NOTE S. MERGER TRANSACTION

On May 3, 2015, PMFG entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CECO Environmental Corp., a Delaware corporation (“CECO”), and two direct wholly owned subsidiaries of CECO, Top Gear Acquisition Inc., a Delaware corporation (“Merger Sub I”), and Top Gear Acquisition II LLC, a Delaware limited liability company (“Merger Sub II” and together with Merger Sub I, collectively, the “Merger Subs”). Pursuant to the Merger Agreement, Merger Sub I will merge with and into the Company (the “First Merger”), with the Company surviving the First Merger as a wholly owned subsidiary of CECO. Immediately following consummation of the First Merger, the Company will merge with and into Merger Sub II (the “Second Merger”, and together with the First Merger, the “Mergers”), with Merger Sub II surviving the Second Merger, as a wholly owned subsidiary of CECO.

The Boards of Directors of the Company and CECO have each unanimously approved the Merger Agreement. The Merger Agreement is subject to approval by the Company’s stockholders. The Board of Directors of the Company has recommended that the Company’s stockholders adopt the Merger Agreement.

Pursuant to the terms of the Merger Agreement and subject to the conditions therein, at the effective time of the Merger (the “Effective Time”), each then issued and outstanding share of common stock (the “Company Common Stock”) of the Company (except shares owned by a subsidiary of the Company and shares held by stockholders who exercise their appraisal rights under Delaware law) will be cancelled and converted into the right to receive, at the election of the holder, subject to proration, either:

·	$6.85 per share in cash, without interest (the “Cash Consideration”); or

a number of shares of CECO common stock (“CECO Common Stock”), equal to a fraction (the “Exchange Ratio”), the numerator of which is $6.85 and the denominator of which is the volume-weighted average trading price as reported on the NASDAQ Global Market (the “VWAP Price”) of CECO Common Stock for the 15 consecutive trading days ending on the trading date immediately preceding the closing date of the Merger Agreement (the “Stock Consideration”); provided that the Stock Consideration is subject to a collar such that (1) if the VWAP Price is less than or equal to $10.61, then the Exchange Ratio will be 0.6456 shares of CECO Common Stock for each share of Company Common Stock, and (2) if the VWAP Price is greater than or equal to $12.97, then the Exchange Ratio will be 0.5282 shares of CECO Common Stock for each share of Company Common Stock. The net effect of this collar mechanism is that no further increase in the Exchange Ratio will be made if the CECO trading price is less than $10.61, and no further decrease in the Exchange Ratio will be made if the CECO trading price is greater than $12.97.

The Mergers are expected to close in September 2015, subject to approval of CECO stockholders and Company stockholders and other customary closing conditions. Both CECO and the Company have scheduled stockholder meetings for September 2, 2015 to approve proposals in connection with the Mergers.

The Merger Agreement may be terminated at any time prior to the closing of the Mergers by mutual written consent of CECO and the Company. Either CECO or the Company may terminate the Merger Agreement if the Effective Time has not occurred on or before November 30, 2015, the required Company stockholder approval or CECO stockholder approval is not obtained, or the consummation of the Mergers becomes illegal or otherwise is prevented or prohibited by any governmental authority.

The Company cannot give any assurance that the Mergers will be completed.

Included in general and administrative expenses is $2.0 million in costs related to the Mergers.