Exhibit 10.2
PEERLESS MFG. CO.
2007 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
     THIS OPTION AWARD AGREEMENT (this “Agreement”), dated as of
                    , is entered into between PEERLESS MFG. CO., a Texas
corporation (the “Company”), and                      (“Optionee”). Capitalized
terms used herein but not defined shall have the meanings assigned to those
terms in the Peerless Mfg. Co. 2007 Stock Incentive Plan (the “Plan”).
     1. Grant of Option Right. Pursuant to the Plan, the Company hereby grants
to Optionee, as a Participant in the Plan and effective as of the Date of Grant
(as defined in Section 3), an option right (“Option Right”) to purchase
     shares (“Option Shares”) of the Company’s common stock, par value $1.00 per
share (“Common Shares”), at the price of $                     per share (the
“Option Price”).
     2. Type of Option Right. The Option Right is intended to be a nonqualified
stock option and shall not be treated as an “incentive stock option” within the
meaning of Section 422 of the Code or any successor provision.
     3. Date of Grant. The effective date of the grant of this Option Right is
                     (the “Date of Grant”).
     4. Date of Expiration. This Option Right shall expire on the [tenth]
anniversary of the Date of Grant (the “Date of Expiration”), unless earlier
terminated under Section 7(a).
     5. Vesting of Option Right.
     (a) Except as otherwise provided in this Agreement, the Option Right shall
become vested and exercisable to the extent of      % of the Option Shares on
each of the first       anniversaries of the Date of Grant[; provided, however,
that if the Board determines that Optionee has satisfied the management
objectives established by the Board and attached as Appendix A hereto as of the
      anniversary of the Date of Grant, the Option Right shall become fully
vested and exercisable on the       anniversary of the Date of Grant].
     (b) Notwithstanding the provisions of Section 5(a) above, the Option Right
shall become immediately vested and exercisable in full upon the occurrence of a
Change of Control, as defined in the Plan.
     (c) Notwithstanding Section 5(a) above, the Board, in its sole discretion,
may determine within 60 days following one of the events described in clauses
(i) through (iii) below that the Option Right shall become immediately
exercisable in full (i) if Optionee becomes permanently disabled (as determined
by the Board), (ii) if Optionee dies while an employee of the Company or a
Subsidiary, (iii) if Optionee retires at or after the earliest voluntary
retirement age permitted by his or her employer or with the consent of the
Board, or (iv) under other special circumstances.

 

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     6. Manner of Exercise.
     (a) To the extent that the Option Right is exercisable in accordance with
Section 5, the Option Right may be exercised by Optionee at any time, or from
time to time, in whole or in part on or prior to the Termination Date; provided,
however, that Optionee must exercise the Option Right in multiples of 100 Option
Shares unless fewer than 100 Option Shares are available for purchase by
Optionee under this Agreement at the time of exercise.
     (b) Optionee shall exercise the Option Right by delivering a signed written
notice to the Company, which notice shall specify the number of Option Shares to
be purchased and be accompanied by payment in full of the Option Price and any
required taxes (as provided in the Plan) for the number of Option Shares
specified for purchase; provided, however, that, with the prior approval of the
Board, payment of the Option Price may be deferred and paid from the proceeds of
sale through a bank or broker of some or all of the shares to which such
exercise relates.
     (c) The Option Price shall be payable in cash or by check acceptable to the
Company or by wire transfer of immediately available funds; provided that, if
approved by the Board, the Option Price may be payable (i) by the actual or
constructive transfer to the Company of Common Shares owned by Optionee for at
least six months having a Market Value Per Share at the time of exercise equal
to the total Option Price, or (ii) by a combination of cash, check or wire
transfer and the payment method described in clause (i).
     (d) The Company’s obligation to deliver Option Shares to Optionee is
subject to and conditioned upon Optionee satisfying all tax obligations
associated with Optionee’s exercise of the Option Right. Unless otherwise
approved by the Board, all such tax obligations shall be payable in cash or by
check acceptable to the Company or by wire transfer of immediately available
funds. The Company and its Subsidiaries, as applicable, shall be entitled to
deduct from any payment otherwise due to Optionee the amount necessary to
satisfy all such taxes.
     (e) Upon full payment of the Option Price and satisfaction of all
applicable tax obligations, and subject to the applicable terms and conditions
of the Plan and the terms and conditions of this Agreement, the Company will
cause certificates for the Option Shares purchased hereunder to be delivered to
Optionee.
     7. Termination.
     (a) The Option Right shall terminate on the earliest of the following dates
(such date, the “Termination Date”):
     (i) 90 days after Optionee’s employment with the Company or a Subsidiary is
terminated for any reason other than permanent disability (as determined by the
Board) or death; provided, however, that Optionee’s Option Right shall terminate
immediately if Optionee is terminated for cause. For purposes of the foregoing,
termination for cause shall mean the termination of Optionee’s employment
initiated by Optionee’s employer in accordance with

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policies of Optionee’s employer in effect at the time of termination; provided
however, if at the time of the termination, the Optionee is a party to an
effective employment or similar agreement with the Company or a Subsidiary,
cause shall have the meaning defined in Optionee’s agreement with the Company or
a Subsidiary;
     (ii) One year after Optionee becomes permanently disabled (as determined by
the Board) or dies, if Optionee dies or becomes permanently disabled while an
employee of the Company or Subsidiary; or
     (iii) The Date of Expiration.
     (b) Subject to Section 5(c), during the 90-day period referred to in
Section 7(a)(i) above and the one-year period referred to in Section 7(a)(ii)
above, the Option Right may be exercised only to the extent that, at the time
that Optionee ceases to be an employee of the Company or a Subsidiary, it is
exercisable pursuant to Section 5 hereof.
     (c) For the purposes of this Agreement, the continuous employment of
Optionee with the Company or a Subsidiary shall not be deemed to have been
interrupted, and Optionee shall not be deemed to have ceased to be an employee
of the Company or Subsidiary by reason of (i) the transfer of Optionee’s
employment among the Company and its Subsidiaries, (ii) an approved leave of
absence of not more than 90 days, or (iii) the period of any leave of absence
required to be granted by the Company under any law, rule, regulation or
contract applicable to Optionee’s employment with the Company or any Subsidiary.
     8. Share Certificates. All certificates evidencing Option Shares purchased
pursuant hereto, and any certificates for Common Shares issued as dividends on,
in exchange of, or as replacements for, certificates evidencing Option Shares
which, in the opinion of counsel for the Company, are subject to similar legal
requirements, shall have endorsed thereon before issuance such restrictive or
other legends as the Company (upon advice of counsel) may deem necessary or
advisable. The Company and any transfer agent shall not be required to register
or record the transfer of any such shares unless and until the Company or its
transfer agent shall have received from Optionee’s counsel an opinion, in a form
satisfactory to the Company, that any such transfer will not be in violation of
any applicable law, rule or regulation. Optionee agrees not to sell, assign,
pledge or otherwise dispose of any Option Shares or any Common Shares that are
subject to restrictions on transfer described in this Section 8 without the
Company first receiving such an opinion.
     9. Transfer. The Option Right may not be transferred by Optionee except by
will or the laws of descent and distribution and may not be exercised during the
lifetime of Optionee except by Optionee or Optionee’s guardian or legal
representative acting on behalf of Optionee in a fiduciary capacity under state
law and court supervision.
     10. Compliance with Law. The Company shall make reasonable efforts to
comply with all applicable federal or state securities laws; provided, however,
that notwithstanding any other provision of this Agreement, the Option Right
shall not be exercisable if the exercise and issuance of the Option Shares would
result in a violation of any such laws.

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     11. Employment Rights. This Agreement shall not confer on Optionee any
right with respect to the continuance of employment or other service with the
Company or any Subsidiary. No provision of this Agreement shall limit in any way
whatsoever any right that the Company or a Subsidiary may otherwise have to
terminate the employment of Optionee at any time.
     12. Communications. All notices, demands and other communications required
or permitted hereunder or designated to be given with respect to the rights or
interests covered by this Agreement shall be deemed to have been properly given
or delivered when delivered personally or sent by certified or registered mail,
return receipt requested, U.S. mail or reputable overnight carrier, with full
postage prepaid and addressed to the parties as follows:

     If to the Company, at:   the Company’s principal executive office,
addressed to the attention of the Secretary

     If to Optionee, at:   Optionee’s address provided by Optionee on the last
page hereof

Either the Company or Optionee may change the above designated address by
written notice to the other specifying such new address.
     13. Interpretation. The interpretation and construction of this Agreement
by the Board shall be final and conclusive. No member of the Board shall be
liable for any such action or determination made in good faith.
     14. Amendments. The Plan or this Agreement may be amended, suspended or
terminated in accordance with the applicable provisions of the Plan.
     15. Integration. The Option Right is granted pursuant to the Plan.
Notwithstanding anything in this Agreement to the contrary, this Agreement is
subject to all of the terms and conditions of the Plan, a copy of which has been
made available to the Optionee and is available upon request to the Secretary at
the address specified in Section 12 and which is incorporated herein by
reference. As such, this Agreement and the Plan embody the entire agreement and
understanding of the Company and Optionee and supersede any prior understandings
or agreements, whether written or oral, with respect to the Option Right.
     16. Severance. In the event that one or more of the provisions of this
Agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be separable from
the other provisions hereof and the remaining provisions hereof shall continue
to be valid and fully enforceable.
     17. Governing Law. This Agreement is made under, and shall be construed in
accordance with, the laws of the State of Texas, without regard to the conflict
of laws principles thereof.
     18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

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     IN WITNESS WHEREOF, this Agreement is executed by a duly authorized
representative of the Company on the day and year first above written.

              PEERLESS MFG. CO.
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

The undersigned Optionee hereby acknowledges receipt of an executed original of
this Agreement and accepts the Option Right subject to the applicable terms and
conditions of the Plan and the terms and conditions hereinabove set forth.

             
Date:
           
 
           
 
          Optionee

OPTIONEE: Please complete/update the following information, as applicable.

     
Name:
   
 
   
 
   
Home Address:
   
 
   
 
   
 
   
 
   
 
   
 
   
Social Security Number: