<PAGE>

                                                                   EXHIBIT 10(f)

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into to be
effective as of October 10, 2003 (the "Effective Date"), between PEERLESS MFG.
CO. ("Employer"), and DAVID TAYLOR ("Employee").

SECTION 1. EMPLOYMENT.

         1.1      Employment and Term. Subject to the terms and conditions of
this Agreement, Employer agrees to employ Employee pursuant to this Agreement
for a term beginning on the Effective Date and ending on the third anniversary
date of the Effective Date, unless Employee's employment is terminated earlier
as provided in Section 4 below. Notwithstanding the foregoing, in no event will
the term of Employee's employment hereunder be less than 90 days from the
Effective Date. Sections 2, 3, and 5 of this Agreement shall survive any
termination of Employee's employment with Employer.

         1.2      Duties. At all times during the course of Employee's
employment with Employer, Employee agrees to perform the duties associated with
his position diligently and to devote all of his business time, attention and
efforts to the business of Employer. Employee agrees to comply with the
policies, procedures and guidelines established by Employer from time to time.
Employee agrees to perform his duties faithfully and loyally and to the best of
his abilities, and shall use his best efforts to promote the business of
Employer. Employee understands and agrees that both the business and personal
standards and ethics of Employer's employees must at all times be above
reproach. Employee agrees to act at all times so as to reflect this high
standard. Employee further agrees to abide by all rules, policies, or procedures
established by Employer from time to time.

SECTION 2. NON-COMPETITION.

         2.1      Non Competition.

                  (a)      Employee agrees that during the term of his
         employment and for a period of one (1) year following termination of
         his employment (regardless of whether Employee is terminated without
         Cause (as defined in Section 4.1(c) below), for Cause, voluntarily
         resigns or otherwise), neither Employee nor any person or entity
         directly or indirectly controlling, controlled by or under common
         control with Employee, shall directly or indirectly, on his own behalf
         or as an employee or other agent of or an investor in another person:

                           (i)      engage in any business conducted by Employer
                  during Employee's term of employment with Employer
                  (collectively, the "Business");

                           (ii)     influence or attempt to influence any
                  customer or supplier of Employer or any affiliate of Employer
                  to purchase goods or services related to the Business from any
                  person other than Employer or such affiliate; or

                           (iii)    employ or attempt to employ any individuals
                  who are then or have been employees of Employer or any
                  affiliate of Employer during the preceding 12

<PAGE>

                  months, or influence or seek to influence any such employees
                  to leave Employer's or such affiliate's employment.

                  (b)      Employee specifically acknowledges that Employer's
         products are sold in a world market and that Employee has been engaged
         with regard to Employer's products and Employer's customers throughout
         the world without geographic limitation, and accordingly that the
         restrictive covenant regarding competition contained in this Section
         2.1 shall apply without geographic limitation.

                  (c)      Employee acknowledges that his obligations under this
         Section 2.1 are a material inducement and condition to Employer's
         entering into this Agreement and a material inducement and condition to
         Employee receiving or having access to Confidential Information (as
         defined in Section 3.1). Employee acknowledges and agrees that the
         terms and provisions of this Agreement (including the severance
         provisions of Section 4.1) and Employee's receipt and access to
         Confidential Information are sufficient consideration for the
         restrictions set forth in this Section 2.1. Employee acknowledges and
         agrees further that such restrictions are reasonable as to time,
         geographic area and scope of activity and do not impose a greater
         restraint than is necessary to protect the goodwill and other business
         interests of Employer, and Employee agrees that Employer is justified
         in believing the foregoing.

                  (d)      If any provision of this Section 2.1 should be found
         by any court of competent jurisdiction to be unenforceable by reason of
         its being too broad as to the period of time, territory, and/or scope,
         then, and in that event, such provision shall nevertheless remain valid
         and fully effective, but shall be considered to be amended so that the
         period of time, territory, and/or scope set forth shall be changed to
         be the maximum period of time, the largest territory, and/or the
         broadest scope, as the case may be, which would be found enforceable by
         such court

                  (e)      Employee acknowledges that Employee's violation or
         attempted violation of this Section 2.1 will cause irreparable damage
         to Employer or its affiliates, and Employee therefore agrees that
         Employer shall be entitled as a matter of right to an injunction, out
         of any court of competent jurisdiction, restraining any violation or
         further violation of such agreements by Employee or others acting on
         his behalf. Employer's right to injunctive relief will be cumulative
         and in addition to any other remedies provided by law or equity.

SECTION 3. CONFIDENTIALITY; NONDISPARAGEMENT; CONFLICT OF INTEREST.

         3.1      Confidentiality.

                  (a)      In the course of his employment with Employer,
         Employee will receive and have access to commercially valuable,
         confidential or proprietary information ("Confidential Information").
         Confidential Information means all information, whether oral or
         written, previously or hereafter developed, acquired or used by
         Employer and relating to the business of Employer that is not generally
         known to others in Employer's area of business, including without
         limitation (i) any trade secrets, work product,

                                     - 2 -
<PAGE>

         processes, analyses or know-how of Employer; (ii) Employer's
         advertising, product development, strategic and business plans and
         information, including customer and prospect lists; (iii) the prices at
         which Employer has sold or offered to sell its products or services;
         and (iv) Employer's financial statements and other financial
         information.

                  (b)      Employee acknowledges and agrees that the
         Confidential Information is and shall be the sole and exclusive
         property of Employer. Employee shall not use any Confidential
         Information for his own benefit or disclose any Confidential
         Information to any third party (except in the course of performing his
         authorized duties for Employer under this Agreement), either during or
         subsequent to his employment with Employer.

                  (c)      Specifically, Employee agrees that, except as
         expressly authorized in writing by Employer, or as may be required by
         law or court order, Employee shall (i) not disclose Confidential
         Information to any third party, (ii) not copy Confidential Information
         for any reason, and (iii) not remove Confidential Information from
         Employer's premises. Upon termination of his employment with Employer,
         Employee shall promptly deliver to the Employer all Confidential
         Information, including documents, computer disks and other computer
         storage devices and other papers and materials (including all copies
         thereof in whatever form) containing or incorporating any Confidential
         Information or otherwise relating in any way to the Employer's business
         that are in his possession or under his control.

                  (d)      Employee acknowledges that Employee's violation or
         attempted violation of this Section 3.1 will cause irreparable damage
         to Employer or its affiliates, and Employee therefore agrees that
         Employer shall be entitled as a matter of right to an injunction, out
         of any court of competent jurisdiction, restraining any violation or
         further violation of such agreements by Employee or others acting on
         his behalf. Employer's right to injunctive relief will be cumulative
         and in addition to any other remedies provided by law or equity.

         3.2.     Covenant of Nondisparagement. In consideration of this
Agreement, Employee agrees and promises that, during the term of and at all
times after the termination of this Agreement (regardless of whether Employee is
terminated without Cause, for Cause, voluntarily resigns or otherwise), not to
make any libelous, disparaging or otherwise injurious statements about or
concerning Employer or any of its affiliates, their officers, employees or
representatives. Such prohibited statements include any statement that is
injurious to the business or business reputation of any of Employer, its
affiliates or their employees or representatives, but does not include
reasonable statements of disagreement that Employee makes for the purpose of
protecting or enforcing any of his rights or interests hereunder or defending
against any claim or claims of Employer, so long as such statements are not
slanderous or libelous and are delivered in terms as would ordinarily be
considered customary and appropriate.

         3.3.     Conflict of Interest. Employee agrees that during the term of
this Agreement without the prior approval of the Board of Directors of Employer,
Employee shall not engage, either directly or indirectly, in any activity which
may involve a conflict of interest with Employer or its affiliates (a "Conflict
of Interest"), including ownership in any supplier, contractor, subcontractor,
customer or other entity with which Employer does business (other

                                     - 3 -
<PAGE>

than as a shareholder of less than one percent of a publicly traded class of
securities) or accept any material payment, service, loan, gift, trip,
entertainment or other favor from a supplier, contractor, subcontractor,
customer or other entity with which Employer does business and that Employee
shall promptly inform the Chief Executive Officer or the Board of Directors of
Employer as to each offer received by Employee to engage in any such activity.
Employee further agrees to disclose to Employer any other facts of which
Employee becomes aware which might involve or give rise to a Conflict of
Interest or potential Conflict of Interest.

SECTION 4. TERMINATION.

         4.1      Termination by Employer.

                  (a)      Employer may terminate Employee's employment without
         Cause upon no less than 30 days prior notice of termination to
         Employee. In the event of any such termination without Cause, on the
         effective date of such termination Employer shall pay Employee as
         severance compensation, a lump sum payment in an amount equal to the
         difference of (i) 75% of Employee's then current base salary annualized
         less (ii) the amount of base salary paid to Employee from the date of
         Employer's notice of termination to the effective date of such
         termination. In the event of any such termination without Cause, except
         as aforesaid, Employer shall have no other obligations to pay any base
         salary, incentive compensation or bonus or provide for any benefits to
         Employee after the effective date of such termination. As used herein,
         "base salary" excludes any bonus or incentive compensation.

                  (b)      Employer may discharge Employee for Cause at any time
         without prior notice. In the event of any such termination for Cause,
         Employer's obligations to pay any base salary, incentive compensation
         or bonus or provide for any benefits to Employee shall terminate
         immediately upon the effective date of such termination.

                  (c)      As used herein, "Cause" shall mean any of the
         following:

                           (i)      the conviction of Employee by a court of
                  competent jurisdiction of any felony or crime involving moral
                  turpitude;

                           (ii)     commission by Employee of an act of fraud or
                  other act reflecting unfavorably upon the public image of
                  Employer as reasonably determined by Employer's Board of
                  Directors;

                           (iii)    the continued failure by Employee to
                  substantially perform his duties hereunder, or the intentional
                  wrongdoing by Employee resulting in material injury to
                  Employer, in each case as reasonably determined by Employer's
                  Board of Directors;

                           (iv)     the failure by Employee to follow a
                  reasonable directive of the Board of Directors or the Chief
                  Executive Officer of Employer; or

                           (v)      violation of any policies or procedures of
                  Employer, including without limitation, any human relations
                  policy, resulting in material injury to

                                     - 4 -
<PAGE>

                  Employer, in each case as reasonably determined by Employer's
                  Board of Directors.

         4.2      Termination by Employee.

         (a)      Employee may resign from Employee's employment hereunder
(whether for voluntary retirement or otherwise) upon no less than 30 days prior
notice of resignation to Employer, unless such prior notice is otherwise waived
by Employer in its absolute and sole discretion. The effective date of
Employee's resignation shall be as stated in Employee's notice of resignation or
at the sole option of Employer, such earlier date as determined by Employer in
its sole discretion. If Employee voluntarily resigns from his employment with
Employer during the term hereof (whether for voluntary retirement or otherwise),
except as expressly set forth in Section 4.2(b) below, Employer's obligations to
pay any base salary, incentive compensation or bonus or provide for any benefits
shall terminate immediately upon the effective date of such resignation. Upon
retirement, Employee shall be entitled to all benefits (if any) provided by
Employer in the ordinary course to other Employee officers of Employer at
comparable retirement age.

         (b)      If Employee resigns from Employee's employment hereunder in
accordance with Section 4.2(a) above and at the time of such resignation at
least one of the following events has continued for at least 30 consecutive days
after Employee has notified Employer in writing of the occurrence of such event,
Employer shall pay Employee an amount equal to a lump sum payment in the amount
of 25% of Employee's then current base salary annualized, less the amount of
base salary paid to Employee from the date of notice of resignation to the
effective date of such resignation. Such payment to be made on the effective
date of resignation. In addition, the Employer will pay the pro rata portion of
the annual bonus Employee would have earned pursuant to Employer's written bonus
incentive plan (if any) if Employee had remained employed by Employer for the
remainder of the applicable calendar year, with such pro rata amount being
determined in equal amounts over the course of the calendar year (for example,
1/12 of the bonus for each month Employee was employed during the applicable
bonus year) and such amount being paid in the ordinary course consistent with
Employer's practice]. Such events include:

                  (i)      a material adverse change in the nature or scope of
                  the authorities, functions or duties that Employee had as of
                  the Effective Date;

                  (ii)     a material adverse change in the calculation (but not
                  the amount) of any annual bonus or a significant reduction in
                  scope or value in the aggregate of other monetary or
                  nonmonetary benefits to which Employee was entitled as of the
                  Effective Date;

                  (iii)    a determination by Employee made in good faith that
                  as a result of a change in circumstances significantly
                  affecting his position, changes in the composition or policies
                  of Employer's Board of Directors, or of other events of
                  material effect, he has been rendered substantially unable to
                  carry out, or has been substantially hindered in the
                  performance of, the authorities, functions or duties attached
                  to his position as of the Effective Date, or

                                     - 5 -
<PAGE>

                  (iv)     the requirement by Employer that Employee have as his
                  principal location of work any location not within the greater
                  Dallas - Fort Worth, Texas metropolitan area.

         4.3      Termination on Death of Employee. This Agreement shall
terminate automatically upon the death of Employee and all rights of Employee,
his heirs, executors and administrators to base salary shall terminate
immediately; provided, however, Employer shall pay to Employee's duly authorized
representative all incentive compensation, bonus and benefits earned or accrued
but unpaid as of the date of death, with payment of Employee's benefits to be
made as provided in Employer's benefit plan(s) in effect on the date of death.

         4.4      Termination by Disability. Employer may terminate Employee's
employment hereunder upon Employee becoming Disabled (as defined below). Upon
such termination, Employer shall pay Employee an amount equal to his then
current monthly base salary for a period of six months, which payment amounts
will be reduced by any disability payments Employee receives during such period
from the disability insurance provided through Employer, if any. Employee shall
be entitled to all other disability benefits then in effect (if any) provided by
Employer to all other executive officers of Employer. In the event of
termination due to Employee being Disabled, except as aforesaid, Employer shall
have no other obligation to pay any base salary, incentive compensation or bonus
or provide for any benefits to Employee after the effective date of termination.
For purposes of this Agreement, "Disabled" means any mental or physical
impairment lasting (or that will last) more than 180 consecutive or
non-consecutive calendar days that prevents Employee from performing the
essential functions of his position with or without reasonable accommodation as
determined by a competent physician chosen by Employer and consented to by
Employee or his legal representatives, which consent will not be unreasonably
withheld or delayed. Employee agrees to submit to appropriate medical
examinations and authorize his physicians to release medical information
necessary to determine whether Employee is Disabled for purposes of this
Agreement.

SECTION 5. MISCELLANEOUS.

         5.1      Notice. Except as set forth below in this Section 5.1, any
notice under this Agreement must be in writing and shall be deemed to have been
given when delivered personally or by overnight courier service or three days
after being sent by mail, postage prepaid, at the address indicated below or to
such changed address as such person may subsequently give such notice of:

                  if to Employer:

                                             Peerless Mfg. Co.
                                             2819 Walnut Hill Lane
                                             Dallas, Texas  75229
                                             Attn:  Chairman, Board of Directors

                                     - 6 -
<PAGE>

                  if to Employee:

                                             David Taylor
                                             4532 Staten Island Court
                                             Plano, Texas  75024

Notwithstanding the foregoing, the party receiving notice may waive any
provisions of this Section 5.1 in its sole and absolute discretion.

         5.2      Assignment. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, personal
representatives, successors, and assigns. Except as otherwise provided herein,
this Agreement may not be assigned by any party hereto without the prior written
consent of the other party hereto. Employer shall require any successor, and any
corporation or other person which is in control of such successor, to all or
substantially all of the business and/or assets of Employer (by purchase,
merger, consolidation or otherwise), by agreement in form and substance
reasonably satisfactory to Employee, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement by Employer. As used in
this Agreement, "Employer" shall mean Employer as herein before defined and any
successor to its business and/or all or part of its assets as aforesaid which
executes and delivers the assumption agreement provided for in this Section 5.2
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.

         5.3      Headings. The section headings used herein are for reference
and convenience only and shall not enter into the interpretation hereof.

         5.4      Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
shall constitute one and the same instrument.

         5.5      Amendment and Waiver. The provisions of this Agreement may be
amended or waived only by written agreement of Employer and Employee, and no
course of conduct, failure or delay in enforcing the provisions of this
Agreement shall effect the validity, binding effect or enforceability of this
Agreement.

         5.6      Severability. Any provision or portion of a provision of this
Agreement that is held to be invalid or unenforceable will be severable, and
this Agreement will be construed and enforced as if such provision, or portion
thereof, did not comprise a part hereof, and the remaining provisions or
portions of provisions will remain in full force and effect. In lieu of each
invalid or unenforceable provision there will be added automatically as part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be legal, valid, and enforceable.

         5.7      Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to any conflicts of law rule or principle that might require the
application of the laws of another jurisdiction.

                                     - 7 -
<PAGE>

         5.8      Disputes. The parties to this Agreement agree that in the
event there is a dispute or controversy between them that cannot be settled
through direct discussions, it is in the best interests of all for such dispute
or controversy to be resolved in the shortest time and with the lowest cost of
resolution as practicable. Consequently, any such dispute, controversy or claim
between the parties to this Agreement will not be litigated, but instead will be
resolved by arbitration in accordance with Title 9 of the U.S. Code (United
States Arbitration Act) and the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"), and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. The
arbitration will be before one neutral arbitrator and will proceed under the
Expedited Procedures of said Rules. The arbitration will be held in Dallas,
Texas, or such other place as may be selected by mutual agreement. The
arbitrator will have the discretion to order a prehearing exchange of
information by the parties, and to set limits for both the scope and time period
of such exchange. All issues regarding exchange requests will be decided by the
arbitrator. Neither party nor the arbitrator may disclose the existence, content
or results of any arbitration hereunder, unless required to do so by court or
regulatory order, without the prior written consent of both parties.
Administrative fees and expenses of the arbitration itself will be borne by the
parties equally unless otherwise required by law, a court of competent
jurisdiction or the Rules; provided, that, in no event will Employee be required
to pay in excess of $1,000 of such fees and expenses. The arbitrator will also
be authorized to award to the prevailing party all or that fraction of its
reasonable costs and fees as is deemed equitable. Costs of a party's
representation by counsel or preparation costs for hearing are not considered
administrative fees and expenses for purposes hereof. This provision will not
apply to any injunctive relief sought by the Company or any of its affiliate
under Section 2 or 3 of this Agreement.

         5.9      Entire Agreement. This Agreement embodies the complete
agreement between Employer and Employee regarding the subject matter hereof and
the same supersede all prior agreements or understandings, whether oral, written
or otherwise, between the parties hereto that may have related in any way to the
subject matter hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 8 -
<PAGE>

                                     EMPLOYER:

                                     PEERLESS MFG. CO.

                                     /s/ Sherrill Stone
                                     ------------------
                                     Sherrill Stone,
                                     Chairman of the Board and
                                     Chief Executive Officer

                                     EMPLOYEE:

                                     /s/ David Taylor
                                     ------------------
                                     David Taylor

                                     - 9 -