-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BTv50R1eDHcII1F1oqlezhT7FQGckVN3r3yCtJCIyPjcbRYKmWUq7acOR7gzgIl+ 2GS182o+ByLrDFCmWLBtwQ== 0000926236-00-000018.txt : 20000215 0000926236-00-000018.hdr.sgml : 20000215 ACCESSION NUMBER: 0000926236-00-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEERLESS MANUFACTURING CO CENTRAL INDEX KEY: 0000076954 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 750724417 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05214 FILM NUMBER: 542768 BUSINESS ADDRESS: STREET 1: 2819 WALNUT HILL LN CITY: DALLAS STATE: TX ZIP: 75229 BUSINESS PHONE: 2143576181 MAIL ADDRESS: STREET 1: P.O. BOX 540667 CITY: DALLAS STATE: TX ZIP: 75354 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 31, 1999 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF --- THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-5214 PEERLESS MFG. CO. ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 75-0724417 ---------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 2819 Walnut Hill Lane Dallas, Texas 75229 P. O. Box 540667 Dallas, Texas 75354 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (214) 357-6181 None ----------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 14, 2000 ----------------------------- -------------------------------- Common stock, $1.00 par value 1,462,492 Shares PEERLESS MFG. CO. INDEX Page Number ------ Part I: Financial Information Item 1: Consolidated Financial Statements Condensed Consolidated Balance Sheets for the periods ended December 31, 1999 and June 30, 1999. 3 Condensed Consolidated Statements of Earnings for the three and six months ended December 31, 1999 and 1998. 4 Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 1999 and 1998. 5 Notes to the Condensed Consolidated Financial Statements. 6 - 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 - 11 Part II: Other Information Legal Proceedings 12 Exhibits and Reports 12 - 13 Signatures 14 2 of 14 PART I FINANCIAL INFORMATION Item 1. Financial Statements PEERLESS MFG. CO. CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30, 1999 1999 ---------- ---------- Assets: (UNAUDITED) (AUDITED) Current assets: Cash and cash equivalents $ 2,528,940 $ 210,866 Short term investments 273,343 273,343 Accounts receivable-principally trade-net of allowance for doubtful accounts of $719,102 at December 31, 1999 and $685,330 at June 30, 1999 10,399,558 12,195,037 Inventories: Raw materials 1,072,876 961,450 Work in process 513,963 2,522,182 Finished goods 558,139 247,338 Costs and earnings in excess of billings on uncompleted contracts 4,569,604 3,268,181 Other 1,292,320 777,635 ---------- ---------- Total current assets 21,208,743 20,456,032 Property, plant and equipment-at Cost, less accumulated depreciation 2,087,582 2,102,546 Property held for investment-at Cost, less accumulated depreciation 68,900 68,900 Deferred income taxes 59,613 59,613 Other assets 689,252 791,681 ---------- ---------- $24,114,090 $23,478,772 ========== ========== Liabilities and Stockholders' Equity: Current liabilities: Accounts payable-trade 5,127,302 5,626,058 Billings in excess of costs and earnings on uncompleted contracts 1,844,378 572,970 Commissions payable 1,189,459 1,204,584 Accrued liabilities: Compensation 523,773 1,188,165 Warranty 254,852 313,773 Deferred income taxes 42,736 42,736 Other 254,205 38,669 ---------- ---------- Total current liabilities 9,236,705 8,986,955 Stockholders' equity: Common stock-authorized 10,000,000 shares of $1 par value; issued and outstanding, 1,459,992 and 1,452,492 shares at December 31, 1999 and June 30, 1999, respectively 1,459,992 1,452,492 Additional paid-in capital 2,610,658 2,539,951 Unamortized value of restricted stock grants (42,486) (4,719) Cumulative foreign currency translation adjustment (120,741) (103,824) Retained earnings 10,969,962 10,607,917 ---------- ---------- 14,877,385 14,491,817 ---------- ---------- $24,114,090 $23,478,772 ========== ========== The accompanying notes are an integral part of these statements. 3 of 14
PEERLESS MFG. CO. CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended Six Months Ended December 31, December 31, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $10,358,296 $10,931,835 $22,665,368 $20,301,525 Cost of goods sold 6,457,827 7,295,692 15,170,512 13,722,263 ---------- ---------- ---------- ---------- Gross profit 3,900,469 3,636,143 7,494,856 6,579,262 Operating expenses 3,186,881 2,729,934 6,387,992 5,321,089 ---------- ---------- ---------- ---------- Operating income 713,588 906,209 1,106,864 1,258,173 Other income(expense) Interest income 1,612 16,679 3,189 23,673 Interest expense (11,546) (954) (20,486) (18,898) Foreign exchange gains(losses) (13,590) (65,851) 63,886 (93,355) Other, net (8,597) (10,620) (26,470) (12,805) ---------- ---------- ---------- ---------- (32,121) (60,746) 20,119 (101,385) ---------- ---------- ---------- ---------- Earnings from operations before Federal income tax 681,467 845,463 1,126,983 1,156,788 Federal income tax Current 242,387 331,608 402,055 436,312 Deferred - 2,037 (741) 8,905 ---------- ---------- ---------- ---------- 242,387 333,645 401,314 445,217 ---------- ---------- ---------- ---------- Net earnings 439,080 511,818 725,669 711,571 ========== ========== ========== ========== Basic and diluted earnings per share $0.30 $0.35 $0.50 $0.49 ========== ========== ========== ========== Basic weighted average shares 1,457,747 1,457,492 1,455,272 1,457,492 Dilutive options 4,741 6,369 6,359 7,995 ---------- ---------- ---------- ---------- Adjusted weighted average shares 1,462,488 1,463,861 1,461,631 1,465,487 ========== ========== ========== ========== Cash dividend per common share $0.125 $0.125 $0.250 $0.250 ========== ========== ========== ========== The accompanying notes are an integral part of these statements. 4 of 14
PEERLESS MFG. CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the six months ended December 31, 1999 1998 --------- --------- Cash flows from operating activities: Net earnings $ 725,669 $ 711,564 Adjustments to reconcile earnings to net cash provided by (used in) operating activities: Depreciation and amortization 206,596 172,953 Other 3,096 698 Changes in operating assets and liabilities Accounts receivable 1,795,479 4,205,518 Inventories 1,585,992 78,338 Cost and earnings in excess of billings on uncompleted contracts (1,301,423) (75,221) Other current assets (514,685) (20,034) Other assets 102,429 (45,582) Accounts payable (498,702) (2,468,612) Billings in excess of costs and earnings on uncompleted contracts 1,271,408 288,420 Commissions payable (15,125) (209,617) Accrued liabilities (507,777) (743,193) --------- --------- 2,127,288 1,183,668 --------- --------- Net cash provided by (used in) operating activities 2,852,957 1,895,232 Cash flows from investing activities: Net sales (purchases) of property and equipment (191,632) (115,364) --------- --------- Net cash provided by (used in) investing activities (191,632) (115,364) Cash flows from financing activities: Net change in short-term borrowings - (200,000) Sales of common stock 37,344 - Dividends paid (363,624) (364,374) --------- --------- Net cash provided by (used in) financing activities (326,280) (564,374) Effect of exchange rate on cash and cash equivalents (16,971) 18,786 --------- --------- Net increase (decrease) in cash and cash equivalents 2,318,074 1,234,280 Cash and cash equivalents at beginning of period 210,866 428,482 --------- --------- Cash and cash equivalents at end period $2,528,940 $1,662,762 ========= ========= The accompanying notes are an integral part of these statements. 5 of 14
PEERLESS MFG. CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying consolidated financial statements of Peerless Mfg. Co. and its subsidiaries (the "Company") have been prepared without audit. In our opinion, the financial statements reflect all adjustments necessary to present fairly the results of operations for the three and six months ending December 31, 1999 and 1998, the Company's financial position at December 31, 1999, and June 30, 1999, and cash flows for the six months ending December 31, 1999 and 1998. These adjustments are of a normal and recurring nature, which are in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our Annual Report Form 10-K, as amended, for the Fiscal year ended June 30, 1999 and the consolidated financial statements and notes included in our June 30, 1999, audited financial statements. 2. The results for interim periods are not necessarily indicative of the results to be expected for the full year. 6 of 14 3. We have formal agreements with Bank of America N.A., formerly NationsBank N.A., and Chase Bank of Texas N.A. for $3,500,000 each for an aggregate of $7,000,000 continuing lines of credit, renewable annually. Under the terms of these agreements, loans bear interest at the prevailing prime rate and we are required to pay 1/4 of 1% per annum on the unused portion of the facility. In addition, Chase Bank of Texas provides us a LIBOR rate option. As of December 31, 1999, we had no loans outstanding against these lines of credit. The Company had $600,000 outstanding as of September 30, 1999. 4. We consolidate the accounts of our wholly-owned foreign subsidiaries, Peerless Europe Limited and Peerless Europe B.V. All significant intercompany accounts and transactions have been eliminated in the consolidation. 5. We identify reportable segments based on management responsibility within our corporate structure. We have two reportable industry segments which are set out below: Gas/Liquid Selective Unallocated Consolidated Filtration Catalytic Corporate Reduction Expenses Systems --------- --------- --------- ----------- Three months ending 12/31/99 ------------ Revenues $ 6,784,000 $3,574,000 - $ 10,358,000 from Customers Segment $ 1,110,000 $ 686,000 ($1,082,000) $ 714,000 profit(loss) Three months ending 12/31/98 ------------ Revenues $ 9,333,000 $1,599,000 - $ 10,932,000 from Customers Segment $ 1,259,000 $ 325,000 ($ 678,000) $ 906,000 profit(loss) Six months ending 12/31/99 ------------ Revenues $16,199,000 $6,466,000 - $ 22,665,000 from Customers Segment $ 2,001,000 $1,328,000 ($2,233,000) $ 1,096,000 profit(loss) Six months ending 12/31/98 ------------ Revenues $18,318,000 $1,984,000 - $ 20,302,000 from Customers Segment $ 2,532,000 $ 272,000 ($1,546,000) $ 1,258,000 profit(loss)
7 of 14 Item 2. Management's discussion and analysis of financial condition and results of operations. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified. Actual results could differ materially from those projected in the forward-looking statements as a result of changes in market conditions, increased competition, global and domestic economic conditions, or other factors. The following discussion and analysis should be read in conjunction with the attached consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the fiscal year ended June 30, 1999. Capital Resources and Liquidity As a general policy, corporate liquidity is maintained at a level adequate to support existing operations and planned internal growth, and to allow continued operations through periods of unanticipated adversity. Cash and equivalents increased $2,318,000 from June 30, 1999. Company operations provided $2,853,000 primarily from net earnings of $726,000, reductions in Account Receivable of $1,795,000 and inventories of $1,586,000, combined with increased billings in excess of costs of $1,271,000. These positive cash flows were offset by increases in costs in excess of billings by $1,301,000, increased other current assets of $515,000, reductions in accounts payable of $499,000, accrued liabilities of $508,000, and dividends paid of $364,000. We continue to finance plant expansion, equipment purchases, acquisitions and working capital requirements primarily through the retention of earnings, which is reflected by the absence of long-term debt in our balance sheet. In addition to retained earnings, we have from time to time used two short-term bank credit lines totaling $7,000,000 to supplement working capital. We currently have no material commitments for capital expenditures other than with respect to our established plant and equipment maintenance program. 8 of 14 REVENUE: Revenue decreased 5% from $10,932,000 for the three months ended December 31, 1998 to $10,358,000 for the three months ended December 31, 1999. The decrease in revenues was primarily due to lower revenues from the traditional products of filtration and separation systems, which was partially offset by improved sales for SCR products. For the six month period, revenues increased 12% from $20,302,000 for the six months ended December 31, 1998 to $22,665,000 for the six months ended December 31, 1999. The year to date sales improvement is due to strong sales of SCR products. The backlog of uncompleted orders and letters of intent at December 31, 1999 was approximately $38,700,000 as compared to a December 31, 1998 backlog of approximately $25,000,000. Of the $38,700,000 backlog at December 31, 1999, approximately 80% is scheduled to be completed in the current fiscal year. GROSS PROFIT: Gross profit increased 7% from $3,636,000 for the three months ended December 31,1998 to $3,900,000 for the three months ended December 31, 1999. For the six month period ending December 31, 1999, gross profit increased 14% to $7,495,000 from $6,579,000 for the six months ending December 31, 1998. The increased gross profit is primarily attributable to the increased revenue from environmental, nuclear, and marine products. OPERATING EXPENSES: Operating expenses increased 17% from $2,730,000 for the three months ended December 31, 1998 to $3,187,000 for the three months ended December 31,1999. For the six months, operating expenses increased 20% from $5,321,000 for the six months ending December 31, 1998 compared to $6,388,000 for the six months ending December 31, 1999. Higher operating expenses are due to increased volume of orders, increased implementation cost for an ERP System and higher warranty expense for the period. OTHER INCOME/(EXPENSE): We recognized net other expense of approximately $32,000 for the three months ended December 31, 1999 compared to net other expenses of approximately $61,000 for the three months ended December 31, 1998. This is primarily due to foreign exchange losses declining from $66,000 for the three months ending December 31, 1998 to $14,000 for the three months ended December 31, 1999. 9 of 14 YEAR 2000 COMPLIANCE: The year 2000 problem is the result of computer programs being written using two digits rather than four digits to define the applicable year. Miscalculations or system failures could result from the year 2000 problem. Based on our review of our business since January 1, 2000, we have not experienced any material effects of the year 2000 problem. Although we have not been informed of any material risks associated with the year 2000 problem from third parties, there can be no assurance that they may not impact our business in the future. We regularly monitor our business applications and communicate with key business relations so that we expect we will be able to resolve any year 2000 problems that may arise in the future. Our current assessment of risks related to the year 2000 problem is that there will be no significant adverse impact on our operations or financial performance. INTERNATIONAL MARKETS: Demand for the Company's products in Southeast Asia remain slow as a result of the current financial situation there. However, we are experiencing an increase in orders of our company's products through our UK subsidiary, Peerless Europe Ltd. SCR Products: Orders for the purchase of SCR environmental protection products have increased as evidenced by an order in the amount of $11.9 million placed in December. New SCR opportunities are the result of the new gas turbine powered electric generating facilities being built to fill demand for electric power in the U.S. These projects require clean burning gas which in turn creates the opportunity to sell the Company's gas cleaning equipment. Coal fired electric power plants are also adding SCR products to comply with US Government mandated lower NOx emission levels. 10 of 14 PEERLESS MFG. CO. PART II OTHER INFORMATION Item 1 -- Legal proceedings Reference is made to Form 10-K Annual Report, as amended, Item 3, Page 5, "Legal Proceedings" for the Fiscal year ended June 30, 1999. For the six months ended December 31, 1999 there were no material developments or new proceedings filed against the Company. Item 6 -- Exhibits and Reports -- Form 8-K (a) EXHIBITS: References to the Company's SEC File Number 0-05214. 3(a) Articles of Incorporation, as amended to date (filed as Exhibit 3(a) to our Quarterly Report on Form 10-Q, dated December 31, 1997, and incorporated herein by reference). 3(b) Bylaws, as amended to date (filed as Exhibit 3(b) to our Annual Report on Form 10-K, dated June 30, 1997, and incorporated herein by reference). 10(a) Incentive Compensation Plan effective January 1, 1981, as amended January 23, 1991 (filed as Exhibit 10(b) to our Annual Report on Form 10-K, dated June 30, 1991, and incorporated herein by reference). 10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co., effective December 13, 1985 (filed as Exhibit 10(b) to our Annual Report on Form 10-K, dated June 30, 1993, and incorporated herein by reference). 10(c) 1991 Restricted Stock Plan for Non-Employee Directors of Peerless Mfg. Co., adopted subject to shareholder approval May 24, 1991, and approved by shareholders November 20, 1991 (filed as Exhibit 10(e) to our Annual Report on Form 10-K dated June 30, 1991, and incorporated herein by reference). 11 of 14 10(d) Employment Agreement, dated as of April 29, 1994, by and between Peerless Mfg. Co. and Sherrill Stone (filed as Exhibit 10(d) to our Annual Report on Form 10-K for the Fiscal year ended June 30, 1994, and incorporated herein by reference). 10(e) Agreement, dated as of April 29, 1994 by and between Peerless Mfg. Co. and Sherrill Stone (filed as Exhibit 10(e) to our Annual Report on Form 10-K dated June 30, 1994 and incorporated herein by reference). 10(f) * Eighth Amended and Restated Loan Agreement, dated as of December 12, 1999, between Bank of America N.A., formerly NationsBank of Texas, N.A., and Peerless Mfg. Co. 10(g) * Second Amended and Restated Loan Agreement, dated as of December 12, 1999, and Waiver and First Amendment to Second Amended and Restated Loan Agreement dated December 12, 1999, by and between Chase Bank of Texas N.A, and Peerless Mfg. 10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted Stock Plan, adopted by the Board of Directors December 31, 1995 and approved by the Shareholders on November 21, 1996 (filed as Exhibit 10(h) to our Annual Report on Form 10-K dated June 30, 1997 and incorporated herein by reference), as amended by Amendment #1 dated November 11, 1999. (filed as exhibit 10(h) to our Quarterly Report on Form 10-Q, dated September 30, 1999 and incorporated herein by reference). 10(i) Rights Agreement between Peerless Mfg. Co. and ChaseMellon Shareholder Services, L.L.C., adopted by the Board of Directors May 21, 1997 (filed as Exhibit 1 to our Registration Statement on Form 8-A(File No. 0-05214) and incorporated herein by reference). 10(j) Employment Agreement dated as of July 23, 1999 by and between Peerless Mfg. Co. and G.D. Cornwell (filed as exhibit 10(j) to our Quarterly Report on Form 10-Q, dated September 30, 1999 and incorporated herein by reference). 10(k) Agreement dated as of July 23, 1999 by and between Peerless Mfg. Co. and G.D. Cornwell (filed as exhibit 10(k) to our Quarterly Report on Form 10-Q, dated September 30, 1999 and incorporated herein by reference). 12 of 14 21 Our Subsidiaries (filed as Exhibit 21 too our Annual Report on Form 10-K dated September 30, 1999, and incorporated herein by reference). 27 Financial Data Schedule.* *Filed herewith (b) Reports on Form 8-K. None. 13 of 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. PEERLESS MFG. CO. Dated: February 14, 2000 /s/ Sherrill Stone /s/ Thomas J. Reeve ____________________________ ___________________________ By: Sherrill Stone By: Thomas J. Reeve Chairman, President and Chief Financial Officer Chief Executive Officer 14 of 14 EX-10.F 2 EIGHTH AMENDED & RESTATED LOAN AGREEMENT EXHIBIT 10 (f) Bank of America, N.A. EIGHTH AMENDED AND RESTATED LOAN AGREEMENT This Loan Agreement ("Agreement") dated as of December 12, 1999, by and between Bank of America, N.A. (formerly known as NationsBank, N.A. and successor by merger of NationsBank of Texas, N.A.), a national banking association ("Bank") and the Borrower described below. This Agreement amends and restates in its entirety the Seventh Amended and Restated Loan Agreement dated as of December 12, 1998, between Bank and Borrower. In consideration of the Loan or Loans and Letters of Credit described below and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, Bank and Borrower agree as follows: 1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined herein, the following terms shall have the meaning set forth with respect thereto: A. Borrower: Peerless Mfg. Co., a Texas corporation B. Borrower's Address: 2819 Walnut Hill Lane Dallas, Texas 75229 C. Chase Agreement. Chase Agreement means the Loan Agreement dated as of December 12, 1998, between Borrower and Chase Bank of Texas, N.A. D. Collateral Account. Collateral Account means each deposit account in which Bank has a perfected, first priority Lien, not subject to any claim of any other Person. E. Collateral Policy. Collateral Policy means each effective insurance policy insuring the life of Don Sillars in which Bank has a perfected, first priority Lien in the cash value and all death benefits, together with such other assurances as Bank may require to evidence its interest in such policy. F. Compliance Certificate. Compliance Certificate mean a certificate substantially in the form of Exhibit B. G. Current Assets. Current Assets means the aggregate amount of all the assets of the Borrower and its Subsidiaries, on a consolidated basis, assets which would, in accordance with GAAP, properly be defined as current assets. H. Current Liabilities. Current Liabilities means the aggregate amount of all current liabilities of the Borrower and its Subsidiaries, on a consolidated basis, as determined in accordance with GAAP, but in any event shall include all liabilities except those having a maturity date which is more than one year from the date as of which such computation is being made, plus the amount equal to the difference (but not less than zero) of (i) the aggregate undrawn amount of all Letters of Credit, minus (ii) the sum of (a) the aggregate amount in each Collateral Account, plus (b) the aggregate cash value of each Collateral Policy. I. Hazardous Materials. Hazardous Materials include all materials defined as hazardous materials or substances under any local, state or federal environmental laws, rules or regulations, and petroleum, petroleum products, oil and asbestos. J. Investment. Investment means any acquisition of all or substantially all assets of any Person, or any direct or indirect purchase or other acquisition of, or a beneficial interest in, capital stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts, and similar expenditures in the ordinary course of business), or capital contribution to or investment in any other Person, including without limitation the incurrence or sufferance of debt or accounts receivable of any other Person that are not current assets or do not arise from sales to that other Person in the ordinary course of business. K. Lien. Lien means any mortgage, pledge, security interest, encumbrance, lien, or charge of any kind, including without limitation any agreement to give or not to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under the laws of any jurisdiction. L. Loan. Any loan described in Section 2 hereof and any subsequent loan which states that it is subject to this Agreement. M. Loan Documents. Loan Documents means this Agreement and any and all promissory notes executed by Borrower in favor of Bank, each application for issuance of a Letter of Credit and all other documents, instruments, guarantees, certificates and agreements executed and/or delivered by Borrower, any guarantor or third party in connection with any Loan or Letter of Credit. N. Material Adverse Effect. Material Adverse Effect means any circumstance or event that is or would reasonably be expected to be material and adverse to the financial condition, business operations, prospects or properties of Borrower and its Subsidiaries, taken as a whole. O. Net Income. Net Income means net profit after taxes of the Borrower and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP. P. Net Loss. Net Loss means net loss after taxes of the Borrower and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP. Q. Obligor. Obligor means Borrower, any Subsidiary of Borrower, any indorser or guarantor of any obligation under any Loan Document and any other Person liable for or the property of which secures any obligation under any Loan Document. R. Person. Person means an individual, partnership, joint venture, corporation, trust, tribunal, unincorporated organization, and government, or any department, agency, or political subdivision thereof. S. Subsidiary. Subsidiary means as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than such stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both by such Person. T. Accounting Terms. All accounting terms not specifically defined or specified herein shall have the meanings generally attributed to such terms under generally accepted accounting principles ("GAAP"), as in effect from time to time, consistently applied, with respect to the financial statements referenced in Section 3.I. hereof. 2. LOANS. A. Loan. Bank hereby agrees to make (or has made) one or more loans to Borrower in the aggregate principal face amount of $3,500,000 (as such amount may be reduced, the "Line"), provided, the aggregate unpaid principal of all loans shall not at any time exceed the difference between (i) the Line, minus (ii) the undrawn amount of all outstanding Letters of Credit, minus (iii) the amount of all drawings under any Letter of Credit for which Bank has not been reimbursed. The obligation to repay the loans is evidenced by the promissory note dated December 12, 1999 (the promissory note or notes together with any and all renewals, extensions or rearrangements thereof being hereafter collectively referred to as the "Note") having a maturity date, repayment terms and interest rate as set forth in the Note (a copy of which is attached as Exhibit A). i. Revolving Credit Feature. The Note provides for a revolving line of credit under which Borrower may from time to time, borrow, repay and re-borrow funds. ii. Usage Fee. Borrower will pay hereafter on the last day of each calendar quarter for the period from and including the date the Line was established to and including the maturity date of the Line, a usage fee at a rate per annum of .25% of the average daily unused portion of the Line during such period. The Borrower may at any time upon written notice to the Bank permanently reduce the amount of the Line at which time the obligation of the Borrower to pay a usage fee shall thereupon correspondingly be reduced. iii. Letter of Credit Subfeature. As a subfeature under the Line, Bank may from time to time up to and including December 12, 2000, issue letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank in its sole discretion; and provided further that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed the difference between (a) the Line, minus (b) the aggregate unpaid principal amount of all Loans, minus (c) the amount of all drawings under any Letter of Credit for which Bank has not been reimbursed. No Letter of Credit shall have an expiry subsequent to December 10, 2001 or 364 or more days after the issuance date; provided Borrower may request that Bank issue Letters of Credit having an expiry after December 10, 2001 or an expiry 364 or more days after the issuance date ("Extended Expiry LC"), if the undrawn amount of such Extended Expiry LC plus the aggregate undrawn amount of all other Extended Expiry LCs does not exceed an amount equal to the sum of (a) the amount of each Collateral Account plus (b) 95% of the cash value of each Collateral Policy. Each draft paid by Bank under a Letter of Credit shall be deemed an advance under the Line and shall be repaid in accordance with the terms of the Line; provided however, that if the Line is not available for any reason whatsoever, at the time any draft is paid by Bank, or if advances are not available under the Line in such amount due to any limitation of borrowing set forth herein, then the full amount of such drafts shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower, at that rate of interest applicable to advances under the Line. In such event, Borrower agrees that Bank, at Bank's sole discretion may debit any Collateral Account or Borrower's deposit accounts with Bank or obtain all or any of the cash value of any Collateral Policy for the amount of such draft. If at any time prior to December 12, 1999 the sum of (a) the aggregate unpaid principal of the Loans, plus (b) the aggregate undrawn amount of all outstanding Letters of Credit exceeds the Line, Borrower shall immediately pay to Bank the amount of such excess, together with accrued, unpaid interest on the amount of such excess. If at any time after December 12, 1999 the aggregate undrawn amount of all Extended Expiry LCs exceeds the sum of (a) the amount of each Collateral Account, plus (b) 95% of the cash value of each Collateral Policy, Borrower shall immediately deliver to Bank, for deposit into a Collateral Account, an amount in cash equal to such excess. Letters of Credit shall be priced at a rate of 1.5% per annum of the face amount of the Letter of Credit, which fee is due and payable on issuance of the Letters of Credit. Bank shall send to Borrower notice of Bank's election to pursue any remedy with respect to the Collateral Policy three days prior to enforcing such remedy. 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Bank as follows: A. Good Standing. Borrower is a corporation, duly organized, validly existing and in good standing under the laws of Texas and has the power and authority to own its property and is qualified to conduct its business in each jurisdiction in which Borrower does business, except to the extent the failure to obtain such qualifications or to remain in good standing would not result in a Material Adverse Effect. Each Subsidiary of Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized (as indicated on Schedule 1) and has the power and authority to own its property and is qualified to conduct its business in each jurisdiction in which it does business, except to the extent the failure to obtain such qualifications or to remain in good standing would not result in a Material Adverse Effect. B. Authority and Compliance. Borrower has full power and authority to execute and deliver the Loan Documents and to incur and perform the obligations provided for therein, all of which have been duly authorized by all proper and necessary corporate action of Borrower. No consent or approval of any public authority or other third party is required as a condition to the validity of any Loan Document, and Borrower and each Subsidiary of Borrower is in compliance with all laws and regulatory requirements to which it is subject, except to the extent the failure to comply with such laws or regulatory requirements would not result in a Material Adverse Effect. C. Binding Agreement. This Agreement and the other Loan Documents executed by Borrower constitute valid and legally binding obligations of Borrower, enforceable in accordance with their terms. D. Litigation. There is no proceeding involving Borrower or any Subsidiary of Borrower pending or, to the knowledge of Borrower, threatened before any court or governmental authority, agency or arbitration authority, except as (i) disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement, or (ii) would not result in a Material Adverse Effect if adversely determined. E. No Conflicting Agreements. There is no charter, bylaw, stock provision, partnership agreement or other document pertaining to the organization, power or authority of Borrower or any Subsidiary of Borrower and no provision of any existing agreement, mortgage, indenture or contract binding on Borrower or any Subsidiary of Borrower or affecting its respective property, which would conflict with or in any way prevent the execution, delivery or carrying out of the terms of this Agreement and the other Loan Documents. F. Ownership of Assets. Borrower and each Subsidiary of Borrower has good title to its respective assets, and its respective assets are free and clear of Liens, except those granted to Bank and as disclosed to Bank in writing prior to the date of this Agreement. G. Investments. Neither Borrower nor any Subsidiary of Borrower has any Investments except as described on Schedule 1. Schedule 1 is a complete and correct description of the name and jurisdiction of organization of each Subsidiary of Borrower. H. Taxes. All taxes and assessments due and payable by Borrower and each Subsidiary of Borrower have been paid or are being contested in good faith by appropriate proceedings and Borrower and each Subsidiary of Borrower have filed all tax returns which it is required to file. I. Financial Statements. The financial statements of Borrower heretofore delivered to Bank have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved and fairly present Borrower's financial condition as of the date or dates thereof, and there has been no material adverse change in Borrower's financial condition or operations since June 30, 1999. All factual information furnished by Borrower to Bank in connection with this Agreement and the other Loan Documents, when taken as a whole, is and will be accurate and complete on the date as of which such information is delivered to Bank and is not and will not be incomplete by the omission of any material fact necessary to make such information, in light of the circumstances under which they were made, not misleading. J. Place of Business. Borrower's chief executive office is located at: 2819 Walnut Hill Lane Dallas, Texas 75229 K. Environmental. The conduct of Borrower's and each of Borrower's Subsidiary's business operations and the condition of Borrower's and each of Borrower's Subsidiary's property does not and will not violate any federal laws, rules or ordinances for environmental protection, regulations of the Environmental Protection Agency, any applicable local or state law, rule, regulation or rule of common law or any judicial interpretation thereof relating primarily to the environment or Hazardous Materials. L. Chase Agreement. Borrower has delivered to Bank a complete and correct copy of the Chase Agreement and all related documents. M. Continuation of Representations and Warranties. All representations and warranties made under this Agreement shall be deemed to be made at and as of the date hereof and at and as of the date of any advance under any Loan and the issuance of any Letter of Credit. N. Year 2000. i. Borrower has (a) begun analyzing the operations of Borrower and its subsidiaries and affiliates that could be adversely affected by failure to become Year 2000 compliant (that is, that computer applications, imbedded microchips and other systems will be able to perform date-sensitive functions prior to and after December 31, 1999) and (b) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Borrower reasonably believes that it will become Year 2000 compliant for its operations and those of its subsidiaries and affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon the financial condition of Borrower. ii. Borrower reasonably believes any suppliers and vendors that are material to the operations of Borrower or its subsidiaries and affiliates will be Year 2000 compliant for their own computer applications except to the extent that such failure could not reasonably be expected to have a material adverse effect on the financial condition of Borrower. iii. Borrower will promptly notify Bank in the event Borrower determines that any computer application which is material to the operations of Borrower, its subsidiaries or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a material adverse effect upon the financial condition of the Borrower. 4. AFFIRMATIVE COVENANTS. Until full and final payment and performance of all obligations of Borrower under the Loan Documents, Borrower will, unless Bank consents otherwise in writing (and without limiting any requirement of any other Loan Document): A. Financial Statements and Other Information. Maintain a system of accounting reasonably satisfactory to Bank and in accordance with GAAP applied on a consistent basis throughout the period involved, permit Bank's officers or authorized representatives to visit and inspect Borrower's books of account and other records at such reasonable times and as often as Bank may desire, and pay the reasonable fees and disbursements of any accountants or other agents of Bank selected by Bank for the foregoing purposes. Unless written notice of another location is given to Bank, Borrower's books and records will be located at Borrower's chief executive office set forth above. All financial statements called for below shall be prepared in form and content reasonably acceptable to Bank and by independent certified public accountants acceptable to Bank. Bank acknowledges that Grant Thornton, L.P., independent certified accountants of Borrower on the date hereof, is acceptable to Bank as of the date hereof. In addition, Borrower will: i. Furnish to Bank consolidated and consolidating financial statements of Borrower for each fiscal year of Borrower, within 120 days after the close of each such fiscal year. ii. Furnish to Bank consolidated and consolidating financial statements (including a balance sheet and profit and loss statement) of Borrower for each quarter of each fiscal year of Borrower, within 60 days after the close of each such period. iii. Furnish to Bank a Compliance Certificate for (and executed by an authorized representative of) Borrower concurrently with and dated as of the date of delivery of each of the financial statements as required in paragraphs i and ii above, containing (a) a certification that the financial statements of even date therewith are true and correct and that the Borrower is not in default under the terms of this Agreement, and (b) computations and conclusions, in such detail as Bank may reasonably request, with respect to compliance with this Agreement, and the other Loan Documents, including computations of all quantitative covenants. iv. Furnish to Bank promptly such additional information, reports and statements respecting the business operations and financial condition of Borrower and its Subsidiaries, from time to time, as Bank may reasonably request. B. Insurance. Maintain, and cause each Subsidiary of Borrower to maintain, insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, specifically to include fire and extended coverage insurance covering all assets, and liability insurance, all to be with such companies and in such amounts as are satisfactory to Bank and providing for at least 15 days prior notice to Bank of any cancellation thereof. Satisfactory evidence of such insurance will be supplied to Bank prior to funding under the Loan(s) or issuance of the first Letter of Credit and 15 days prior to each policy renewal. C. Existence and Compliance. Maintain, and cause each Subsidiary of Borrower to maintain, its existence, good standing and qualification to do business, where required and comply with all laws, regulations and governmental requirements including, without limitation, environmental laws applicable to it or to any of its property, business operations and transactions, except in each case, where the failure of such Subsidiary to comply with the requirements of this section would not result in a Material Adverse Effect. D. Adverse Conditions or Events. Promptly advise Bank in writing of (i) any condition, event or act which comes to its attention that would or might materially adversely affect Borrower's or any of Borrower's Subsidiary's financial condition or operations or Bank's rights under the Loan Documents, (ii) any litigation filed by or against Borrower or any Subsidiary of Borrower, (iii) any event that has occurred that would constitute an event of default under any Loan Documents, (iv) any uninsured or partially uninsured loss through fire, theft, liability or property damage, and (v) any actual or potential contingent liability which singly or in the aggregate with all other actual or potential contingent liabilities could equal or exceed $500,000. E. Taxes and Other Obligations. Pay, and cause each Subsidiary of Borrower to pay, all of its taxes, assessments and other material obligations, including, but not limited to taxes, costs or other expenses arising out of this transaction, as the same become due and payable, except to the extent the same are being contested in good faith by appropriate proceedings in a diligent manner. F. Maintenance. Maintain, and cause each Subsidiary of Borrower to maintain, all of its tangible property in good condition and repair and make all necessary replacements thereof, and preserve and maintain all licenses, trademarks, privileges, permits, franchises, certificates and the like necessary for the operation of its business. G. Environmental. Immediately advise Bank in writing of (i) all material enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Borrower's or any of Borrower's Subsidiary's business operations; and (ii) all claims made or threatened by any third party against Borrower or any Subsidiary of Borrower relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Borrower shall immediately notify Bank of any remedial action taken by Borrower or any Subsidiary of Borrower with respect to Borrower's or any of Borrower's Subsidiary's material business operations. Borrower will not use or permit, and will cause each Subsidiary of Borrower to not use or permit, any other party to use any Hazardous Materials at any of Borrower's or any of Borrower's Subsidiary's places of business or at any other property owned by Borrower or any Subsidiary of Borrower except such materials as are incidental to Borrower's or any of Borrower's Subsidiary's normal course of business, maintenance and repairs and which are handled in material compliance with all applicable environmental laws. Borrower agrees to permit Bank, its agents, contractors and employees to enter and inspect any of Borrower's or any of Borrower's Subsidiary's places of business or any other property of Borrower and each Subsidiary of Borrower at any reasonable times upon three (3) days prior notice for the purposes of conducting an environmental investigation and audit (including taking physical samples) to insure that Borrower and each Subsidiary of Borrower are complying with this covenant and Borrower shall reimburse Bank on demand for the reasonable costs of any such environmental investigation and audit. Borrower shall provide, and shall cause each Subsidiary of Borrower to provide, Bank, its agents, contractors, employees and representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Borrower's and each Subsidiary's of Borrower business operations within five (5) days of the request written therefore. 5. NEGATIVE COVENANTS. Until full and final payment and performance of all obligations of Borrower under the Loan Documents, Borrower will not, and will not permit any Subsidiary of Borrower to, without the prior written consent of Bank (and without limiting any requirement of any other Loan Documents): A. Financial Condition. i. Borrower shall not permit the ratio of (a) Current Assets divided by (b) Current Liabilities to be less than 1.0 to 1.0 as at the last day of each calendar quarter. ii. Borrower shall not permit Net Income to be less than $750,000 for the twelve months ending on the last day of any fiscal quarter of Borrower. B. Investments. Make an Investment in or to any Person; provided, Borrower may make Investments in the existing Subsidiaries of Borrower identified on Schedule 1 if the aggregate of all Investments in such Subsidiaries does not exceed at any time $2,500,000. C. Extensions of Credit. Make any loan or advance to any Person; provided Borrower may (i) make loans and/or advances to Subsidiaries under the terms specified in Section "B. Investments" above, and (ii) advances (not to exceed $50,000 in the aggregate) to employees for moving and travel expenses, drawing accounts, and similar expenditures in the ordinary course of Borrower's or its Subsidiary's business. D. Transfer of Assets or Control. Sell, lease, assign or otherwise dispose of or transfer any assets, except in the normal course of its business, or enter into any merger or consolidation; provided, however, any Subsidiary of Borrower may dissolve or merge or consolidate with or into Borrower or any other Subsidiary of Borrower. E. Liens. Grant, suffer or permit any contractual or noncontractual Lien on any of its assets (other than liens granted under the Chase Agreement or related agreements to assure performance of obligations related to letters of credit issued for the account of Borrower or any of its Subsidiaries), or fail to promptly pay when due all lawful claims, whether for labor, materials or otherwise; or agree with any Person to not grant any Lien on any of its assets, except (i) with respect to any failure to pay a claim, to the extent the failure to pay such claims would not result in a Material Adverse Effect, and (ii) as provided in the Chase Agreement. F. Borrowings. Create, incur, assume or become liable in any manner for any indebtedness (for borrowed money, deferred payment for the purchase of assets, lease payments, as surety or guarantor for the debt for another, or otherwise) other than to Bank, except for normal trade debts incurred in the ordinary course of Borrower's and each of Borrower's Subsidiary's business, and except for (i) existing indebtedness disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement and (ii) indebtedness under or evidenced by the Chase Agreement and any related promissory notes. G. Chase Agreement. Amend, modify or restate the Chase Agreement, or any related agreement, as they exist on December 12, 1998. H. Character of Business. Change the general character of business as conducted at the date hereof, or engage in any type of business not reasonably related to its business as presently conducted. 6. DEFAULT. Borrower shall be in default under this Agreement and under each of the other Loan Documents if any one or more of the following shall occur for any reason whatsoever, whether voluntary or involuntary, by operation of law, or otherwise: A. Borrower shall fail to pay any principal, interest, fees or other amounts payable under any Loan Document on the date due; B. Any representation or warranty made or deemed made by any Obligor (or any of its officers or representatives) under or in connection with any Loan Document shall prove to have been incorrect or misleading in any material respect when made or deemed made; C. Borrower or any other Obligor shall fail to perform or observe any term or covenant contained in any Loan Document; D. Any Loan Document or provision thereof shall, for any reason, not be valid and binding on any Obligor or not be in full force and effect, or shall be declared to be null and void; the validity or enforceability of any Loan Document shall be contested by any Obligor; or any Obligor shall deny that it has any or further liability or obligation under any Loan Document; E. Any Obligor shall fail to pay any debt (other than debt under the Loan Documents) or obligations in respect of capital leases in an aggregate amount of $50,000 or more when due; or any Obligor shall fail to perform or observe any term or covenant contained in any agreement or instrument relating to any such debt, when required to be performed or observed; F. Any Obligor shall have any final judgment(s) outstanding against it for the payment of $50,000 or more, and such judgment(s) shall remain unstayed, in effect, and unpaid for the period of time after which the judgment holder may and may cause the creation of Liens against or seizure of any of its property; G. Any Obligor shall be required under any environmental law (i) to implement any remedial, neutralization, or stabilization process or program, the cost of which exceeds $50,000, or (ii) to pay any penalty, fine, or damages in an aggregate amount of $50,000 or more; H. Other than with respect to any Loan Document, any Obligor shall fail to timely and properly observe, keep or perform any term, covenant, agreement or condition in any other loan agreement, promissory note, security agreement, deed of trust, deed to secure debt, mortgage, assignment or other contract securing or evidencing payment of any indebtedness of any Obligor to Bank or any affiliate or subsidiary of Bank of America Corporation. I. The withdrawal of any material owner of Borrower, as determined by Bank in its sole discretion; J. The commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity (except as permitted by Section 5.D.); K. The insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor; L. The failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Bank shall request from time to time; M. The entry of a judgment against any Obligor which Bank deems to be of a material nature, in Bank's sole discretion; N. The seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any material property of any Obligor; or O. The determination by Bank that a material adverse change has occurred in the financial condition of any Obligor. 7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank shall have all rights, powers and remedies available under each of the Loan Documents (including Section 11) as well as all rights and remedies available at law or in equity. 8. NOTICES. All notices, requests or demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to the other party at the following address: Borrower: Peerless Mfg. Co. 2819 Walnut Hill Lane Dallas, Texas 75229 Attn: Paul Willey Bank: Bank of America, N.A. 901 Main Street, 7th Floor P.O. Box 831000 Dallas, Texas 75283-1000 Attn: Barry Bruce Conrad, II, Vice President or to such other address as any party may designate by written notice to the other party. Each such notice, request and demand shall be deemed given or made as follows: A. If sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid; B. If sent by any other means , upon delivery. 9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank not later than 5 days after demand the full amount of all costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel if permitted by applicable law), incurred by Bank in connection with (a) negotiation and preparation of this Agreement and each of the Loan Documents, and (b) all other costs and attorneys' fees incurred by Bank for which Borrower is obligated to reimburse Bank in accordance with the terms of the Loan Documents. 10. MISCELLANEOUS. Borrower and Bank further covenant and agree as follows, without limiting any requirement of any other Loan Document: A. Cumulative Rights and No Waiver. Each and every right granted to Bank under any Loan Document, or allowed it by law or equity shall be cumulative of each other and may be exercised in addition to any and all other rights of Bank, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Bank of any right preclude any other or future exercise thereof or the exercise of any other right. Borrower expressly waives any presentment, demand, protest or other notice of any kind, including but not limited to notice of intent to accelerate and notice of acceleration. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or future notice or demand in similar or other circumstances. B. Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the laws of Texas and applicable United States federal law. C. Amendment. No modification, consent, amendment or waiver of any provision of this Agreement, nor consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by an officer of Bank, and then shall be effective only in the specified instance and for the purpose for which given. This Agreement is binding upon Borrower, its successors and assigns, and inures to the benefit of Bank, its successors and assigns; however, no assignment or other transfer of Borrower's rights or obligations hereunder shall be made or be effective without Bank's prior written consent, nor shall it relieve Borrower of any obligations hereunder. There is no third party beneficiary of this Agreement. D. Documents. All documents, certificates and other items required under this Agreement to be executed and/or delivered to Bank shall be in form and content satisfactory to Bank and its counsel. E. Partial Invalidity. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. F. Indemnification. Notwithstanding anything to the contrary contained in Section 10(G), Borrower shall indemnify, defend and hold Bank and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to any of the transactions contemplated hereby, including but not limited to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrower's or any of Borrower's Subsidiary's business operations, any other property owned by Borrower or any Subsidiary of Borrower or in the surface or ground water arising from Borrower's or any of Borrower's Subsidiary's business operations, or gaseous emissions arising from Borrower's or any of Borrower's Subsidiary's business operations or any other condition existing or arising from Borrower's or any of Borrower's Subsidiary's business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower further agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of Borrower or any Subsidiary of Borrower, regardless of whether Borrower of such Subsidiary of Borrower has paid the employee under the workmen' s compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of Borrower or any Subsidiary of Borrower, Bank, and of any third parties. Borrower's obligations under this paragraph shall survive the repayment of the obligations of Borrower under the Loan Documents and any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the obligations of Borrower under the Loan Documents. G. Survivability. All covenants, agreements, representations and warranties made herein or in the other Loan Documents shall survive the making of the Loan and the issuance of each Letter of Credit and shall continue in full force and effect so long as the Loan or any Letter of Credit is outstanding or the obligation of Bank to make any advances under the Line or issue any Letter of Credit or honor any draft under any Letter of Credit shall not have expired. 11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR A R ISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written. BORROWER: BANK: PEERLESS MFG. CO. BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A. and successor by merger to NationsBank of Texas, N.A.) By: By: Name: Paul Willey Name: Title: Chief Financial Officer Title: EX-10.G 3 SECOND AMENDED & RESTATED LOAN AGREEMENT EXHIBIT 10 (g) WAIVER AND FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS WAIVER AND FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (the "Amendment"), dated as of December 12, 1999, is between PEERLESS MFG. CO. ("Borrower") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Bank"). RECITALS: Borrower and Bank have entered into that certain Second Amended and Restated Loan Agreement dated as of December 12, 1998 (as the same may hereafter be amended or otherwise modified, the "Agreement"). Borrower and Bank now desire to amend the Agreement and waiver certain Events of Default as herein set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows effective as of the date hereof unless otherwise indicated: ARTICLE 1 Definitions .1 Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby. ARTICLE 2 Amendments .1 Amendment to Definitions of "Investment" and "Termination Date." The definitions of the terms "Investment" and "Termination Date" contained in Section 1 of the Agreement are each amended in their respective entireties to read as follows: "Investment" means, any acquisition of all or substantially all assets of any Person, or any direct or indirect purchase or other acquisition of, or a beneficial interest in, capital stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts, and similar expenditures in the ordinary course of business), or capital contribution to or investment in any other Person, including without limitation the incurrence or sufferance of debt or accounts receivable of any other Person that are not current assets or do not arise from sales to that other Person in the ordinary course of business. Notwithstanding the forgoing, (i) accounts receivable arising from sales by Borrower to Subsidiaries in the ordinary course of business which have been outstanding less than 120 days shall not be included in the definition of Investments and (ii) accounts receivable arising from sales by Borrower to Subsidiaries which are not in the ordinary course of business or which have been outstanding 120 days or more shall be included in the definition of Investments. "Termination Date" means, December 12, 2000. .2 Amendment to Section 2.A iii. Section 2.A iii of the Agreement is amended in its entirety to read as follows: iii. Letter of Credit Subfeature. As a subfeature under the Line, Bank may from time to time up to and including the Termination Date, issue letters of credit for the account of Borrower (each such letter of credit and each letter of credit issued by Bank for the account of Borrower or one of its Subsidiaries under the Prior Agreement which is outstanding on the date hereof, a "Letter of Credit" and collectively, "Letters of Credit"); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank in its sole discretion; and provided further that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed the difference between (a) the Line, minus (b) the aggregate unpaid principal amount of all Loans, minus (c) the amount of all drawings under any Letter of Credit for which Bank has not been reimbursed. No Letter of Credit shall have an expiry subsequent to December 11, 2001 or 366 or more days after the issuance date; provided Borrower may request that Bank issue Letters of Credit having an expiry after December 11, 2001 or an expiry 366 or more days after the issuance date ("Extended Expiry LC"), if (a) such Extended Expiry LC does not have an expiry subsequent to June 11, 2003, (b) the undrawn amount of such Extended Expiry LC plus the aggregate undrawn amount of all other Extended Expiry LCs does not exceed $350,000 and (c) an amount equal to the undrawn amount of such Extended Expiry LC plus the aggregate undrawn amount of all other Extended Expiry LCs is on deposit in the Collateral Account. Each draft paid by Bank under a Letter of Credit shall be deemed an advance under the Line and shall be repaid in accordance with the terms of the Line; provided, however, that if the Line is not available for any reason whatsoever, at the time any draft is paid by Bank, or if advances are not available under the Line in such amount due to any limitation of borrowing set forth herein, then the full amount of such drafts shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower, at that rate of interest applicable to advances under the Line. In such event, Borrower agrees that Bank, at Bank's sole discretion may debit any Collateral Account or Borrower's deposit accounts with Bank for the amount of such draft. If at any time prior to the Termination Date the sum of (a) the aggregate unpaid principal of the Loans, plus (b) the aggregate undrawn amount of all outstanding Letters of Credit exceeds the Line, Borrower shall immediately pay to Bank the amount of such excess, together with accrued, unpaid interest on the amount of such excess. If at any time after the Termination Date the aggregate undrawn amount of all Extended Expiry LCs exceeds the aggregate amount on deposit in the Collateral Accounts, at Bank's request, Borrower shall immediately deliver to Bank, for deposit into a Collateral Account, an amount in cash up to, but not to exceed, the amount the aggregate undrawn amount of all the Extended Expiry LCs exceeds the aggregate amount on deposit in the Collateral Accounts at such time. Letters of Credit shall be priced at a rate of 1.50% per annum of the face amount of the Letter of Credit, which fee is due and payable on issuance of the Letters of Credit. .3 Amendment to Section 5. A. ii of the Agreement. Section 5. A. ii. of the Agreement is amended in its entirety to read as follows: ii. As of the last day of each calendar quarter, Borrower shall not permit Net Income for the 12 month period then ended to be less than $750,000. .4 Amendment to Section 6.J. Section 6. J. of the Agreement is amended in its entirety to read as follows: J. Any Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) shall become after December 12, 1999 the direct or indirect beneficial owner (as defined in Rule 13(d)(3) under the Securities Exchange Act of 1934, as amended) of more than thirty percent (30%) of the total voting power of all the classes of Capital Stock then outstanding of the Borrower entitled (without regard to the occurrence of any contingency) to vote in the election of directors of the Borrower, or the Continuing Directors do not constitute a majority of the Board of Directors of the Borrower. For purposes of this Section 6. J., the term "Continuing Director" means at any date a member of the Borrower's Board of Directors (i) who was a member of such board on December 12, 1999 or (ii) who was nominated or elected by at least a majority of the directors who were directors of the type described in clause (i) at the time of such nomination or election or whose election to the Borrower's Board of Directors was recommended or endorsed by at least a majority of such directors. .5 Amendment to Exhibit B. Exhibit B to the Agreement is amended to read in its entirety as set forth on Exhibit "B" hereto. ARTICLE 3 Waiver of Certain Events of Default .1 Waiver of Event of Default arising out of failure to comply with Section 4.A (iii). Bank hereby waives the Event of Default resulting from the Borrower's failure to furnish to Bank a Compliance Certificate on or before November 14, 1999, which Compliance Certificate was to be furnished to Bank concurrently with the consolidated and consolidating financial statements of Borrower for the fiscal quarter ended September 30, 1999 as required by Section 4.A(iii) of the Agreement. .2 Waiver of Event of Default arising out of failure to comply with Section 5.B. Section 5.B of the Agreement provides that the amount of Investments in existing Subsidiaries of Borrower shall at no time exceed $2,500,000. During the fiscal quarters ended June 30, 1999 and September 30, 1999 Investments in such Subsidiaries exceeded $2,500,000. Bank hereby waives the Event of Default resulting from the Borrower's failure to comply with Section 5.B during the fiscal quarters ended June 30, 1999 and September 30, 1999. .3 Limitation of Waivers. The waivers contained in Section 3.1 and Section 3.2 of this Amendment shall be limited strictly as written and shall not be deemed to constitute a waiver of, or any consent to noncompliance with, any term or provision of the Agreement or any other Loan Document except as expressly set forth herein. Further, the waivers contained in Section 3.1 and Section 3.2 of this Amendment shall not constitute a waiver of any future Event of Default that may occur, including, without limitation, the Borrower's failure to keep, perform or observe the covenants set forth in Section 4.A(iii) and Section 5.B of the Agreement. ARTICLE 4 Conditions Precedent .1 Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) Bank shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, in form and substance satisfactory to Bank: (i) Corporate Matters. Such evidence of the Borrower's existence, good standing and authority to execute, deliver and perform this Amendment and the Loan Documents to which it is or is to be a party hereunder; (ii) Second Amended and Restated Promissory Note. Borrower shall have executed and delivered to Bank a Second Amended and Restated Promissory Note in form and substance similar to Exhibit "A" hereto; (iii) Compliance Certificate. Borrower shall have furnished to Bank the Compliance Certificate that was to be furnished to Bank concurrently with the consolidated and consolidating financial statements of Borrower for the fiscal quarter ended September 30, 1999 as required by Section 4.A(iii) of the Agreement; (iv) NationsBank Agreement. Copies of the most recent amendments to the NationsBank Agreement; (v) Additional Information. Bank shall have received such additional documentation and information as Bank or its legal counsel, Jenkens & Gilchrist, a Professional Corporation, may request; and (b) The representations and warranties contained herein and in all other Loan Documents, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date; (c) No Event of Default shall have occurred and be continuing; and (d) All proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory to Bank and its legal counsel, Jenkens & Gilchrist, a Professional Corporation. ARTICLE 5 Ratifications, Representations and Warranties .1 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Borrower and Bank agree that the Agreement as amended hereby and the other Loan Documents shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. .2 Representations and Warranties. Borrower hereby represents and warrants to Bank as follows: (a) after giving effect to this Amendment, no Event of Default has occurred and is continuing; (b) after giving effect to this Amendment, the representations and warranties set forth in the Loan Documents are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of such date except with respect to any representations and warranties limited by their terms to a specific date; (c) the execution, delivery and performance of this Amendment has been duly authorized by all necessary action on the part of Borrower and does not and will not: (1) violate any provision of law applicable to Borrower, the certificate of incorporation, bylaws, partnership agreement, membership agreement, or other applicable governing document of Borrower or any order, judgment, or decree of any court or agency of government binding upon Borrower; (2) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower; (3) result in or require the creation or imposition of any material lien upon any of the assets of Borrower; or (4) require any approval or consent of any Person under any material contractual obligation of Borrower. IN ADDITION, TO INDUCE BANK TO AGREE TO THE TERMS OF THIS AMENDMENT, BORROWER (BY IT EXECUTION BELOW) REPRESENTS AND WARRANTS THAT AS OF THE DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR OFFSETS AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT: (a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS AMENDMENT AND (b) RELEASE. RELEASES AND DISCHARGES BANK, AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES AND ATTORNEYS (COLLECTIVELY THE "RELEASED PARTIES") FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH THE BORROWER EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. ARTICLE 6 Miscellaneous .1 Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document including any Loan Document furnished in connection with this Amendment shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Bank or any closing shall affect the representations and warranties or the right of Bank to rely upon them. .2 Reference to Agreement. Each of the Loan Documents, including the Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement as amended hereby. .3 Expenses of Bank. As provided in the Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Bank in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Documents executed pursuant hereto, including without limitation, the costs and fees of Bank's legal counsel. .4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. .5 Applicable Law. This Amendment and all other Loan Documents executed pursuant hereto shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America. .6 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Bank and Borrower and their respective successors and assigns, except Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Bank. .7 Counterparts. This Amendment may be executed in one or more counterparts and on telecopy counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. .8 Effect of Waiver. No consent or waiver, express or implied, by Bank to or for any breach of or deviation from any covenant, condition or duty by Borrower shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. .9 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. .10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. Executed as of the date first written above. BORROWER: PEERLESS MFG. CO. By: Name: Sherrill Stone Title: President & Chief Executive Officer BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: David L. Howard Vice President Exhibit "A" to Peerless Mfg. Co, Waiver and First Amendment to Second amended and Restated Loan Agreement SECOND AMENDED AND RESTATED PROMISSORY NOTE Date: December 12, 1999 Amount: $3,500,000.00 Maturity Date: December 12, 2000 Bank: Borrower: Chase Bank of Texas, Peerless Mfg. Co. National Association 2819 Walnut Hill Lane 12875 Josey Lane Dallas, Texas 75229 Dallas, Texas 75234-6398 County: Dallas County: Dallas FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and severally, if more than one) promises to pay to the order of Bank, its successors and assigns, without setoff, at its offices indicated at the beginning of this second amended and restated promissory note ("Note"), or at such other place as may be designated by Bank, the principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000.00), or so much thereof as may be advanced in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below. 1. Loan Agreement. This Note is executed and delivered by Borrower pursuant to the certain Second Amended and Restated Loan Agreement dated as of December 12, 1998 between Borrower and Bank (as the same may have been amended, hereinafter called the "Loan Agreement") and is the Note as defined therein. All terms defined in the Loan Agreement, wherever used herein, shall have the same meanings as are prescribed by the Loan Agreement. 2. Rate. The unpaid principal from day to day outstanding under this Note shall bear interest at the applicable rate prescribed for the Loans as provided by the Loan Agreement. Bank's records shall be conclusive proof of loans, payments and interest accruals hereunder, absent proof by Borrower of error. Notwithstanding any provision of this Note, Bank does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the maximum permitted by applicable law. Borrower agrees that during the full term hereof, the maximum lawful interest rate for this Note as determined under Texas law shall be the weekly rate ceiling described in, and computed in accordance with the Texas Finance Code. Further, to the extent that any other lawful rate ceiling exceeds the rate ceiling so determined then the higher rate ceiling shall apply. Any payment in excess of such maximum shall be refunded to Borrower or credited against principal, at the option of Bank. 3. Repayment. Subject to the terms of the Loan Agreement, all unpaid principal and accrued interest under this Note shall be payable as follows: Accrued interest shall be payable quarterly in arrears on each Interest Payment Date beginning on January 31, 1999 and continuing thereafter through the Termination Date, and all unpaid principal hereunder and all other amounts payable hereunder relative to the Loans, shall be due and payable to Bank in full, and the Line shall terminate, on the Termination Date. To the extent that any accrued interest is not paid on the date when due, as provided herein, Bank may at its option (but with no obligation to do so), add the amount of such accrued interest to the unpaid principal due by Borrower under the Loans, in which event such amount will be deemed paid and the aggregate amount thereof shall be treated as a Loan. 4. Revolving Feature. Borrower may borrow, repay and reborrow hereunder at any time, up to a maximum aggregate amount outstanding at any one time equal to the principal amount of this Note, provided that Borrower is not in default under any provision of this Note, any other documents executed in connection with this Note, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Borrower to Bank, and provided that the borrowings hereunder do not exceed any borrowing base or other limitation on borrowings by Borrower, including, without limitation, those set forth in the Loan Agreement. Bank shall incur no liability for its refusal to advance funds based upon its determination that any conditions of such further advances have not been met. Bank records of the amounts borrowed from time to time shall be conclusive proof thereof. 5. Waivers, Consents and Covenants. Borrower, any indorser or guarantor hereof, or any other party hereto (individually an "Obligor" and collectively "Obligors") and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to Bank (the "Loan Documents"); (b) consent to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Bank of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Bank, or any indulgence shown by Bank (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Bank shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of Bank's rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (c) agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Bank's rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney's fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable. 6. Prepayments. Any prepayments of the Loans outstanding under this Note are subject to the terms contained in the Loan Agreement. 7. Events of Default. The following are events of default hereunder: (a) any default under the Loan Agreement; (b) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity; and (c) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor. 8. Remedies Upon Default. Whenever there is a default under this Note (a) the entire balance outstanding hereunder and all other obligations of any Obligor to Bank (however acquired or evidenced) shall, at the option of Bank, become immediately due and payable and any obligation of Bank to permit further borrowing under this Note shall immediately cease and terminate, and/or (b) to the extent permitted by law, the Rate of interest on the unpaid principal shall be increased at Bank's discretion up to the maximum rate allowed by law, or if none, 25% per annum (the "Default Rate"). The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a "grace period" giving Obligors a right to cure any default. At Bank's option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full. Upon a default under this Note, Bank is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Bank or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Bank shall have all rights and remedies available under each of the Loan Documents (as defined in the Loan Agreement), as well as all rights and remedies available at law or in equity. 9. Non-Waiver. The failure at any time of Bank to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Bank shall be cumulative and may be pursued singly, successively or together, at the option of Bank. The acceptance by Bank of any partial payment shall not constitute a waiver of any default or of any of Bank's rights under this Note. No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Bank unless the same shall be in writing, duly signed on behalf of Bank; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Obligors to Bank in any other respect at any other time. 10.Applicable Law, Venue and Jurisdiction. Borrower agrees that this Note shall be deemed to have been made in the State of Texas at Bank's address indicated at the beginning of this Note and shall be governed by, and construed in accordance with, the laws of the State of Texas and is performable in the City and County of Texas indicated at the beginning of this Note. In any litigation in connection with or to enforce this Note or any indorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas. Nothing contained herein shall, however, prevent Bank from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law. 11.Partial Invalidity. The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. 12.Binding Effect. This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Bank and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Borrower or Obligors hereunder can be assigned without prior written consent of Bank. 13.Amendment and Restatement of Previous Notes. This Note is in renewal and extension of, and is issued in amendment and restatement of (but not in extinguishment of) the indebtedness evidenced by the certain Amended and Restated Promissory Note dated December 12, 1998, previously executed and delivered by Borrower payable to the order of Bank in the face amount of $3,500,000.00 (the "Amended and Restated Note") which Amended and Restated Note was in renewal and extension of, and issued in amendment and restatement of (but not in extinguishment of) the indebtedness evidenced by the certain Promissory Note dated January 12, 1998, previously executed and delivered by Borrower payable to the order of Texas Commerce Bank National Association (now known as "Chase Bank of Texas, National Association"), in the face amount of $2,500,000.00 and all such indebtedness hereafter shall be governed by and payable in accordance with the terms hereof. 14.Controlling Document. To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue. 15.ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. Borrower represents to Bank that the proceeds of this loan are to be used primarily for business, commercial or agricultural purposes. Borrower acknowledges having read and understood, and agrees to be bound by, all terms and conditions of this Note. NOTICE OF FINAL AGREEMENT: THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Bank: CHASE BANK OF TEXAS Borrower: PEERLESS MFG. CO. NATIONAL ASSOCIATION By: By: David L. Howard Name: Sherrill Stone Vice President Title: President & Chief Executive Officer EX-27 4
5 1 6-MOS JUN-30-2000 DEC-31-1999 2,528,940 273,343 11,118,660 719,102 2,144,978 21,208,743 8,564,721 6,408,239 24,114,090 9,236,705 0 0 0 1,459,992 13,417,393 24,114,090 22,665,368 22,665,368 15,170,512 15,170,512 4,620,144 26,705 20,486 1,126,983 401,314 725,669 0 0 0 725,669 0.50 0.50
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