**EXHIBIT 10(a)****EMPLOYMENT AGREEMENT**     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into to be effective as of October 10,2006 (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 EffectiveDate and ending on the third anniversary date of the Effective Date, unless Employee’s employmentis terminated earlier as provided in Section 4 below. Notwithstanding the foregoing, in noevent will the term of Employee’s employment hereunder be less than 90 days from the EffectiveDate. Sections 2, 3, and 5 of this Agreement shall survive any terminationof 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 ofhis business time, attention and efforts to the business of Employer. Employee agrees to complywith the policies, procedures and guidelines established by Employer from time to time. Employeeagrees to perform his duties faithfully and loyally and to the best of his abilities, and shall usehis best efforts to promote the business of Employer. Employee understands and agrees that boththe business and personal standards and ethics of Employer’s employees must at all times be abovereproach. Employee agrees to act at all times so as to reflect this high standard. Employeefurther agrees to abide by all rules, policies, or procedures established by Employer from time totime.**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 terminatedwithout Cause (as defined in Section 4.1(c) below), for Cause, voluntarily resignsor 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 hisown 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 ofemployment with Employer (collectively, the “Business”);     (ii) influence or attempt to influence any customer or supplier of Employer orany affiliate of Employer to purchase goods or services related to the Business fromany person other than Employer or such affiliate; or
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     (iii) employ or attempt to employ any individuals who are then or have beenemployees of Employer or any affiliate of Employer during the preceding 12 months,or influence or seek to influence any such employees to leave Employer’s or suchaffiliate’s employment.     (b) Employee specifically acknowledges that Employer’s products are sold in aworld market and that Employee has been engaged with regard to Employer’s products andEmployer’s customers throughout the world without geographic limitation, and accordinglythat the restrictive covenant regarding competition contained in this Section 2.1shall apply without geographic limitation.     (c) Employee acknowledges that his obligations under this Section 2.1 are amaterial inducement and condition to Employer’s entering into this Agreement and a materialinducement and condition to Employee receiving or having access to Confidential Information(as defined in Section 3.1). Employee acknowledges and agrees that the terms andprovisions of this Agreement (including the severance provisions of Section 4.1) andEmployee’s receipt and access to Confidential Information are sufficient consideration forthe restrictions set forth in this Section 2.1. Employee acknowledges and agreesfurther that such restrictions are reasonable as to time, geographic area and scope ofactivity and do not impose a greater restraint than is necessary to protect the goodwill andother business interests of Employer, and Employee agrees that Employer is justified inbelieving the foregoing.     (d) If any provision of this Section 2.1 should be found by any court ofcompetent jurisdiction to be unenforceable by reason of its being too broad as to the periodof time, territory, and/or scope, then, and in that event, such provision shall neverthelessremain valid and fully effective, but shall be considered to be amended so that the periodof time, territory, and/or scope set forth shall be changed to be the maximum period oftime, the largest territory, and/or the broadest scope, as the case may be, which would befound enforceable by such court.     (e) Employee acknowledges that Employee’s violation or attempted violation of thisSection 2.1 will cause irreparable damage to Employer or its affiliates, andEmployee therefore agrees that Employer shall be entitled as a matter of right to aninjunction, out of any court of competent jurisdiction, restraining any violation or furtherviolation of such agreements by Employee or others acting on his behalf. Employer’s rightto injunctive relief will be cumulative and in addition to any other remedies provided bylaw 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 haveaccess to commercially valuable, confidential or proprietary information (“ConfidentialInformation”). Confidential Information means all information, whether oral or written,previously or hereafter developed, acquired or used by Employer and relating to the businessof Employer that is not generally known to
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others in Employer’s area of business, including without limitation (i) any tradesecrets, work product, processes, analyses or know-how of Employer; (ii) Employer’sadvertising, product development, strategic and business plans and information, includingcustomer and prospect lists; (iii) the prices at which Employer has sold or offered to sellits products or services; and (iv) Employer’s financial statements and other financialinformation.     (b) Employee acknowledges and agrees that the Confidential Information is and shall bethe sole and exclusive property of Employer. Employee shall not use any ConfidentialInformation 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 thisAgreement), either during or subsequent to his employment with Employer.     (c) Specifically, Employee agrees that, except as expressly authorized in writing byEmployer, or as may be required by law or court order, Employee shall (i) not discloseConfidential Information to any third party, (ii) not copy Confidential Information for anyreason, and (iii) not remove Confidential Information from Employer’s premises. Upontermination of his employment with Employer, Employee shall promptly deliver to the Employerall Confidential Information, including documents, computer disks and other computer storagedevices and other papers and materials (including all copies thereof in whatever form)containing or incorporating any Confidential Information or otherwise relating in any way tothe Employer’s business that are in his possession or under his control.     (d) Employee acknowledges that Employee’s violation or attempted violation of thisSection 3.1 will cause irreparable damage to Employer or its affiliates, andEmployee therefore agrees that Employer shall be entitled as a matter of right to aninjunction, out of any court of competent jurisdiction, restraining any violation or furtherviolation of such agreements by Employee or others acting on his behalf. Employer’s rightto injunctive relief will be cumulative and in addition to any other remedies provided bylaw or equity.     3.2. Covenant of Nondisparagement. In consideration of this Agreement, Employeeagrees and promises that, during the term of and at all times after the termination of thisAgreement (regardless of whether Employee is terminated without Cause, for Cause, voluntarilyresigns or otherwise), not to make any libelous, disparaging or otherwise injurious statementsabout or concerning Employer or any of its affiliates, their officers, employees orrepresentatives. Such prohibited statements include any statement that is injurious to thebusiness or business reputation of any of Employer, its affiliates or their employees orrepresentatives, but does not include reasonable statements of disagreement that Employee makes forthe purpose of protecting or enforcing any of his rights or interests hereunder or defendingagainst any claim or claims of Employer, so long as such statements are not slanderous or libelousand are delivered in terms as would ordinarily be considered customary and appropriate.
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     3.3. Conflict of Interest. Employee agrees that during the term of this Agreementwithout the prior approval of the Board of Directors of Employer, Employee shall not engage, eitherdirectly or indirectly, in any activity which may involve a conflict of interest with Employer orits affiliates (a “Conflict of Interest”), including ownership in any supplier, contractor,subcontractor, customer or other entity with which Employer does business (other than as ashareholder of less than one percent of a publicly traded class of securities) or accept anymaterial payment, service, loan, gift, trip, entertainment or other favor from a supplier,contractor, subcontractor, customer or other entity with which Employer does business and thatEmployee shall promptly inform the Chief Executive Officer or the Board of Directors of Employer asto each offer received by Employee to engage in any such activity. Employee further agrees todisclose to Employer any other facts of which Employee becomes aware which might involve or giverise 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 30days prior notice of termination to Employee. In the event of any such termination withoutCause, on the effective date of such termination Employer shall pay Employee as severancecompensation, a lump sum payment in an amount equal to the difference of (i) 75% ofEmployee’s then current base salary annualized less (ii) the amount of base salary paid toEmployee from the date of Employer’s notice of termination to the effective date of suchtermination. 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 orbonus 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 theevent 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 terminateimmediately 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 anyfelony or crime involving moral turpitude;     (ii) commission by Employee of an act of fraud or other act reflectingunfavorably upon the public image of Employer as reasonably determined by Employer’sBoard of Directors;     (iii) the continued failure by Employee to substantially perform his dutieshereunder, or the intentional wrongdoing by Employee resulting in material injury toEmployer, 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 ofDirectors or the Chief Executive Officer of Employer; or
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     (v) violation of any policies or procedures of Employer, including withoutlimitation, any human relations policy resulting in material injury to Employer, ineach 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 retirementor otherwise) upon no less than 30 days prior notice of resignation to Employer, unless such priornotice is otherwise waived by Employer in its absolute and sole discretion. The effective date ofEmployee’s resignation shall be as stated in Employee’s notice of resignation or at the sole optionof Employer, such earlier date as determined by Employer in its sole discretion. If Employeevoluntarily resigns from his employment with Employer during the term hereof (whether for voluntaryretirement or otherwise), except as expressly set forth in Section 4.2(b) below, Employer’sobligations to pay any base salary, incentive compensation or bonus or provide for any benefitsshall terminate immediately upon the effective date of such resignation. Upon retirement, Employeeshall be entitled to all benefits (if any) provided by Employer in the ordinary course to otherEmployee 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 atleast 30 consecutive days after Employee has notified Employer in writing of the occurrence of suchevent, Employer shall pay Employee an amount equal to a lump sum payment in the amount of 25% ofEmployee’s then current base salary annualized, less the amount of base salary paid to Employeefrom the date of notice of resignation to the effective date of such resignation. Such payment tobe made on the effective date of resignation. In addition, the Employer will pay the pro rataportion of the annual bonus Employee would have earned pursuant to Employer’s written bonusincentive plan (if any) if Employee had remained employed by Employer for the remainder of theapplicable calendar year, with such pro rata amount being determined in equal amounts over thecourse of the calendar year (for example, 1/12 of the bonus for each month Employee was employedduring the applicable bonus year) and such amount being paid in the ordinary course consistent withEmployer’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 anyannual bonus or a significant reduction in scope or value in the aggregate of other monetaryor 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 achange in circumstances significantly affecting his position, changes in thecomposition or policies of Employer’s Board of Directors, or of other events of materialeffect, he has been rendered substantially unable to carry out, or has been substantiallyhindered in the performance of, the authorities, functions or duties attached to hisposition asa of the Effective Date, or
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(iv) the requirements by Employer that Employee have as his principallocation of work any location not within the greater Dallas — Fort Worth, Texasmetropolitan area.     4.3 Termination on Death of Employee. This Agreement shall terminate automaticallyupon the death of Employee and all rights of Employee, his heirs, executors and administrators tobase salary shall terminate immediately; provided, however, Employer shall pay to Employee’s dulyauthorized representative all incentive compensation, bonus and benefits earned or accrued butunpaid as of the date of death, with payment of Employee’s benefits to be made as provided inEmployer’s benefit plan(s) in effect on the date of death.     4.4 Termination by Disability. Employer may terminate Employee’s employment hereunderupon Employee becoming Disabled (as defined below). Upon such termination, Employer shall payEmployee an amount equal to his then current monthly base salary for a period of six months, whichpayment amounts will be reduced by any disability payments Employee receives during such periodfrom the disability insurance provided through Employer, if any. Employee shall be entitled to allother disability benefits then in effect (if any) provided by Employer to all other executiveofficers of Employer. In the event of termination due to Employee being Disabled, except asaforesaid, Employer shall have no other obligation to pay any base salary, incentive compensationor bonus or provide for any benefits to Employee after the effective date of termination. Forpurposes of this Agreement, “Disabled” means any mental or physical impairment lasting (or thatwill last) more than 180 consecutive or non-consecutive calendar days that prevents Employee fromperforming the essential functions of his position with or without reasonable accommodation asdetermined by a competent physician chosen by Employer and consented to by Employee or his legalrepresentatives, which consent will not be unreasonably withheld or delayed. Employee agrees tosubmit to appropriate medical examinations and authorize his physicians to release medicalinformation 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 noticeunder this Agreement must be in writing and shall be deemed to have been given when deliveredpersonally 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 suchnotice of:   if to Employer:       Peerless Mfg. Co.  2819 Walnut Hill Lane  Dallas, Texas 75229  Attn: Chairman, Board of Directors   if to Employee:    David Taylor  4532 Staten Island Court  Plano, Texas 75024
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Notwithstanding the foregoing, the party receiving notice may waive any provisions of thisSection 5.1 in its sole and absolute discretion.     5.2 Assignment. This Agreement shall inure to the benefit of and be binding uponthe 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 withoutthe prior written consent of the other party hereto. Employer shall require any successor, and anycorporation or other person which is in control of such successor, to all or substantially all ofthe business and/or assets of Employer (by purchase, merger, consolidation or otherwise), byagreement in form and substance reasonably satisfactory to Employee, to expressly assume and agreeto perform this Agreement in the same manner and to the same extent that Employer would be requiredto perform it if no such succession had taken place. Failure of Employer to obtain such agreementprior to the effectiveness of any such succession shall be a material breach of this Agreement byEmployer. As used in this Agreement, “Employer” shall mean Employer as herein before defined andany successor to its business and/or all or part of its assets as aforesaid which executes anddelivers the assumption agreement provided for in this Section 5.2 or which otherwisebecomes 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 onlyand shall not enter into the interpretation hereof.     5.4 Counterparts. This Agreement may be executed in one or more counterparts for theconvenience of the parties hereto, all of which together shall constitute one and the sameinstrument.     5.5 Amendment and Waiver. The provisions of this Agreement may be amended or waivedonly by written agreement of Employer and Employee, and no course of conduct, failure or delay inenforcing the provisions of this Agreement shall effect the validity, binding effect orenforceability of this Agreement.     5.6 Severability. Any provision or portion of a provision of this Agreement that isheld to be invalid or unenforceable will be severable, and this Agreement will be construed andenforced as if such provision, or portion thereof, did not comprise a part hereof, and theremaining provisions or portions of provisions will remain in full force and effect. In lieu ofeach invalid or unenforceable provision there will be added automatically as part of this Agreementa provision as similar in terms to such invalid or unenforceable provision as may be possible andbe legal, valid, and enforceable.     5.7 Governing Law. This Agreement shall be governed by and construed in accordancewith the laws of the State of Texas, without giving effect to any conflicts of law rule orprinciple that might require the application of the laws of another jurisdiction.     5.8 Disputes. The parties to this Agreement agree that in the event there is adispute or controversy between them that cannot be settled through direct discussions, it is in thebest interests of all for such dispute or controversy to be resolved in the shortest time and withthe lowest cost of resolution as practicable. Consequently, any such dispute, controversy or claimbetween the parties to this Agreement will not be litigated, but instead will be
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resolved by arbitration in accordance with Title 9 of the U.S. Code (United States ArbitrationAct) 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 havingjurisdiction thereof. The arbitration will be before one neutral arbitrator and will proceed underthe Expedited Procedures of said Rules. The arbitration will be held in Dallas, Texas, or suchother place as may be selected by mutual agreement. The arbitrator will have the discretion toorder a prehearing exchange of information by the parties, and to set limits for both the scope andtime period of such exchange. All issues regarding exchange requests will be decided by thearbitrator. Neither party nor the arbitrator may disclose the existence, content or results of anyarbitration hereunder, unless required to do so by court or regulatory order, without the priorwritten consent of both parties. Administrative fees and expenses of the arbitration itself willbe borne by the parties equally unless otherwise required by law, a court of competent jurisdictionor the Rules; provided, that, in no event will Employee be required to pay in excess of $1,000 ofsuch fees and expenses. The arbitrator will also be authorized to award to the prevailing partyall or that fraction of its reasonable costs and fees as is deemed equitable. Costs of a party’srepresentation by counsel or preparation costs for hearing are not considered administrative feesand expenses for purposes hereof. This provision will not apply to any injunctive relief sought bythe 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 Employerand Employee regarding the subject matter hereof and the same supersede all prior agreements orunderstandings, whether oral, written or otherwise, between the parties hereto that may haverelated in any way to the subject matter hereof.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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       EMPLOYER:         PEERLESS MFG. CO.         /s/ Peter J. Burlage     Peter J. Burlage    President andChief Executive Officer         **EMPLOYEE:**         /s/ David Taylor David Taylor  
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