PEERLESS MFG. CO.
RESTRICTED STOCK AGREEMENT
     THIS RESTRICTED STOCK AGREEMENT (this “Agreement”) is made as of this
___day of ___(the “Effective Date”), by and between Peerless Mfg. Co. (the
“Company”), a Texas corporation, and ___(“Grantee”).
W I T N E S S E T H:
     WHEREAS, the Company has implemented its 2001 Stock Option and Restricted
Stock Plan, as amended (the “Plan”), which provides for the grant of shares of
common stock of the Company, $1.00 par value per share (the “Common Stock”), to
certain selected employees and directors of the Company or its subsidiaries;
     WHEREAS, the committee appointed by the Board of Directors of the Company
(the “Board”) to administer the Plan (the “Committee”) has selected the Grantee
to participate in the Plan and has awarded the restricted Common Stock described
in this Agreement (the “Restricted Stock”) to the Grantee;
     WHEREAS, the restricted stock provided for under the Plan is intended to
comply with the requirements of Rule 16b-3 under the Securities Exchange Act of
1934, as amended; and
     WHEREAS, the parties hereto desire to evidence in writing the terms and
conditions of the Restricted Stock.
     NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements herein contained, and as an inducement to the Grantee
to continue in employment with the Company or its subsidiaries and to promote
the success of the business of the Company and its subsidiaries, the parties
hereby agree as follows:
     1. Grant of Restricted Stock. The Company hereby grants to the Grantee,
upon the terms and subject to the conditions, limitations and restrictions set
forth in the Plan and in this Agreement, ___shares of Restricted Stock (the
“Shares”), effective as of the date of this Agreement. The Grantee hereby
accepts the Shares from the Company.
     2. Vesting. The Shares shall vest ratably in four equal annual increments
commencing on the first anniversary of the Effective Date. Notwithstanding the
preceding sentence, the Shares shall immediately vest in full upon any “Sale of
the Corporation.” A “Sale of the Corporation” shall occur if the Corporation
shall engage in a merger, consolidation, recapitalization, reorganization or
sale, lease or transfer of all or substantially all of the Corporation’s assets
and the Corporation or its stockholders or affiliates immediately before such
transaction shall beneficially own, immediately after or as a result of such
transaction, equity securities of the surviving or acquiring corporation or such
corporation’s parent corporation possessing less than fifty-one percent (51%) of
the voting power of the surviving or acquiring corporation or such corporation’s
parent corporation, provided that, a Sale of the Corporation

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shall not be deemed to occur upon any public offering or series of such
offerings of securities of the Corporation or its affiliates that results in any
such change in beneficial ownership.
     3. Ownership of Restricted Stock. From and after the Effective Date and
prior to forfeiture, Grantee will be entitled to all the rights of absolute
ownership of the Shares, including the right to vote those Shares and to receive
dividends thereon if, as, and when declared by the Board, which dividends will
be paid to the Grantee no later than the end of the calendar year in which such
dividends are paid to the other holders of Common Stock, or if later, the 15th
day of the third month following the date such dividends are paid to the other
holders of Common Stock.
     4. Forfeiture of Shares. Upon termination of the Grantee’s employment with
the Company or its subsidiaries for any reason, any Shares that have not vested
will be immediately forfeited, without any further action by the Company. The
right of the Grantee to receive any benefits from the Company or its
subsidiaries after termination of employment or service to the Company or its
subsidiaries by reason of employment contract, severance arrangement or
otherwise shall not affect the determination that the Grantee’s employment or
service has been terminated with the Company or its subsidiaries for purposes of
this Agreement.
     5. Tax Withholding. Any provision of this Agreement to the contrary
notwithstanding, the Company may take such steps as it deems necessary or
desirable for the withholding of any taxes that it is required by law or
regulation of any governmental authority, federal, state or local, domestic or
foreign, to withhold in connection with the grant or vesting of any of the
Shares subject hereto.
     6. Transfer of Shares. The Grantee shall not, directly or indirectly, sell,
transfer, pledge, encumber or hypothecate (“Transfer”) any unvested Shares. Any
such Transfer will be void and of no force or effect, and will result in the
immediate forfeiture of all Shares, whether vested or not. The Company may elect
to hold any certificates representing the Shares until after the Shares have
vested. If the Company elects to hold certificates representing unvested Shares,
then once the Shares vest, upon the request of the Grantee, the Company will
deliver to the Grantee a stock certificate representing the Shares that have
vested. If a certificate representing Shares has been issued, the certificate
will be affixed with a legend setting forth the restrictions applicable to the
Transfer of such Shares. The Shares will not be liable for or subject to, in
whole or in part, the debts, contracts, liabilities or torts of the Grantee, nor
shall they be subject to garnishment, attachment, execution, levy or other legal
or equitable process. To the extent Shares have vested, such Shares shall
thereafter be freely transferable by the Grantee, provided that, the Grantee
agrees for himself or herself and his or her heirs, legatees and legal
representatives, with respect to all Shares acquired pursuant to the terms and
conditions of this Agreement (or any shares of Common Stock issued pursuant to a
stock dividend or stock split thereon or any securities issued in lieu thereof
or in substitution or exchange therefor), that the Grantee and the Grantee’s
heirs, legatees and legal representatives will not sell or otherwise dispose of
such Shares except pursuant to a registration statement filed by the Company
that has been declared effective by the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the “Act”), or except in a transaction
which is determined by counsel to the Company to be exempt from registration
under the Act and any applicable state securities laws;

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and to execute and deliver to the Company such investment representations and
warranties, and to take such other actions, as counsel for the Company
determines may be necessary or appropriate for compliance with the Act and any
other applicable securities laws.
     7. Certain Legal Restrictions. The Company shall have no obligation to the
Grantee, express or implied, to list, register or otherwise qualify any of the
Shares. The Shares may not be transferred except in accordance with applicable
federal or state securities laws. At the Company’s option, the certificate
evidencing Shares issued to the Grantee may be legended with one or more of the
following legends:
          (a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED OR PLEDGED EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF
SUCH ACT AND THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION;
          (b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND ARE SUBJECT TO FORFEITURE
AS SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER.
With respect to any vested Shares, the Grantee shall be entitled, upon request,
to receive a new certificate for such Shares without the legend contained in
paragraph (b) above.
     8. Plan Incorporated. The Grantee accepts the Shares subject to all the
provisions of the Plan, which are incorporated into this Agreement, including
the provisions that authorize the Committee to administer and interpret the Plan
and which provide that the Committee’s decisions, determinations and
interpretations with respect to the Plan are final and conclusive on all persons
affected thereby. Except as otherwise set forth in this Agreement, terms defined
in the Plan have the same meanings herein. By executing this Agreement, Grantee
acknowledges receipt of copy of the Plan.
     9. Miscellaneous.
          (a) Nothing contained in this Agreement shall affect the right of the
Company to terminate the Grantee’s employment or service to the Company at any
time, with or without cause, or shall be deemed to create any rights to
employment or continuance as a director or consultant of the Company on the part
of the Grantee.

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          (b) The rights and obligations arising under this Agreement are not
intended to and do not affect the employment relationship or other relationship
that otherwise exists between the Company and the Grantee, whether such
relationship is at will or defined by an employment contract, or otherwise.
Moreover, this Agreement is not intended to and does not amend any existing
employment or consulting contract between the Company and the Grantee.
          (c) Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Any notice
to be given to the Company under the terms of this Agreement or any delivery of
the Shares to the Company shall be addressed to the Company at its principal
executive offices, and any notice to be given to the Grantee shall be addressed
to the Grantee at the address set forth beneath his or her signature hereto, or
at such other address for a party as such party may hereafter designate in
writing to the other. Any such notice shall be deemed to have been delivered on
the date which it is personally delivered, or, whether actually received or not,
on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the party who is to
receive it at the above specified address.
          (d) Subject to the limitations in this Agreement on the
transferability by the Grantee of the Shares, this Agreement shall be binding
upon and inure to the benefit of the representatives, executors, successors or
beneficiaries of the parties hereto.
          (e) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
          (f) If any provision of this Agreement is declared or found to be
illegal, unenforceable or void, in whole or in part, then the parties shall be
relieved of all obligations arising under such provision, but only to the extent
that it is illegal, unenforceable or void, it being the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objectives.
          (g) All section titles and captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement, and in no way
shall define, limit, extend or describe the scope or intent of any provisions of
this Agreement.
          (h) The parties shall execute all documents, provide all information,
and take or refrain from taking all actions as may be necessary or appropriate
to achieve the purposes of this Agreement.

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          (i) This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
          (j) No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
          (k) This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
          (l) At any time and from time to time the Committee may execute an
instrument providing for modification of any outstanding shares of restricted
stock, provided that no such modification, extension or renewal shall (i) impair
the Shares in any respect without the consent of the holder of the Shares or
(ii) conflict with the provisions of Rule 16b-3. Except as provided in the
preceding sentence, no supplement, modification or amendment of this Agreement
or waiver of any provision of this Agreement shall be binding unless executed in
writing by all parties to this Agreement. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision of this Agreement (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
          (m) In addition to all other rights or remedies available at law or in
equity, the Company shall be entitled to injunctive and other equitable relief
to prevent or enjoin any violation of the provisions of this Agreement.
          (n) The Grantee’s spouse joins this Agreement for the purpose of
agreeing to and accepting the terms of this Agreement and to bind any community
property interest he or she has or may have in the Shares, any vested portion or
any unvested portion of the Shares and any other shares of Common Stock held by
the Grantee.
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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

         
 
            COMPANY:
 
            PEERLESS MFG. CO.
 
       
 
  By:    
 
       
 
            GRANTEE:
 
       
 
             
 
       
 
  Address:    
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
            GRANTEE’S SPOUSE:
 
       
 
             
 
            Name:
 
       

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