualify the
shares of Common Stock covered by any Option or Restricted Stock.
No Participant will be, or will be deemed to be, a holder of
any Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject shares
of Common Stock. Each Option under this Plan shall be transferable only by
will or the laws of descent and distribution and shall be exercisable during
the Participant's lifetime only by such Participant.
Any Common Stock issued pursuant to the exercise of an Option
or pursuant to the grant of Restricted Stock to a person who would be deemed an
officer or director of the Corporation under Rule 16b-3 shall not be
transferred until at least six months have elapsed from the Date of Grant to
the date of disposition of the Common Stock.
17. Restrictions on Shares. Shares of Common Stock issued
pursuant to the Plan shall be subject to restrictions on transfer under
applicable federal and state securities laws. The Board may impose such
additional restrictions on the ownership and transfer of shares of Common Stock
issued pursuant to the Plan as it deems desirable; any such restrictions shall
be set forth in any Option agreement or Restricted Stock agreement entered into
hereunder.
6
<PAGE> 7
18. Modification of Options. Except as provided in Section 20(c)
of this Plan, at any time and from time to time, the Committee may execute an
instrument providing for modification, extension or renewal of any outstanding
Option, provided that no such modification, extension or renewal shall impair
the Option without the consent of the holder of the Option or conflict with the
provisions of Rule 16b-3. Notwithstanding the foregoing, in the event of such
a modification, substitution, extension or renewal of a Qualified Option, the
Committee may increase the exercise price of such Option if necessary to retain
the qualified status of such Option.
19. Effect of Change in Stock Subject to the Plan. In the event
that each of the outstanding shares of Common Stock (other than shares held by
dissenting stockholders) shall be changed into or exchanged for a different
number or kind of shares of stock of the Corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise), or in the
event a stock split or stock dividend shall have occurred, then there shall be
substituted for each share of Common Stock then subject to Options or
Restricted Stock awards or available for Options or Restricted Stock awards the
number and kind of shares of stock into which each outstanding share of Common
Stock (other than shares held by dissenting stockholders) shall be so changed
or exchanged, or the number of shares of Common Stock as is equitably required
in the event of a stock split or stock dividend, together with an appropriate
adjustment of the Exercise Price. The Board may, but shall not be required to,
provide additional anti-dilution protection to a Participant under the terms of
the Participant's Option agreement or Restricted Stock agreement.
20. Administration.
(a) Notwithstanding anything to the contrary herein, to
comply with the requirements of Rule 16b-3, the Plan shall be administered by
the Board, if each member is a Disinterested Director, or by a committee of two
or more Disinterested Directors appointed by the Board (the group responsible
for administering the Plan is referred to herein as the "Committee"). Options
and Restricted Stock may be granted under Sections 6 and 7, respectively, and
only by majority agreement of the members of the Committee. Option agreements
and Restricted Stock agreements, in the forms as approved by the Committee, and
containing such terms and conditions consistent with the provisions of this
Plan as shall have been determined by the Committee, may be executed on behalf
of the Corporation by the Chairman of the Board, the President or any Vice
President of the Corporation. Except with respect to Sections 20(b) and (c) of
this Plan, the Committee shall have complete authority to construe, interpret
and administer the provisions of this Plan and the provisions of the Option
agreements and Restricted Stock agreements granted hereunder; to prescribe,
amend and rescind rules and regulations pertaining to this Plan; to suspend or
discontinue this Plan (subject to Section 20(e)); and to make all other
determinations necessary or deemed advisable in the administration of the Plan.
The determinations, interpretations and constructions made by the Committee
shall be final and conclusive. No member of the Committee shall be liable for
any action taken, or failed to be taken, made in good faith relating to the
Plan or any award thereunder, and the members of the Committee shall be
entitled to indemnification and
7
<PAGE> 8
reimbursement by the Corporation in respect of any claim, loss, damage or
expense (including attorneys' fees) arising therefrom to the fullest extent
permitted by law.
(b) Members of the Committee shall be specified by the
Board, and shall consist solely of Disinterested Directors. Disinterested
Directors shall not be eligible to receive options to purchase Common Stock
pursuant to Section 6 of the Plan, except as specifically provided under
Section 20(c), or grants of Restricted Stock pursuant to Section 7 of the Plan.
(c) Each director (including any Disinterested Director
who so qualifies) who is not an employee or officer of the Corporation or any
Subsidiary on the date this Plan is approved by the shareholders of the
Corporation, and on the date of the annual shareholders' meeting of each year
thereafter that the director serves on the Board, shall automatically be
granted Nonqualified Options to purchase five hundred (500) shares of Common
Stock. The purchase price or prices for Common Stock subject to an option
granted under this Section 20(c), shall be 100% of the Fair Market Value of the
Common Stock as of the trading date immediately preceding the Date of Grant.
Such Options shall be exercisable on and after the Date of Grant until the
earlier of (i) ten years after the Date of Grant, or (ii) the date such
director is no longer a director of the Corporation or an officer or employee
of the Corporation or a Related Corporation. This Section 20(c) shall not be
amended more than once every six months, other than to comport with changes in
the Code or in the Employee Retirement Income Security Act of 1974, as amended,
or changes in the rules promulgated thereunder, or other applicable law.
(d) Notwithstanding Sections 20(a) and (c), to comply
with Rule 16b-3, no amendment may be made without the approval of the
shareholders of the Corporation by the affirmative votes of the holders of a
majority of the shares of Common Stock then issued and outstanding, which
amendment would materially (i) increase the benefits accruing to Participants,
(ii) increase the number of securities which may be issued under the Plan,
other than in accordance with Section 20 hereof, or (iii) modify the
requirements as to eligibility for participation in the Plan.
(e) Although the Committee may suspend or discontinue the
Plan at any time, all Qualified Options must be granted within ten (10) years
from the effective date of the Plan or the date the Plan is approved by the
shareholders of the Corporation, whichever is earlier.
21. Continued Employment Not Presumed. Nothing in this Plan or
any document describing it nor the grant of any Option or Restricted Stock
shall give any Participant the right to continue in the employment of the
Corporation or affect the right of the Corporation to terminate the employment
of any such person with or without cause.
22. Liability of the Corporation. Neither the Corporation, its
directors, officers or employees or the Committee, nor any Subsidiary which is
in existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Qualified Option
granted hereunder does not qualify for tax treatment as an incentive stock
option under Section 422 of the Code.
8
<PAGE> 9
23. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF TEXAS AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
24. Severability of Provisions. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.
9
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<S> <C> <C>
Company Domicile Ownership
- ------- -------- ---------
Peerless International N.V.* Netherlands Antilles 100%
Peerless Europe B.V. Netherlands 100%
Peerless Europe Ltd. The United Kingdom 100%
Peerless (Barbados) Inc. Barbados 100%
</TABLE>
- ---------------------
*Liquidated by unanimous motion of shareholders of the Company on August 11,
1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 772,553
<SECURITIES> 259,007
<RECEIVABLES> 9,983,517
<ALLOWANCES> 312,450
<INVENTORY> 2,993,855
<CURRENT-ASSETS> 16,136,625
<PP&E> 7,988,530
<DEPRECIATION> 5,572,291
<TOTAL-ASSETS> 19,081,593
<CURRENT-LIABILITIES> 7,552,201
<BONDS> 0
0
0
<COMMON> 1,451,992
<OTHER-SE> 9,977,438
<TOTAL-LIABILITY-AND-EQUITY> 19,081,593
<SALES> 41,486,492
<TOTAL-REVENUES> 41,486,492
<CGS> 29,961,203
<TOTAL-COSTS> 29,961,203
<OTHER-EXPENSES> 9,129,347
<LOSS-PROVISION> 249,612
<INTEREST-EXPENSE> 55,475
<INCOME-PRETAX> 537,996
<INCOME-TAX> 580
<INCOME-CONTINUING> 537,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 537,416
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0
</TABLE>
