exv10w3






Exhibit 10.3




PMFG, INC.




2007 STOCK INCENTIVE PLAN

(AS AMENDED AND RESTATED

AS OF AUGUST 15, 2008)




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	1. Purpose
	 	 	1	 
	 
	2. Definitions
	 	 	1	 
	 
	3. Shares Subject to this Plan
	 	 	5	 
	 
	4. Option Rights
	 	 	6	 
	 
	5. Restricted Stock
	 	 	7	 
	 
	6. Restricted Stock Units
	 	 	8	 
	 
	7. Performance Shares and Performance Units
	 	 	9	 
	 
	8. Administration of this Plan
	 	 	10	 
	 
	9. Adjustments
	 	 	10	 
	 
	10. Change of Control
	 	 	11	 
	 
	11. Non U.S. Participants
	 	 	12	 
	 
	12. Transferability
	 	 	12	 
	 
	13. Withholding Taxes
	 	 	12	 
	 
	14. Compliance with Section 409A of the Code
	 	 	13	 
	 
	15. Effective Date
	 	 	14	 
	 
	16. Amendments
	 	 	14	 
	 
	17. Termination
	 	 	15	 
	 
	18. Governing Law
	 	 	15	 
	 
	19. Miscellaneous Provisions
	 	 	15	 






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PMFG, INC.




2007 Stock Incentive Plan (as Amended and Restated as of August 15, 2008)




     1. Purpose.
The purpose of this PMFG, Inc. 2007 Stock Incentive Plan, as amended
and restated
as of August 15, 2008, is to attract and retain directors, officers and other key employees of
PMFG, Inc. and its Subsidiaries and to provide to such persons incentives and rewards for
performance.



     2. Definitions. As used in this Plan,



          (a) “Board” means the Board of Directors of the Company and, to the extent of any delegation
by the Board to a committee (or subcommittee thereof) pursuant to Section 8 of this Plan, such
committee (or subcommittee).




          (b) “Change of Control” has the meaning provided in Section 10 of this Plan.




          (c) “Code” means the Internal Revenue Code of 1986, as amended from time to time.




          (d) “Common Stock” means Common Stock, par value $0.01 per share, of the Company or any
security into which such shares of Common Stock may be changed by reason of any transaction or
event of the type referred to in Section 9 of this Plan.




          (e) “Company” means PMFG, Inc. a Delaware corporation, and its successors.




          (f) “Covered Employee” means a Participant who is, or is determined by the Board to be likely
to become, a “covered employee” within the meaning of Section 162(m) of the Code (or any successor
provision).




          (g) “Date of Grant” means the date specified by the Board on which a grant of Option Rights,
Performance Shares, Performance Units, or a grant or sale of Restricted Stock or Restricted Stock
Units, will become effective (which date will not be earlier than the date on which the Board takes
action with respect thereto).




          (h) “Director” means a member of the Board.




          (i) “Effective Date” means the date immediately following the date on which this Plan was
approved by the shareholders of Peerless.




          (j) “Evidence of Award” means an agreement, certificate, resolution or other type or form of
writing or other evidence that sets forth the terms and conditions of Option Rights, Performance
Shares or Performance Units granted, or a grant or sale of Restricted Stock or Restricted Stock
Units. An Evidence of Award may be in an electronic medium, may be limited to notation on the
books and records of the Company and need not be signed by a representative of the Company or a
Participant.




 









 








          (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, as such law, rules and regulations may be amended from time to time.




          (l) “Incentive Stock Options” means Option Rights that are intended to qualify as “incentive
stock options” under Section 422 of the Code or any successor provision.




          (m) “Incumbent Directors” means the individuals who, as of August 15, 2008, are Directors of
the Company and any individual becoming a Director subsequent to August 15, 2008 whose election,
nomination for election by the Company’s shareholders, or appointment, was approved by a vote of at
least two-thirds of the then Incumbent Directors (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for Director, without
objection to such nomination); provided, however, that an individual shall not be
an Incumbent Director if such individual’s election or appointment to the Board occurs as a result
of an actual or threatened election contest (as described in Rule 14a-12(c) of the Exchange Act)
with respect to the election or removal of Directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board.




          (n) “Management Objectives” means the measurable performance objective or objectives
established pursuant to this Plan for Participants who have received grants of Performance Shares
or Performance Units or, when so determined by the Board, Option Rights, Restricted Stock,
Restricted Stock Units or dividend credits pursuant to this Plan. Management Objectives may be
described in terms of Company-wide objectives or objectives that are related to the performance of
the individual Participant or of the Subsidiary, division, department, region or function within
the Company or Subsidiary in which the Participant is employed. The Management Objectives may be
made relative to the performance of other companies. The Management Objectives applicable to any
award to a Covered Employee will be based on specified levels of or growth in one or more of the
following criteria:





	 	(i)	 	Appreciation in value of shares;
	 
	 	(ii)	 	Total shareholder return;
	 
	 	(iii)	 	Earnings per share;
	 
	 	(iv)	 	Operating income;
	 
	 	(v)	 	Net income;
	 
	 	(vi)	 	Pretax earnings;
	 
	 	(vii)	 	Earnings before interest, taxes, depreciation and amortization;
	 
	 	(viii)	 	Pro forma net income;
	 
	 	(ix)	 	Return on equity;
	 
	 	(x)	 	Return on designated assets;




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	 	  (xi)	 	Return on capital;
	 
	 	  (xii)	 	Economic value added;
	 
	 	  (xiii)	 	Revenues;
	 
	 	  (xiv)	 	Expenses;
	 
	 	  (xv)	 	Operating profit margin;
	 
	 	  (xvi)	 	Operating cash flow;
	 
	 	  (xvii)	 	Free cash flow;
	 
	 	  (xviii)	 	Cash flow return on investment;
	 
	 	  (xix)	 	Operating margin or net profit margin; or
	 
	 	  (xx)	 	Any of the above criteria as compared to the performance of a
published or a special index deemed applicable by the Board, including, but not
limited to, the Standard & Poor’s 500 Stock Index.





          If the Board determines that a change in the business, operations, corporate structure or
capital structure of the Company or Peerless, or the manner in which the Company conducts its
business, or other events or circumstances render the Management Objectives unsuitable, the Board
may in its discretion modify such Management Objectives or the related level or levels of
achievement, in whole or in part, as the Board deems appropriate and equitable, except in the case
of a Covered Employee where such action would result in the loss of the otherwise available
exemption of the award under Section 162(m) of the Code. In such case, the Board will not make any
modification of the Management Objectives or the level or levels of achievement with respect to
such Covered Employee.




          (o) “Market Value Per Share” means, as of any particular date, the average of the highest and
lowest reported sales prices of the Common Stock during normal trading hours on the Nasdaq Global
Market System or, if not listed on such exchange, on any other national securities exchange on
which the Common Stock is listed. If there is no regular public trading market for such Common
Stock, the Market Value Per Share of the Common Stock shall be determined by the Board.




          (p) “Optionee” means the optionee named in an Evidence of Award evidencing an outstanding
Option Right.




          (q) “Option Price” means the purchase price payable on exercise of an Option Right.




          (r) “Option Right” means the right to purchase shares of Common Stock upon exercise of an
option granted pursuant to Section 4 of this Plan.




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          (s) “Participant” means a person who is selected by the Board to receive benefits under this
Plan and who is at the time a Director, officer or other employee of the Company or any one or more
of its Subsidiaries, or who has agreed to commence serving in any of such capacities within 90 days
of the Date of Grant.




          (t) “Peerless” means Peerless Mfg. Co., a Texas corporation, and its successors.




          (u) “Performance Period” means, in respect of a Performance Share or Performance Unit, a
period of time established pursuant to Section 7 of this Plan within which the Management
Objectives relating to such Performance Share or Performance Unit are to be achieved.




          (v) “Performance Share” means a bookkeeping entry that records the equivalent of one share of
Common Stock awarded pursuant to Section 7 of this Plan.




          (w) “Performance Unit” means a bookkeeping entry awarded pursuant to Section 7 of this Plan
that records a unit equivalent to $1.00 or such other value as is determined by the Board.




          (x) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).




          (y)
“Plan” means the PMFG, Inc. 2007 Stock Incentive Plan, as
amended and restated as of
August 15, 2008, as may be amended from time to time.




          (z) “Restricted Stock” means shares of Common Stock granted or sold pursuant to Section 5 of
this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfer
has expired.




          (aa) “Restriction Period” means the period of time during which Restricted Stock Units are
subject to restrictions, as provided in Section 6 of this Plan.




          (bb) “Restricted Stock Unit” means an award made pursuant to Section 6 of this Plan of the
right to receive shares of Common Stock or cash at the end of a specified period.




          (cc) “Subsidiary” means a corporation, company or other entity (i) at least 50 percent of
whose outstanding shares or securities (representing the right to vote for the election of
directors or other managing authority) are, or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture or unincorporated association), but
at least 50 percent of whose ownership interest representing the right generally to make decisions
for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the
Company except that (A) for purposes of determining whether a Participant may receive a grant
of Incentive Stock Options, “Subsidiary” means any corporation in which at the time the
Company owns or controls, directly or indirectly, at least 50 percent of the total combined voting
power represented by all classes of stock issued by such corporation, and (B) for purposes of
determining whether a Participant may receive a grant of any other Option Rights, “Subsidiary”
means any member of the Company’s controlled group described in Section 14(b).




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          (dd) “Voting Securities” means, at any time, (i) the securities entitled to vote generally in
the election of Directors in the case of the Company, or (ii) the securities entitled to vote
generally in the election of members of the board of directors or similar body in the case of
another legal entity.




     3. Shares Subject to this Plan.



          (a) Maximum Shares Available Under Plan.





	 	 (i) 	 	Subject to adjustment as provided in Section 9 of this Plan,
the number of shares of Common Stock that may be issued or transferred (A) upon
the exercise of Option Rights; (B) as Restricted Stock and released from
substantial risks of forfeiture thereof; (C) in payment of Restricted Stock
Units; (D) in payment of Performance Shares or Performance Units that have been
earned; or (E) in payment of dividend equivalents paid with respect to awards
made under this Plan will not exceed in the aggregate 1,800,000 shares of
Common Stock, plus any shares of Common Stock relating to awards that expire or
are forfeited or are cancelled under this Plan. Such shares may be shares of
original issuance or treasury shares or a combination of the foregoing.
	 
	 	 (ii) 	 	Shares of Common Stock covered by an award granted under this
Plan shall not be counted as used unless and until they are actually issued and
delivered to a Participant. Without limiting the generality of the foregoing,
upon payment in cash of the benefit provided by any award granted under this
Plan, any shares of Common Stock that were covered by that award will be
available for issue or transfer hereunder. Notwithstanding anything to the
contrary contained herein: (A) shares of Common Stock tendered in payment of
the Option Price of a Option Right shall not be added to the aggregate plan
limit described above; (B) shares of Common Stock withheld by the Company to
satisfy the tax withholding obligation shall not be added to the aggregate plan
limit described above; and (C) shares of Common Stock that are repurchased by
the Company with Option Right proceeds shall not be added to the aggregate plan
limit described above.





          (b) Life-of-Plan Limits. Notwithstanding anything in this Section 3, or elsewhere in
this Plan, to the contrary and subject to adjustment pursuant to Section 9 of this Plan:





	 	 (i) 	 	The aggregate number of shares of Common Stock actually issued
or transferred by the Company upon the exercise of Incentive Stock Options
shall not exceed 1,800,000.
	 
	 	 (ii) 	 	The aggregate number of shares of Common Stock issued as
Restricted Stock (and released from substantial risks of forfeiture),
Restricted Stock Units, Performance Shares or Performance Units shall not
exceed 1,800,000.





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         (c) Individual Participant Limits. Notwithstanding anything in this Section 3, or
elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 9 of this
Plan:





	 	(i)	 	No Participant shall be granted Option Rights, in the
aggregate, for more than 200,000 shares of Common Stock during any calendar
year.
	 
	 	(ii)	 	No Participant will be granted Restricted Stock or Restricted
Stock Units that specify Management Objectives or Performance Shares, in the
aggregate, for more than 200,000 shares of Common Stock during any calendar
year.
	 
	 	(iii)	 	Notwithstanding any other provision of this Plan to the
contrary, in no event will any Participant in any calendar year receive an
award of Performance Units having an aggregate maximum value as of their
respective Dates of Grant in excess of $2,000,000.





     4. Option Rights. The Board may, from time to time and upon such terms and conditions as it
may determine, authorize the granting to Participants of options to purchase shares of Common
Stock. Each such grant will be subject to all of the requirements contained in the following
provisions:



          (a) Each grant will specify the number of shares of Common Stock to which it pertains subject
to the limitations set forth in Section 3 of this Plan.




          (b) Each grant will specify an Option Price per share, which may not be less than the Market
Value Per Share on the Date of Grant.




          (c) Each grant will specify whether the Option Price will be payable (i) in cash or by check
acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or
constructive transfer to the Company of shares of Common Stock owned by the Optionee having a value
at the time of exercise equal to the total Option Price, (iii) by a combination of such methods of
payment, or (iv) by such other methods as may be approved by the Board.




          (d) To the extent permitted by law, any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of
some or all of the shares to which such exercise relates.




          (e) Successive grants may be made to the same Participant whether or not any Option Rights
previously granted to such Participant remain unexercised.




          (f) Each grant will specify the period or periods of continuous service by the Optionee with
the Company or any Subsidiary that is necessary before the Option Rights or installments thereof
will become exercisable. A grant of Option Rights may provide for the earlier exercise of such
Option Rights in the event of retirement, death or disability of the Participant or a Change of
Control.




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          (g) Any grant of Option Rights may specify Management Objectives that must be achieved as a
condition to the exercise of such rights. The grant of such Option Rights will specify that,
before the exercise of such rights, the Board must determine that the Management Objectives have
been satisfied.




          (h) Option Rights granted under this Plan may be (i) options, including, without limitation,
Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii)
options that are not intended so to qualify, or (iii) combinations of the foregoing.




          (i) No Option Right will be exercisable more than 10 years from the Date of Grant.




          (j) Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of
Award shall be subject to this Plan and shall contain such terms and provisions, consistent with
this Plan, as the Board may approve.




     5. Restricted Stock. The Board may also authorize the grant or sale of Restricted Stock to
Participants. Each such grant or sale will be subject to all of the requirements contained in the
following provisions:



          (a) Each such grant or sale will constitute an immediate transfer of the ownership of shares
of Common Stock to the Participant in consideration of the performance of services, entitling such
Participant to voting, dividend and other ownership rights, but subject to the substantial risk of
forfeiture and restrictions on transfer hereinafter referred to.




          (b) Each such grant or sale may be made without additional consideration or in consideration
of a payment by such Participant that is less than the Market Value Per Share at the Date of Grant.




          (c) Each such grant or sale will provide that the Restricted Stock covered by such grant or
sale that vests upon the passage of time will be subject to a “substantial risk of forfeiture”
within the meaning of Section 83 of the Code for a period of not less than one year to
be determined by the Board at the Date of Grant and may provide for the earlier lapse of such
substantial risk of forfeiture as provided in Section 5(e) below or (i) with respect to shares of
Restricted Stock granted to non-employee Directors, (ii) in the event of retirement, death or
disability of the Participant or (iii) in the event of a Change of Control.




          (d) Each such grant or sale will provide that during the period for which such substantial
risk of forfeiture is to continue, the transferability of the Restricted Stock will be prohibited
or restricted in the manner and to the extent prescribed by the Board at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first refusal in the Company
or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the
hands of any transferee).




          (e) Any grant of Restricted Stock may specify Management Objectives that, if achieved, will
result in termination or early termination of the restrictions applicable to such Restricted Stock
and in addition, may provide for the earlier termination of these
restrictions in






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 the event of (i)
the retirement, death or disability of the Participant or (ii) a Change of Control;
provided, however, that restrictions relating to Restricted Stock that vests upon
the achievement of Management Objectives may not terminate sooner than one year from the Date of
Grant. Each grant may specify in respect of such Management Objectives a minimum acceptable level
of achievement and may set forth a formula for determining the number of shares of Restricted Stock
on which restrictions will terminate if performance is at or above the minimum level, but falls
short of full achievement of the specified Management Objectives. The grant of Restricted Stock
will specify that, before the termination or early termination of the restrictions applicable to
such Restricted Stock, the Board must determine that the Management Objectives have been satisfied.




          (f) Any such grant or sale of Restricted Stock may require that any or all dividends or other
distributions paid thereon during the period of such restrictions be automatically deferred and
reinvested in additional shares of Restricted Stock, which may be subject to the same restrictions
as the underlying award.




          (g) Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award and will
contain such terms and provisions, consistent with this Plan, as the Board may approve. Unless
otherwise directed by the Board, all certificates representing shares of Restricted Stock will be
held in custody by the Company until all restrictions thereon will have lapsed, together with a
stock power or powers executed by the Participant in whose name such certificates are registered,
endorsed in blank and covering such Shares.




     6. Restricted Stock Units. The Board may also authorize the granting or sale of Restricted
Stock Units to Participants. Each such grant or sale will be subject to all of the requirements
contained in the following provisions:



          (a) Each such grant or sale will constitute the agreement by the Company to deliver shares of
Common Stock or cash to the Participant in the future in consideration of the performance of
services, but subject to the fulfillment of such conditions (which may include the
achievement of Management Objectives) during the Restriction Period as the Board may specify.
If a grant of Restricted Stock Units specifies that the Restriction Period will terminate upon the
achievement of Management Objectives, such Restriction Period may not terminate sooner than one
year from the Date of Grant; provided, however the Board may provide for the
earlier termination of these restrictions in the event of (i) the retirement, death or disability
of the Participant or (ii) a Change of Control. Each grant may specify in respect of such
Management Objectives a minimum acceptable level of achievement and may set forth a formula for
determining the number of shares of Restricted Stock Units on which restrictions will terminate if
performance is at or above the minimum level, but falls short of full achievement of the specified
Management Objectives. The grant of such Restricted Stock Units will specify that, before the
termination or early termination of the restrictions applicable to such Restricted Stock Units, the
Board must determine that the Management Objectives have been satisfied.




          (b) Each such grant or sale may be made without additional consideration or in consideration
of a payment by such Participant that is less than the Market Value Per Share at the Date of Grant.



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          (c) If the Restriction Period lapses only by the passage of time, each such grant or sale will
be subject to a Restriction Period of not less than one year, as determined by the Board at the
Date of Grant, and may provide for the earlier lapse or other modification of such Restriction
Period in the event of retirement, death or disability of the Participant or a Change of Control.




          (d) During the Restriction Period, the Participant will have no right to transfer any rights
under his or her award and will have no rights of ownership in the Restricted Stock Units and will
have no right to vote them, but the Board may at the Date of Grant, authorize the payment of
dividend equivalents on such Restricted Stock Units on either a current, deferred or contingent
basis, either in cash or in additional shares of Common Stock.




          (e) Each grant or sale will specify the time and manner of payment of Restricted Stock Units
that have been earned. Any grant or sale may specify that the amount payable with respect thereto
may be paid by the Company in cash, in shares of Common Stock or in any combination thereof and may
either grant to the Participant or retain in the Board the right to elect among those alternatives.




          (f) Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award and
will contain such terms and provisions, consistent with this Plan, as the Board may approve.




     7. Performance Shares and Performance Units. The Board may also authorize the granting of
Performance Shares and Performance Units that will become payable to a Participant upon achievement
of specified Management Objectives during the Performance Period. Each such grant will be subject
to all of the requirements contained in the following provisions:



          (a) Each grant will specify the number of Performance Shares or Performance Units to which it
pertains, which number may be subject to adjustment to reflect changes in compensation or other
factors; provided, however, that no such adjustment will be made in the case of a
Covered Employee where such action would result in the loss of the otherwise available exemption of
the award under Section 162(m) of the Code.




          (b) The Performance Period with respect to each Performance Share or Performance Unit will be
such period of time (not less than one year), commencing with the Date of Grant as will be
determined by the Board at the time of grant which may be subject to earlier lapse or other
modification in the event of retirement, death or disability of the Participant or a Change of
Control.




          (c) Any grant of Performance Shares or Performance Units will specify Management Objectives
which, if achieved, will result in payment or early payment of the award, and each grant may
specify in respect of such specified Management Objectives level or levels of achievement and will
set forth a formula for determining the number of Performance Shares or Performance Units that will
be earned if performance is at or above the level(s), but falls short of full achievement of the
specified Management Objectives. The grant of Performance Shares or Performance Units will specify
that, before the Performance Shares or Performance Units will be earned and paid, the Board must
determine that the Management




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Objectives have been satisfied; provided, however the
Board may provide for the earlier termination of these restrictions in the event of (i) the
retirement, death or disability of the Participant or (ii) a Change of Control.




          (d) Each grant will specify the time and manner of payment of Performance Shares or
Performance Units that have been earned. Any grant may specify that the amount payable with
respect thereto may be paid by the Company in cash, in shares of Common Stock or in any combination
thereof and may either grant to the Participant or retain in the Board the right to elect among
those alternatives.




          (e) Any grant of Performance Shares may specify that the amount payable with respect thereto
may not exceed a maximum specified by the Board at the Date of Grant. Any grant of Performance
Units may specify that the amount payable or the number of shares of Common Stock issued with
respect thereto may not exceed maximums specified by the Board at the Date of Grant.




          (f) The Board may at the Date of Grant of Performance Shares, provide for the payment of
dividend equivalents to the holder thereof on either a current, deferred or contingent basis,
either in cash or in additional shares of Common Stock.




          (g) Each grant of Performance Shares or Performance Units will be evidenced by an Evidence of
Award and will contain such other terms and provisions, consistent with this Plan, as the Board may
approve.




     8. Administration of this Plan.



          (a) This Plan will be administered by the Board, which may from time to time delegate all or
any part of its authority under this Plan to the Compensation Committee of the Board or any other
committee of the Board (or a subcommittee thereof), as constituted from time to time. To the
extent of any such delegation, references in this Plan to the Board will be deemed to be references
to such committee or subcommittee.




          (b) The interpretation and construction by the Board of any provision of this Plan or of any
agreement, notification or document evidencing the grant of Option Rights, Restricted Stock,
Restricted Stock Units, Performance Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement, notification or document will be
final and conclusive.




          (c) To the extent permitted by Texas law, the Board may, from time to time, delegate to one or
more officers of the Company the authority of the Board to grant and determine the terms and
conditions of awards granted under this Plan. In no event shall any such delegation of authority
be permitted with respect to awards to any executive officer or any other person subject to Section
162(m) of the Code.




     9. Adjustments. The Board shall make or provide for such adjustments in the numbers of shares
of Common Stock covered by outstanding Option Rights, Restricted Stock Units, Performance Shares
and Performance Units granted hereunder, in the Option Price, and in the kind of shares covered
thereby, as the Board, in its sole discretion, may determine is



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equitably required to prevent
dilution or enlargement of the rights of Participants or Optionees that otherwise would result from
(a) any stock dividend, stock split, combination of shares, recapitalization or other change in the
capital structure of the Company, or (b) any merger, consolidation, spin-off, split- off, spin-out,
split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance
of rights or warrants to purchase securities, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. Moreover, in the event of any such transaction
or event, the Board, in its discretion, may provide in substitution for any or all outstanding
awards under this Plan such alternative consideration (including cash), if any, as it may determine
to be equitable in the circumstances and may require in connection therewith the surrender of all
awards so replaced. The Board may also make or provide for such adjustments in the numbers of
shares specified in Section 3 of this Plan as the Board in its sole discretion may determine is
appropriate to reflect any transaction or event described in this Section 9; provided,
however, that any such adjustment to the number specified in Section 3(b)(i) will be made
only if and to the extent that such adjustment would not cause any option intended to qualify as an
Incentive Stock Option to fail so to qualify.




     10. Change of Control. For purposes of this Plan, except as may be otherwise defined in an
individual Participant’s Evidence of Award, a “Change of Control” shall mean the occurrence of any
of the following events:



          (a) the acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of the then outstanding Voting Securities of the
Company; provided, however, that for purposes of this Section 10(a),
the following acquisitions shall not constitute a Change of Control: (A) any acquisition by
the Company or a Subsidiary of Voting Securities, (B) any acquisition of Voting Securities by any
employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary
or (C) any acquisition of Voting Securities by any Person pursuant to a Business Combination that
complies with clauses (A), (B) and (C) of Section 10(c) below;




          (b) a majority of the Board ceases to be comprised of Incumbent Directors;




          (c) consummation of a reorganization, merger or consolidation, a sale or other disposition of
all or substantially all of the assets of the Company or other transaction (each, a “Business
Combination”), unless, in each case, immediately following the Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial owners of Voting
Securities immediately prior to the Business Combination beneficially own, directly or indirectly,
more than 50% of the combined voting power of the then outstanding Voting Securities of the entity
resulting from the Business Combination (including, without limitation, an entity which as a result
of such transaction owns the Company or all or substantially all of the Company’s assets either
directly or through one or more subsidiaries), (B) no Person (other than the Company, such entity
resulting from the Business Combination, or any employee benefit plan (or related trust) sponsored
or maintained by the Company, any Subsidiary or such entity resulting from the Business
Combination) beneficially owns, directly or indirectly, 50% or more of the combined voting power of
the then outstanding Voting Securities of the entity resulting from the Business Combination;
provided, however, that no Person will be treated for purposes of this Section
10(c) as beneficially owning 50% or more of the Voting Securities of the entity resulting from the
Business Combination solely as a result of the Voting Securities held in the Company prior to
consummation of the Business Combination and (C) at




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least a majority of the members of the board of
directors of the entity resulting from the Business Combination were Incumbent Directors at the
time of the execution of the initial agreement or of the action of the Board providing for the
Business Combination; or




          (d) approval by the shareholders of the Company of a complete liquidation or dissolution of
the Company, except pursuant to a Business Combination that complies with clauses (A), (B) and (C)
of Section 10(c) hereof.




     11. Non U.S. Participants. In order to facilitate the making of any grant or combination of
grants under this Plan, the Board may provide for such special terms for awards to Participants who
are foreign nationals or who are employed by the Company or any Subsidiary outside of the United
States of America or who provide services to the Company under an agreement with a foreign nation
or agency, as the Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to or amendments,
restatements or alternative versions of this Plan (including, without limitation, sub-plans) as it
may consider necessary or appropriate for such purposes, without thereby affecting the terms of
this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the
Company may certify any such document as having been approved and adopted in the same manner as
this Plan. No such special terms, supplements, amendments or restatements, however, will include
any provisions that are
inconsistent with the terms of this Plan as then in effect unless this Plan could have been
amended to eliminate such inconsistency without further approval by the shareholders of the
Company.



     12. Transferability.



          (a) No Option Right granted under this Plan shall be transferable by the Participant except by
will or the laws of descent and distribution. Except as otherwise determined by the Board, Option
Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of
the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting
on behalf of the Participant in a fiduciary capacity under state law and/or court supervision.




          (b) The Board may specify at the Date of Grant that part or all of the shares of Common Stock
that are (i) to be issued or transferred by the Company upon the exercise of Option Rights, upon
the termination of the Restriction Period applicable to Restricted Stock Units or upon payment
under any grant of Performance Shares or Performance Units or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in Section 5 of this Plan,
will be subject to further restrictions on transfer.




     13. Withholding Taxes. To the extent that the Company is required to withhold federal, state,
local or foreign taxes in connection with any payment made or benefit realized by a Participant or
other person under this Plan, and the amounts available to the Company for such withholding are
insufficient, it will be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory to the Company for
payment of the balance of such taxes required to be withheld, which arrangements (in the discretion
of the Board) may include relinquishment of a portion of such benefit. If a Participant’s benefit
is to be received in the form of Common Stock, and such



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Participant fails to make arrangements for
the payment of tax, the Company shall withhold such shares of Common Stock having a value equal to
the amount required to be withheld. Notwithstanding the foregoing, unless otherwise provided by
the Board, when a Participant is required to pay the Company an amount required to be withheld
under applicable income and employment tax laws, the Participant may elect to satisfy the
obligation, in whole or in part, by electing to have withheld, from the shares required to be
delivered to the Participant, shares of Common Stock having a value equal to the amount required to
be withheld (except in the case of Restricted Stock where an election under Section 83(b) of the
Code has been made), or by delivering to the Company other shares of Common Stock held by such
Participant. The shares used for tax withholding will be valued at an amount equal to the Market
Value Per Share of such Common Stock on the date the benefit is to be included in Participant’s
income. In no event shall the Market Value Per Share of the shares of Common Stock to be withheld
and/or delivered pursuant to this Section 13 to satisfy applicable withholding taxes in connection
with the benefit exceed the minimum amount of taxes required to be withheld. Participants shall
also make such arrangements as the Company may require for the payment of any withholding tax
obligation that may arise in connection with the disposition of shares of Common Stock acquired
upon the exercise of Option Rights.




     14. Compliance with Section 409A of the Code.



          (a) To the extent applicable, it is intended that this Plan and any grants made hereunder
comply with the provisions of Section 409A of the Code. This Plan and any grants made hereunder
shall be administrated in a manner consistent with this intent, and any provision that would cause
this Plan or any grant made hereunder to fail to satisfy Section 409A of the Code shall have no
force and effect until amended to comply with Section 409A of the Code (which amendment may be
retroactive to the extent permitted by Section 409A of the Code and may be made by the Company
without the consent of Participants). Any reference in this Plan to Section 409A of the Code will
also include any regulations or any other guidance promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue Service.




          (b) In order to determine for purposes of Section 409A of the Code whether a Participant is
employed by a member of the Company’s controlled group of corporations under Section 414(b) of the
Code (or by a member of a group of trades or businesses under common control with the Company under
Section 414(c) of the Code) and, therefore, whether the shares of Common Stock that are or have
been purchased by or awarded under this Plan to the Participant are shares of “service recipient”
stock within the meaning of Section 409A of the Code:





	 	(i)	 	In applying Code Section 1563(a)(1), (2) and (3) for purposes
of determining the Company’s controlled group under Section 414(b) of the Code,
the language “at least 50 percent” is to be used instead of “at least 80
percent” each place it appears in Code Section 1563(a)(1), (2) and (3); and
	 
	 	(ii)	 	In applying Treasury Regulation Section 1.414(c)-2 for purposes
of determining trades or businesses under common control with the Company for
purposes of Section 414(c) of the Code, the language “at




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	 	 	 	least 50 percent” is
to be used instead of “at least 80 percent” each place it appears in Treasury
Regulation Section 1.414(c)-2.





          (c) Notwithstanding any provision of this Plan to the contrary, to the extent an award shall
be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of a Change
of Control and such Change of Control does not constitute a “change in the ownership or effective
control” or a “change in the ownership or a substantial portion of the assets” of the Company
within the meaning of Section 409A(a)(2)(A)(v) of the Code, then even though such award may be
deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of the Change of
Control or any other provision of this Plan, payment will be made, to the extent necessary to
comply with the provisions of Section 409A of the Code, to the Participant the earliest of (i) the
Participant’s “separation from service” with the Company (determined in accordance with Section
409A of the Code); provided, however, that if the Participant is a “specified employee” (within the
meaning of Section 409A of the Code), the payment date shall be the date that is six months after
the date of the Participant’s separation
from service with the Company, (ii) the date payment otherwise would have been made in the
absence of any provisions in this Plan to the contrary (provided such date is permissible under
Section 409A of the Code), or (iii) the Participant’s death.




     15. Effective Date. This Plan was effective as of the Effective Date. In connection with a
reorganization of Peerless into a holding company structure, this Plan was assumed by the Company
and amended and restated to reflect such assumption. No grants will be made under the 1995 Stock
Option and Restricted Stock Plan for Employees of Peerless Mfg. Co. (as Amended and Restated as of
August 15, 2008), as amended, and the 2001 Stock Option and Restricted Stock Plan for Employees of
Peerless Mfg. Co. (as Amended and Restated as of August 15, 2008), on or after the Effective Date.



     16. Amendments.



          (a) The Board may at any time and from time to time amend this Plan in whole or in part;
provided, however, that if an amendment to this Plan (i) would materially increase
the benefits accruing to Participants under this Plan, (ii) would materially increase the number of
securities which may be issued under this Plan, (iii) would materially modify the requirements for
participation in this Plan or (iv) must otherwise be approved by the shareholders of the Company in
order to comply with applicable law or the rules of the Nasdaq Stock Market or, if the shares of
Common Stock are not traded on the Nasdaq Global Market System, the principal national securities
exchange upon which the shares of Common Stock are traded or quoted, then, such amendment will be
subject to shareholder approval and will not be effective unless and until such approval has been
obtained.




          (b) The Board will not, without the further approval of the shareholders of the Company,
authorize the amendment of any outstanding Option Right to reduce the Option Price. Furthermore,
no Option Right will be cancelled and replaced with awards having a lower Option Price without
further approval of the shareholders of the Company. This Section 16(b) is intended to prohibit
the repricing of “underwater” Option Rights and will not be construed to prohibit the adjustments
provided for in Section 9 of this Plan.



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          (c) If permitted by Section 409A of the Code, in case of termination of employment by reason
of death, disability or normal or early retirement, or in the case of unforeseeable emergency or
other special circumstances, of a Participant who holds an Option Right not immediately exercisable
in full, or any shares of Restricted Stock as to which the substantial risk of forfeiture or the
prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which
the Restriction Period has not been completed, or any Performance Shares or Performance Units which
have not been fully earned, or who holds shares of Common Stock subject to any transfer restriction
imposed pursuant to Section 12 of this Plan, the Board may, in its sole discretion, accelerate the
time at which such Option Right, or other award may be exercised or the time at which such
substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time
when such Restriction Period will end or the time at which such Performance Shares or Performance
Units will be deemed to have been fully earned
or the time when such transfer restriction will terminate or may waive any other limitation or
requirement under any such award.




          (d) Subject to Section 16(b) hereof, the Board may amend the terms of any award theretofore
granted under this Plan prospectively or retroactively, except in the case of a Covered Employee
where such action would result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code. In such case, the Board will not make any modification of the
Management Objectives or the level or levels of achievement with respect to such Covered Employee.
Subject to Section 9 above, no such amendment shall impair the rights of any Participant without
his or her consent. The Board may, in its discretion, terminate this Plan at any time.
Termination of this Plan will not affect the rights of Participants or their successors under any
awards outstanding hereunder and not exercised in full on the date of termination.




     17. Termination. No grant will be made under this Plan more than 10 years after the date on
which this Plan was first approved by the shareholders of Peerless, but all grants made on or prior
to such date will continue in effect thereafter subject to the terms thereof and of this Plan.



     18. Governing Law. This Plan and all grants and awards and actions taken thereunder shall be
governed by and construed in accordance with the internal substantive laws of the State of Texas.



     19. Miscellaneous Provisions.



          (a) The Company will not be required to issue any fractional shares of Common Stock pursuant
to this Plan. The Board may provide for the elimination of fractions or for the settlement of
fractions in cash.




          (b) This Plan will not confer upon any Participant any right with respect to continuance of
employment or other service with the Company or any Subsidiary, nor will it interfere in any way
with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s
employment or other service at any time.




          (c) To the extent that any provision of this Plan would prevent any Option Right that was
intended to qualify as an Incentive Stock Option from qualifying as such, that






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provision will be
null and void with respect to such Option Right. Such provision, however, will remain in effect
for other Option Rights and there will be no further effect on any provision of this Plan.




          (d) No award under this Plan may be exercised by the holder thereof if such exercise, and the
receipt of cash or stock thereunder, would be, in the opinion of counsel selected by the Board,
contrary to law or the regulations of any duly constituted authority having jurisdiction over this
Plan.




          (e) Absence on leave approved by a duly constituted officer of the Company or any of its
Subsidiaries shall not be considered interruption or termination of service of any employee for any
purposes of this Plan or awards granted hereunder, except that no awards may be granted to an
employee while he or she is absent on leave.




          (f) No Participant shall have any rights as a shareholder with respect to any shares subject
to awards granted to him or her under this Plan prior to the date as of which he or she is actually
recorded as the holder of such shares upon the stock records of the Company.




          (g) The Board may condition the grant of any award or combination of awards authorized under
this Plan on the surrender or deferral by the Participant of his or her right to receive a cash
bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant.




          (h) Participants shall provide the Company with a written election form setting forth the name
and contact information of the person who will have beneficial ownership rights upon the death of
the Participant.




          (i) If any provision of this Plan is or becomes invalid, illegal or unenforceable in any
jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the
Board, such provision shall be construed or deemed amended or limited in scope to conform to
applicable laws or, in the discretion of the Board, it shall be stricken and the remainder of this
Plan shall remain in full force and effect.




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