Document:

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                                                                   EXHIBIT 10(k)
                                    AGREEMENT

         THIS AGREEMENT (this "Agreement") is made and entered into to be
effective as of the 20th day of July 2001, by and between PEERLESS MFG. CO. (the
"Company"), and SHERRILL STONE (the "Executive"), and amends in part and
restates and supersedes in its entirety that certain Agreement between the
Company and the Executive dated April 29, 1994.

         WHEREAS, the Executive serves as the Company's Chairman of the Board,
President and Chief Executive Officer;

         WHEREAS, the Executive possesses an intimate knowledge of the business
and affairs of the Company, its policies, methods, personnel and plans for the
future;

         WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the Executive's contribution to the growth and success of the Company has
been substantial and wishes to offer an inducement to the Executive to remain in
the employ of the Company;

         WHEREAS, the parties desire to enter into this Agreement to set forth
the benefits which the Company will pay to Executive in the event of a "Sale of
the Company" or termination of Executive's employment under certain
circumstances following a "Change in Control" of the Company (in each case as
such terms or events are defined or discussed herein);

         NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained the parties agree as
follows:

         1. Term. The term of this Agreement shall continue until the earliest
of (i) subject to the proviso at the end of this sentence, the expiration of the
third anniversary of the occurrence of a Change in Control, (ii) the Executive's
death, or (iii) the Executive's earlier voluntary resignation (except for those
events described in Section 3(a)(2)); provided, however, that during the term of
this Agreement, on each anniversary of a Change in Control, the three year
period referenced in clause (i) above shall automatically be extended for an
additional 12 months unless, not later than 60 calendar days prior to such
anniversary date, the Company shall have given written notice to the Executive
that it does not wish to have the term extended.

         2.       Definitions.
                  -----------

         (a)      Acquiring Person. An "Acquiring Person" shall mean any person
                  that, together with all Affiliates and Associates of such
                  person, is the beneficial owner of 15% or more of the
                  outstanding Common Stock. The term "Acquiring Person" shall
                  not include the Company, any subsidiary of the Company, any
                  employee benefit plan of the Company (or trust with respect
                  thereto) or subsidiary of the Company, any person holding
                  Common Stock of the Company for or pursuant to the terms of
                  any such plan, or Donald A. Sillers, Jr. or members of his
                  immediate family.

         (b)      Affiliate and Associate. "Affiliate" and "Associate" shall
                  have the respective meanings ascribed to such terms in Rule
                  12b-2 of the General Rules and Regulations under the
                  Securities Exchange Act of 1934, as amended (the "Exchange
                  Act") in effect on the date of this Agreement.

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         (c)      Cause.  For "Cause" shall mean any of the following shall have
                          occurred:

                  (i)      The conviction of Executive, by a court of competent
                           jurisdiction, of any felony;

                  (ii)     Commission by Executive of an intentional material
                           act of fraud to his pecuniary benefit in connection
                           with his duties or in the course of his employment
                           with the Company, as reasonably determined by the
                           Board; or

                  (iii)    The intentional and continued failure by Executive to
                           substantially perform his duties hereunder, or the
                           intentional wrongdoing by Executive resulting in
                           material injury to the Company. No act, or failure to
                           act, on the part of Executive shall be deemed
                           "intentional" unless done, or omitted to be done, by
                           Executive not in good faith and without reasonable
                           belief that his action or omission was in the best
                           interests of the Company.

         (d)      Change in Control. A "Change in Control" of the Company shall
                  have occurred if at any time during the term of this Agreement
                  any of the following events shall occur:

                  (i)      The Company is merged, consolidated or reorganized
                           into or with another corporation or other legal
                           person and as a result of such merger, consolidation
                           or reorganization less than 50.1% of the combined
                           voting power to elect Directors of the then
                           outstanding securities of the remaining corporation
                           or legal person or its ultimate parent immediately
                           after such transaction is available to be received by
                           all stockholders on a pro rata basis and is actually
                           received in respect of or exchange for voting
                           securities of the Company pursuant to such
                           transaction;

                  (ii)     The Company sells all or substantially all of its
                           assets to any other corporation or other legal person
                           not controlled by or under common control with the
                           Company;

                  (iii)    Any person or group (including any "person" as such
                           term is used in Section 13(d)(3) or Section 14(d)(2)
                           of the Exchange Act has become the beneficial owner
                           (as the term "beneficial owner" is defined under Rule
                           13d-3 or any successor rule or regulation promulgated
                           under the Exchange Act) of securities which when
                           added to any securities already owned by such person
                           would represent in the aggregate 50% or more of the
                           then outstanding securities of the Company which are
                           entitled to vote to elect Directors;

                  (iv)     If at any time,  the  Continuing  Directors  then
                           serving on the Board cease for any reason to
                           constitute at least a majority thereof;

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                  (v)      Any occurrence that would be required to be reported
                           in response to Item 6(e) of Schedule 14A of
                           Regulation 14A or any successor rule or regulation
                           promulgated under the Exchange Act; or

                  (vi)     Such other  events that cause a change in control of
                           the  Company,  as  determined  by the Board in its
                           sole discretion;

         provided, however, a Change in Control of the Company shall not be
         deemed to have occurred as the result of any transaction having one or
         more of the foregoing effects if such transaction is both (1) proposed
         by, and (2) includes a significant equity participation of, executive
         officers of the Company as constituted immediately prior to the
         occurrence of such transaction or any Company employee stock ownership
         plan or pension plan.

         (e)      Code.  The "Code" shall mean the Internal Revenue Code of
                  1986, as amended.

         (f)      Continuing Director. A "Continuing Director" shall mean a
                  Director of the Company who (i) is not an Acquiring Person, an
                  Affiliate or Associate, a representative of an Acquiring
                  Person or nominated for election by an Acquiring Person, and
                  (ii) was either a member of the Board of Directors of the
                  Company on the date of this Agreement or subsequently became a
                  Director of the Company and whose initial election or initial
                  nomination for election by the Company's stockholders was
                  approved by a majority of the Continuing Directors then on the
                  Board of Directors of the Company.

         (g)      Disabled. "Disabled" means any mental or physical impairment
                  lasting more than 180 calendar days that prevents Executive
                  from performing the essential functions of his position with
                  or without reasonable accommodation, as determined by a
                  physician mutually agreeable to Executive and the Company.
                  Executive agrees to submit to appropriate medical examinations
                  and authorize his physicians to release medical information
                  necessary to determine whether Executive is "Disabled" for
                  purposes of this Agreement.

         (h)      Employment Term. The "Employment  Term" shall be the period
                  of employment under this Agreement  commencing on the day
                  prior to a Change in Control and continuing until the
                  expiration of this Agreement.

         (i)      Purchase Price.  "Purchase  Price" means the gross value of
                  all cash, securities and other property paid directly or
                  indirectly by an acquiror to a seller or sellers in
                  connection with a Sale of the Company. The value of any
                  securities (whether debt or equity) or other property shall be
                  determined as follows: (i) the value of securities that are
                  freely tradeable in an established public market will be
                  determined on the basis of the average closing market price on
                  the last five trading days preceding one business day prior
                  to the closing of a Sale of the Company and (ii) the value of
                  securities that are not freely tradeable or have no
                  established public market and the value of consideration that
                  consists of other property, will be the fair market value
                  thereof, as reasonably determined by the Company no later
                  than one business day

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                 prior to the closing of a Sale of the Company. The Purchase
                 Price will not be deemed to include the principal amount of
                 any indebtedness for borrowed money assumed or acquired,
                 directly or indirectly, by the acquiring party or any of its
                 affiliates in a Sale of the Company or retired, defeased or
                 otherwise cancelled in connection with a Sale of the Company.

         (j)      Sale Bonus.  Shall have the meaning set forth in Section 4(a).

         (k)      Sale of the Company. A "Sale of the Company" means the
                  consummation of a sale by the Company to any entity not
                  affiliated with or controlled by the Company of (i) 51% or
                  more of the outstanding capital stock of the Company through
                  purchase, merger, consolidation, combination or otherwise or
                  (ii) all or substantially all of the assets of the Company.

         (l)      Severance Compensation.  The "Severance Compensation" shall
                  be:

                  (i)      A lump sum amount equal to 299% of Executive's
                           average annual compensation reported on his Form W-2
                           paid by the Company includable in gross income for
                           the five most recent full calendar years; and

                  (ii)     For a period of three years, provide Executive with
                           benefits substantially similar to those which
                           Executive was entitled to receive immediately prior
                           to the date of termination under all of the Company's
                           "employee welfare benefit plans" within the meaning
                           of Section 3(1) of The Employee Retirement Income
                           Security Act of 1974, as amended.

         (m)      Termination  Date.  The  "Termination  Date"  shall be the
                  effective  date upon which the  Executive  or the Company
                  terminates the employment of the Executive.

         3.       Rights of Executive Upon Change in Control and Subsequent
                  Termination.

         (a)      The Company shall provide the Executive, within ten days
                  following the Termination Date, Severance Compensation, but
                  without affecting the rights of the Executive or the Company
                  at law or in equity, if, following the occurrence of a Change
                  in Control, any of the following events shall occur:

                  (1)      the Company  terminates the  Executive's  employment
                           during the  Employment  Term other than for any of
                           the following reasons:

                           (i)      the Executive dies;

                           (ii)     the Executive becomes Disabled; or

                           (iii)    for Cause.

                  (2)      the Executive  terminates his employment  after such
                           Change in Control and the occurrence of at least one
                           of the following events:

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               (i)  an adverse change in the positions held by Executive or an
                    adverse change in the nature or scope of the authorities,
                    functions or duties attached to the positions with the
                    Company that the Executive had immediately prior to the
                    Change in Control, any reduction in the Executive's base
                    salary during the Employment Term or any adverse change in
                    the calculation of the annual bonus or incentive
                    compensation or a significant reduction in scope or value of
                    the aggregate other monetary or nonmonetary benefits to
                    which the Executive was entitled from the Company
                    immediately prior to the Change in Control, any of which is
                    not remedied within ten calendar days after receipt by the
                    Company of written notice from the Executive of such change,
                    reduction, alteration or termination, as the case may be;

               (ii) a determination by the Executive made in good faith that as
                    a result of a Change in Control and a change in
                    circumstances thereafter significantly affecting his
                    position, changes in the composition or policies of the
                    Board, 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
                    immediately prior to the Change in Control, which situation
                    is not remedied within ten calendar days after receipt by
                    the Company of written notice from the Executive of such
                    determination;

               (iii) the relocation of the Company's principal executive
                    offices, or the requirement by the Company that Executive
                    have as his principal location of work any location not
                    within the greater Dallas, Texas metropolitan area or that
                    he travel away from his office in the course of discharging
                    his duties hereunder significantly more (in terms of either
                    consecutive days or aggregate days in any calendar year)
                    than required of him prior to the Change in Control; or

               (iv) the Company commits any breach (including under Section 6
                    below) of this Agreement which is not cured within ten
                    calendar days after receipt by the Company of written notice
                    from Executive of such breach.

     (b)  In the event that the total compensation paid to Executive as
          severance in the event of a Change in Control, taking into account all
          cash payments, shares of stock, accelerated vesting of stock options,
          and bonuses, if any, is found to constitute "an excess parachute
          payment" within the meaning of Section 280G of the Code, then the
          Company will pay to Executive, in addition to the Severance
          Compensation, an additional amount which, after reduction for income
          taxes and excise taxes on such additional amount, is sufficient to
          provide for the payment of any excise tax that may be due by Executive
          on the total compensation amount.

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     (c)  Upon written notice given by the Executive to the Company prior to the
          receipt of Severance Compensation, the Executive, at his sole option,
          may elect to have all or any part of any such amount paid to him,
          without interest, on an installment basis selected by him.

     (d)  The payment of Severance Compensation by the Company to the Executive
          shall not affect any rights and benefits which the Executive may have
          pursuant to any other agreement, policy, plan, program or arrangement
          with the Company prior to the Termination Date, which rights shall be
          governed by the terms thereof. (e) The Company shall have no right of
          set-off or counterclaim in respect of any claim, debt or obligation
          against any payment or benefit to or for the benefit of the Executive
          provided for in this Agreement.

     (f)  Without limiting the rights of the Executive at law or in equity, if
          the Company fails to make any payment required to be made hereunder on
          a timely basis, the Company shall pay interest on the amount thereof
          on demand at an annualized rate of interest equal to 120% of the then
          applicable Federal rate determined under Section 1274(d) of the Code,
          compounded semi-annually (but in no event shall such interest exceed
          the highest lawful rate).

     (g)  If any of the events set forth in Section 3(a)(1) or 3(a)(2) occurs
          following the commencement of any discussion authorized by the Board
          with a third person that ultimately results in a Change in Control
          involving that person or a different third party shall be deemed to be
          a termination or removal of Executive after a Change in Control for
          purposes of this Agreement and shall entitle Executive to all benefits
          under this Agreement.

     4.   Sale Bonus.

     (a)  If a Sale of the Company occurs on or before July 1, 2002, in addition
          to any other payments, bonuses or amounts that Executive may be
          entitled to under any other agreements with the Company, Executive
          will be entitled to a cash payment in an amount equal to (i) the
          Purchase Price divided by the number of issued and outstanding shares
          of capital stock of the Company as of the closing of the Sale of the
          Company, times (ii) 35,000, minus (iii) $910,000 (such amount being,
          the "Sale Bonus"). The Sale Bonus will be subject to deduction and
          withholding authorized or required by applicable law. The Sale Bonus
          will be payable by the Company in full in cash at the closing of a
          Sale of the Company. However, the Company will have no obligation to
          pay Executive the Sale Bonus under this Section 4 if (1) a Sale of the
          Company does not occur on or before July 1, 2002, or (2) even though a
          Sale of the Company occurs on or before July 1, 2002, prior to the
          closing of the Sale of the Company, (x) Executive voluntarily
          terminates his employment with the Company, dies or becomes Disabled,
          (y) the Company terminates Executive for Cause, or (z) Executive
          breaches any of the material terms of this Agreement or the terms of
          the Employment Agreement, dated July 20, 2001, by and between the
          Company and Executive. The calculation of the Sale Bonus is based in
          part on the number

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          of issued and outstanding shares of the Company's common stock (clause
          (ii)) as well as historical trading prices of such shares (clause
          (iii)) as of the date hereof. Clauses (ii) and/or (iii) of the
          calculation of the Sale Bonus will be adjusted as is necessary to
          reflect the same economic terms in the event of a stock dividend on,
          or a subdivision, combination or reclassification of, the Company's
          common stock after the date hereof, but will not be adjusted upon the
          occurrence of any other dilutive event.

     (b)  In the event that the total compensation paid to Executive in the
          event of a Sale of the Company, taking into account all cash payments,
          shares of stock, accelerated vesting of stock options, and bonuses, if
          any, is found to constitute "an excess parachute payment" within the
          meaning of Section 280G of the Code, then the Company will pay to
          Executive, in addition to the compensation paid as the Sale Bonus, an
          additional amount which, after reduction for income taxes and excise
          taxes on such additional amount, is sufficient to provide for the
          payment of any excise tax that may be due by Executive on the total
          compensation amount received by Executive.

         5. No Mitigation Required. In the event that this Agreement or the
employment of the Executive hereunder is terminated, the Executive shall not be
obligated to mitigate his damages nor the amount of any payment provided for in
this Agreement by seeking other employment or otherwise, and the acceptance of
employment elsewhere after termination shall in no way reduce the amount of
Severance Compensation payable hereunder.

         6.       Successors; Binding Agreement.

     (a)  The Company will require any successor and any corporation or other
          legal person which is in control of such successor (as "control" is
          defined in Regulation 230.405 or any successor rule or regulation
          promulgated under the Securities Act of 1933, as amended) to all or
          substantially all of the business and/or assets of the Company (by
          purchase, merger, consolidation or otherwise), by agreement in form
          and substance satisfactory to the Executive, to expressly assume and
          agree to perform this Agreement in the same manner and to the same
          extent that the Company would be required to perform it if no such
          succession had taken place. Failure of the Company to obtain such
          agreement prior to the effectiveness of any such succession shall be a
          material breach of this Agreement by the Company. Notwithstanding the
          foregoing, any such assumption shall not, in any way, affect or limit
          the liability of the Company under the terms of this Agreement or
          release the Company from any obligation hereunder. As used in this
          Agreement, "Company" shall mean the Company 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 agreement provided for in
          this Section 6 or which otherwise becomes bound by all the terms and
          provisions of this Agreement by operation of law.

     (b)  This Agreement and all rights of the Executive hereunder shall inure
          to the benefit of and be enforceable by the Executive's personal or
          legal representatives, executors, administrators, successors, heirs,
          distributees, devisees and legatees.

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         7. Notice. The Company shall give written notice to Executive within
ten days after any Change in Control. Failure to give such notice shall
constitute a material breach of this Agreement. For purposes of this Agreement,
notices and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered or received
after being mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:

         If to the Executive:

                  Sherrill Stone
                  4625 Royal Lane
                  Dallas, Texas  75229

         If to the Company:

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

or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

         8. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.

         9. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

         10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

         11. Employment Rights. Nothing expressed or implied in this Agreement
shall create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company prior to any Change
in Control.

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         12. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.

         13. Enforcement Fees. All costs of litigation necessary for Executive
to defend the validity of this Agreement are to be paid by Employer or its
successors or assigns. The Company shall pay and be solely responsible for any
and all attorneys' and related fees and expenses incurred by the Executive as a
result of the Company's failure to perform this Agreement or any provision
thereof or as a result of the Company or any person contesting the validity or
enforceability of this Agreement or any provision thereof as aforesaid.

         14. Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Executive is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, including with
respect to Executive's rights under that certain Employment Agreement, dated
July 20, 2001, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.

         15. Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Texas.

         16. 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 arbitrators 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.
Fees and expenses of the arbitration itself will be borne by the parties
equally. 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.

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         IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.

                               PEERLESS MFG. CO.

                               By:  /s/ JOSEPH V. MARINER
                                  ---------------------------------------------
                                  Joseph V. Mariner,
                                  Chairman of Compensation Committee
                                  of the Board of Directors of Peerless Mfg. Co.

                               EXECUTIVE

                                /s/ SHERRILL STONE
                               ---------------------------------------------
                               Sherrill Stone

                                       10<PAGE>
                                                                   EXHIBIT 10(l)

                                    AGREEMENT

         THIS AGREEMENT (this "Agreement") is made and entered into to be
effective as of the 20th day of July 2001, by and between PEERLESS MFG. CO. (the
"Company"), and ROY C. CUNY (the "Executive"), and amends in part and restates
and supersedes in its entirety that certain Agreement between the Company and
the Executive dated May 16, 2000.

         WHEREAS, the Executive serves as a senior executive of the Company;

         WHEREAS, the Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods, personnel and plans for the
future;

         WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the Executive's contribution to the growth and success of the Company has
been substantial and wishes to offer an inducement to the Executive to remain in
the employ of the Company;

         WHEREAS, the parties desire to enter into this Agreement to set forth
the benefits which the Company will pay to Executive in the event of a "Sale of
the Company" or termination of Executive's employment under certain
circumstances following a "Change in Control" of the Company (in each case as
such terms or events are defined or discussed herein);

         NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained the parties agree as
follows:

         1. Term. The term of this Agreement shall continue until the earliest
of (i) subject to the proviso at the end of this sentence, the expiration of the
third anniversary of the occurrence of a Change in Control, (ii) the Executive's
death, or (iii) the Executive's earlier voluntary resignation (except for those
events described in Section 3(a)(2)); provided, however, that during the term of
this Agreement, on each anniversary of a Change in Control, the three year
period referenced in clause (i) above shall automatically be extended for an
additional 12 months unless, not later than 60 calendar days prior to such
anniversary date, the Company shall have given written notice to the Executive
that it does not wish to have the term extended.

         2.       Definitions.
                  -----------

         (a)      Acquiring Person. An "Acquiring Person" shall mean any person
                  that, together with all Affiliates and Associates of such
                  person, is the beneficial owner of 15% or more of the
                  outstanding Common Stock. The term "Acquiring Person" shall
                  not include the Company, any subsidiary of the Company, any
                  employee benefit plan of the Company (or trust with respect
                  thereto) or subsidiary of the Company, any person holding
                  Common Stock of the Company for or pursuant to the terms of
                  any such plan, or Donald A. Sillers, Jr. or members of his
                  immediate family.

         (b)      Affiliate and Associate. "Affiliate" and "Associate" shall
                  have the respective meanings ascribed to such terms in Rule
                  12b-2 of the General Rules and

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                  Regulations under the Securities Exchange Act of 1934, as
                  amended (the "Exchange Act") in effect on the date of this
                  Agreement.

         (c)      Cause.  For "Cause" shall mean any of the following shall have
                  occurred:

                  (i)      The conviction of Executive, by a court of competent
                           jurisdiction, of any felony;

                  (ii)     Commission by Executive of an intentional material
                           act of fraud to his pecuniary benefit in connection
                           with his duties or in the course of his employment
                           with the Company, as reasonably determined by the
                           Board; or

                  (iii)    The intentional and continued failure by Executive to
                           substantially perform his duties hereunder, or the
                           intentional wrongdoing by Executive resulting in
                           material injury to the Company. No act, or failure to
                           act, on the part of Executive shall be deemed
                           "intentional" unless done, or omitted to be done, by
                           Executive not in good faith and without reasonable
                           belief that his action or omission was in the best
                           interests of the Company.

         (d)      Change in Control. A "Change in Control" of the Company shall
                  have occurred if at any time during the term of this Agreement
                  any of the following events shall occur:

                  (i)      The Company is merged, consolidated or reorganized
                           into or with another corporation or other legal
                           person and as a result of such merger, consolidation
                           or reorganization less than 50.1% of the combined
                           voting power to elect Directors of the then
                           outstanding securities of the remaining corporation
                           or legal person or its ultimate parent immediately
                           after such transaction is available to be received by
                           all stockholders on a pro rata basis and is actually
                           received in respect of or exchange for voting
                           securities of the Company pursuant to such
                           transaction;

                  (ii)     The Company sells all or substantially all of its
                           assets to any other corporation or other legal person
                           not controlled by or under common control with the
                           Company;

                  (iii)    Any person or group (including any "person" as such
                           term is used in Section 13(d)(3) or Section 14(d)(2)
                           of the Exchange Act has become the beneficial owner
                           (as the term "beneficial owner" is defined under Rule
                           13d-3 or any successor rule or regulation promulgated
                           under the Exchange Act) of securities which when
                           added to any securities already owned by such person
                           would represent in the aggregate 50% or more of the
                           then outstanding securities of the Company which are
                           entitled to vote to elect Directors;

                                       2
<PAGE>

                  (iv)     If at any time, the Continuing Directors then
                           serving on the Board cease for any reason to
                           constitute at least a majority thereof;

                  (v)      Any occurrence that would be required to be reported
                           in response to Item 6(e) of Schedule 14A of
                           Regulation 14A or any successor rule or regulation
                           promulgated under the Exchange Act; or

                  (vi)     Such other events that cause a change in control of
                           the Company, as determined  by the Board in its
                           sole discretion;

               provided, however, a Change in Control of the Company shall not
               be deemed to have occurred as the result of any transaction
               having one or more of the foregoing effects if such transaction
               is both (1) proposed by, and (2) includes a significant equity
               participation of, executive officers of the Company as
               constituted immediately prior to the occurrence of such
               transaction or any Company employee stock ownership plan or
               pension plan.

          (e)  Code. The "Code" shall mean the Internal Revenue Code of 1986, as
               amended.

          (f)  Continuing Director. A "Continuing Director" shall mean a
               Director of the Company who (i) is not an Acquiring Person, an
               Affiliate or Associate, a representative of an Acquiring Person
               or nominated for election by an Acquiring Person, and (ii) was
               either a member of the Board of Directors of the Company on the
               date of this Agreement or subsequently became a Director of the
               Company and whose initial election or initial nomination for
               election by the Company's stockholders was approved by a majority
               of the Continuing Directors then on the Board of Directors of the
               Company.

          (g)  Disabled. "Disabled" means any mental or physical impairment
               lasting more than 180 calendar days that prevents Executive from
               performing the essential functions of his position with or
               without reasonable accommodation, as determined by a physician
               mutually agreeable to Executive and the Company. Executive agrees
               to submit to appropriate medical examinations and authorize his
               physicians to release medical information necessary to determine
               whether Executive is "Disabled" for purposes of this Agreement.

          (h)  Employment Term. The "Employment Term" shall be the period of
               employment under this Agreement commencing on the day prior to a
               Change in Control and continuing until the expiration of this
               Agreement.

          (i)  Purchase Price. "Purchase Price" means the gross value of all
               cash, securities and other property paid directly or indirectly
               by an acquiror to a seller or sellers in connection with a Sale
               of the Company. The value of any securities (whether debt or
               equity) or other property shall be determined as follows: (i) the
               value of securities that are freely tradeable in an established
               public market will be determined on the basis of the average
               closing market price on the last five trading days preceding one

                                       3
<PAGE>

               business day prior to the closing of a Sale of the Company and
               (ii) the value of securities that are not freely tradeable or
               have no established public market and the value of consideration
               that consists of other property, will be the fair market value
               thereof, as reasonably determined by the Company no later than
               one business day prior to the closing of a Sale of the Company.
               The Purchase Price will not be deemed to include the principal
               amount of any indebtedness for borrowed money assumed or
               acquired, directly or indirectly, by the acquiring party or any
               of its affiliates in a Sale of the Company or retired, defeased
               or otherwise cancelled in connection with a Sale of the Company.

          (j)  Sale Bonus. Shall have the meaning set forth in Section 4(a).

          (k)  Sale of the Company. A "Sale of the Company" means the
               consummation of a sale by the Company to any entity not
               affiliated with or controlled by the Company of (i) 51% or more
               of the outstanding capital stock of the Company through purchase,
               merger, consolidation, combination or otherwise or (ii) all or
               substantially all of the assets of the Company.

          (l)  Severance Compensation. The "Severance Compensation" shall be:

                  (i)      A lump sum amount equal to 299% of Executive's
                           average annual compensation reported on his Form W-2
                           paid by the Company includable in gross income for
                           the five most recent full calendar years (or such
                           fewer full calendar years if Executive has served
                           less than five full calendar years) prior to the
                           Change in Control; provided, however, that if at any
                           date of determination, Executive has not been
                           employed for a full calendar year, such lump sum
                           amount will equal 299% of Executive's then current
                           salary annualized; and

                  (ii)     For a period of three years, provide Executive with
                           benefits substantially similar to those which
                           Executive was entitled to receive immediately prior
                           to the date of termination under all of the Company's
                           "employee welfare benefit plans" within the meaning
                           of Section 3(1) of The Employee Retirement Income
                           Security Act of 1974, as amended.

          (m)  Termination Date. The "Termination Date" shall be the effective
               date upon which the Executive or the Company terminates the
               employment of the Executive.

         3.       Rights of Executive Upon Change in Control and Subsequent
                  Termination.

          (a)  The Company shall provide the Executive, within ten days
               following the Termination Date, Severance Compensation, but
               without affecting the rights of the Executive or the Company at
               law or in equity, if, following the occurrence of a Change in
               Control, any of the following events shall occur:

                                       4
<PAGE>

          (1)  the Company terminates the Executive's employment during the
               Employment Term other than for any of the following reasons:

               (i)  the Executive dies;

               (ii) the Executive becomes Disabled; or

               (iii) for Cause.

          (2)  the Executive terminates his employment after such Change in
               Control and the occurrence of at least one of the following
               events:

               (i)  an adverse change in the positions held by Executive or an
                    adverse change in the nature or scope of the authorities,
                    functions or duties attached to the positions with the
                    Company that the Executive had immediately prior to the
                    Change in Control, any reduction in the Executive's base
                    salary during the Employment Term or any adverse change in
                    the calculation of the annual bonus or incentive
                    compensation or a significant reduction in scope or value of
                    the aggregate other monetary or nonmonetary benefits to
                    which the Executive was entitled from the Company
                    immediately prior to the Change in Control, any of which is
                    not remedied within ten calendar days after receipt by the
                    Company of written notice from the Executive of such change,
                    reduction, alteration or termination, as the case may be;

               (ii) a determination by the Executive made in good faith that as
                    a result of a Change in Control and a change in
                    circumstances thereafter significantly affecting his
                    position, changes in the composition or policies of the
                    Board, 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
                    immediately prior to the Change in Control, which situation
                    is not remedied within ten calendar days after receipt by
                    the Company of written notice from the Executive of such
                    determination;

               (iii) the relocation of the Company's principal executive
                    offices, or the requirement by the Company that Executive
                    have as his principal location of work any location not
                    within the greater Dallas, Texas metropolitan area or that
                    he travel away from his office in the course of discharging
                    his duties hereunder significantly more (in terms of either
                    consecutive days or aggregate days in any calendar year)
                    than required of him prior to the Change in Control; or

                                       5
<PAGE>

               (iv) the Company commits any breach (including under Section 6
                    below) of this Agreement which is not cured within ten
                    calendar days after receipt by the Company of written notice
                    from Executive of such breach.

     (b)  In the event that the total compensation paid to Executive as
          severance in the event of a Change in Control, taking into account all
          cash payments, shares of stock, accelerated vesting of stock options,
          and bonuses, if any, is found to constitute "an excess parachute
          payment" within the meaning of Section 280G of the Code, then the
          Company will pay to Executive, in addition to the Severance
          Compensation, an additional amount which, after reduction for income
          taxes and excise taxes on such additional amount, is sufficient to
          provide for the payment of any excise tax that may be due by Executive
          on the total compensation amount.

     (c)  Upon written notice given by the Executive to the Company prior to the
          receipt of Severance Compensation, the Executive, at his sole option,
          may elect to have all or any part of any such amount paid to him,
          without interest, on an installment basis selected by him.

     (d)  The payment of Severance Compensation by the Company to the Executive
          shall not affect any rights and benefits which the Executive may have
          pursuant to any other agreement, policy, plan, program or arrangement
          with the Company prior to the Termination Date, which rights shall be
          governed by the terms thereof, except that payments hereunder after
          termination shall reduce by an equal amount any sums payable after
          termination of employment under the Employment Agreement, dated the
          date hereof, by and between the Company and the Executive.

     (e)  The Company shall have no right of set-off or counterclaim in respect
          of any claim, debt or obligation against any payment or benefit to or
          for the benefit of the Executive provided for in this Agreement.

     (f)  Without limiting the rights of the Executive at law or in equity, if
          the Company fails to make any payment required to be made hereunder on
          a timely basis, the Company shall pay interest on the amount thereof
          on demand at an annualized rate of interest equal to 120% of the then
          applicable Federal rate determined under Section 1274(d) of the Code,
          compounded semi-annually (but in no event shall such interest exceed
          the highest lawful rate).

     (g)  If any of the events set forth in Section 3(a)(1) or 3(a)(2) occurs
          following the commencement of any discussion authorized by the Board
          with a third person that ultimately results in a Change in Control
          involving that person or a different third party shall be deemed to be
          a termination or removal of Executive after a Change in Control for
          purposes of this Agreement and shall entitle Executive to all benefits
          under this Agreement.

                                       6
<PAGE>

         4.       Sale Bonus.

     (a)  If a Sale of the Company occurs on or before July 1, 2002, in addition
          to any other payments, bonuses or amounts that Executive may be
          entitled to under any other agreements with the Company, Executive
          will be entitled to a cash payment in an amount equal to (i) the
          Purchase Price divided by the number of issued and outstanding shares
          of capital stock of the Company as of the closing of the Sale of the
          Company, times (ii) 17,500, minus (iii) $455,000 (such amount being,
          the "Sale Bonus"). The Sale Bonus will be subject to deduction and
          withholding authorized or required by applicable law. The Sale Bonus
          will be payable by the Company in full in cash at the closing of a
          Sale of the Company. However, the Company will have no obligation to
          pay Executive the Sale Bonus under this Section 4 if (1) a Sale of the
          Company does not occur on or before July 1, 2002, or (2) even though a
          Sale of the Company occurs on or before July 1, 2002, prior to the
          closing of the Sale of the Company, (x) Executive voluntarily
          terminates his employment with the Company, dies or becomes Disabled,
          (y) the Company terminates Executive for Cause, or (z) Executive
          breaches any of the material terms of this Agreement or the terms of
          the Employment Agreement, dated July 20, 2001, by and between the
          Company and Executive. The calculation of the Sale Bonus is based in
          part on the number of issued and outstanding shares of the Company's
          common stock (clause (ii)) as well as historical trading prices of
          such shares (clause (iii)) as of the date hereof. Clauses (ii) and/or
          (iii) of the calculation of the Sale Bonus will be adjusted as is
          necessary to reflect the same economic terms in the event of a stock
          dividend on, or a subdivision, combination or reclassification of, the
          Company's common stock after the date hereof, but will not be adjusted
          upon the occurrence of any other dilutive event.

     (b)  In the event that the total compensation paid to Executive in the
          event of a Sale of the Company, taking into account all cash payments,
          shares of stock, accelerated vesting of stock options, and bonuses, if
          any, is found to constitute "an excess parachute payment" within the
          meaning of Section 280G of the Code, then the Company will pay to
          Executive, in addition to the compensation paid as the Sale Bonus, an
          additional amount which, after reduction for income taxes and excise
          taxes on such additional amount, is sufficient to provide for the
          payment of any excise tax that may be due by Executive on the total
          compensation amount received by Executive.

         5. No Mitigation Required. In the event that this Agreement or the
employment of the Executive hereunder is terminated, the Executive shall not be
obligated to mitigate his damages nor the amount of any payment provided for in
this Agreement by seeking other employment or otherwise, and the acceptance of
employment elsewhere after termination shall in no way reduce the amount of
Severance Compensation payable hereunder.

                                       7
<PAGE>

         6.       Successors; Binding Agreement.

     (a)  The Company will require any successor and any corporation or other
          legal person which is in control of such successor (as "control" is
          defined in Regulation 230.405 or any successor rule or regulation
          promulgated under the Securities Act of 1933, as amended) to all or
          substantially all of the business and/or assets of the Company (by
          purchase, merger, consolidation or otherwise), by agreement in form
          and substance satisfactory to the Executive, to expressly assume and
          agree to perform this Agreement in the same manner and to the same
          extent that the Company would be required to perform it if no such
          succession had taken place. Failure of the Company to obtain such
          agreement prior to the effectiveness of any such succession shall be a
          material breach of this Agreement by the Company. Notwithstanding the
          foregoing, any such assumption shall not, in any way, affect or limit
          the liability of the Company under the terms of this Agreement or
          release the Company from any obligation hereunder. As used in this
          Agreement, "Company" shall mean the Company 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 agreement provided for in
          this Section 6 or which otherwise becomes bound by all the terms and
          provisions of this Agreement by operation of law.

     (b)  This Agreement and all rights of the Executive hereunder shall inure
          to the benefit of and be enforceable by the Executive's personal or
          legal representatives, executors, administrators, successors, heirs,
          distributees, devisees and legatees.

         7. Notice. The Company shall give written notice to Executive within
ten days after any Change in Control. Failure to give such notice shall
constitute a material breach of this Agreement. For purposes of this Agreement,
notices and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered or received
after being mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:

         If to the Executive:

                  Roy C. Cuny
                  4716 Lakeside
                  Colleyville, Texas  76034

         If to the Company:

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

or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

                                       8
<PAGE>

     8. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.

     9. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

     10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

     11. Employment Rights. Nothing expressed or implied in this Agreement shall
create any right or duty on the part of the Company or the Executive to have the
Executive remain in the employment of the Company prior to any Change in
Control.

     12. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.

     13. Enforcement Fees. All costs of litigation necessary for Executive to
defend the validity of this Agreement are to be paid by Employer or its
successors or assigns. The Company shall pay and be solely responsible for any
and all attorneys' and related fees and expenses incurred by the Executive as a
result of the Company's failure to perform this Agreement or any provision
thereof or as a result of the Company or any person contesting the validity or
enforceability of this Agreement or any provision thereof as aforesaid.

     14. Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Executive is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, including with
respect to Executive's rights under that certain Employment Agreement, dated
July 20, 2001, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.

     15. Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Texas.

                                       9
<PAGE>

     16. 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 arbitrators 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.
Fees and expenses of the arbitration itself will be borne by the parties
equally. 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.

     IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.

                                PEERLESS MFG. CO.

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

                                EXECUTIVE

                                 /s/ ROY C. CUNY
                                ---------------------------------------
                                Roy C. Cuny

                                       10

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