-----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, Ofd872a/JgRqzzXDKpox4INlYrEnx3/6aPRSkOAiHEKgySv62wXljXJCFRO4nd+y B2ROUsbWtlfAN4/cZmoxKg== 0000076954-97-000004.txt : 19970613 0000076954-97-000004.hdr.sgml : 19970613 ACCESSION NUMBER: 0000076954-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEERLESS MANUFACTURING CO CENTRAL INDEX KEY: 0000076954 STANDARD INDUSTRIAL CLASSIFICATION: 3569 IRS NUMBER: 750724417 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05214 FILM NUMBER: 97607586 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 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1997 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 preceeding 12 months (or for shorter period 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 May 14, 1997 _____________________________ _________________________________ Common stock, $1.00 par value 1,451,992 Shares PEERLESS MFG. CO. INDEX Page Number Part I: Financial Information _________ Condensed Consolidated Balance Sheets for the periods ended March 31, 1997 and June 30, 1996 3 Condensed Consolidated Statements of Earnings for the three and nine months ended March 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 1997 and 1996 5 Notes to the Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9 Part II: Other Information 10 Exhibits 11 - 12 Signatures 13 2 of 13 PART I FINANCIAL INFORMATION Item 1. Financial Statements -------------------- PEERLESS MFG. CO. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, JUNE 30, 1997 1996 ------------ ------------ ASSETS (UNAUDITED) (AUDITED) Current assets: Cash and cash equivalents $658,420 $2,082,329 Short term investments 299,511 246,659 Accounts receivable 11,620,325 8,700,762 Inventories: Raw materials 1,263,567 1,094,774 Work in process 2,820,299 2,757,798 Finished goods 215,984 286,393 Deferred income taxes 226,214 226,214 Other 638,339 620,072 ----------- ----------- Total current assets 17,742,659 16,015,001 Property,plant and equipment-net 1,504,724 1,213,859 Property held for investment-net 906,982 948,775 Other assets 403,189 453,390 ----------- ----------- $20,557,554 $18,631,025 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $1,145,550 $0 Accounts payable-trade 5,706,246 4,329,645 Advance payments from customers 434,130 435,549 Commissions payable 944,291 566,766 Accrued liabilities 958,619 1,332,441 ----------- ----------- Total current liabilities 9,188,836 6,664,401 Deferred income taxes 86,768 86,768 Stockholders' equity: Common stock-authorized 4,000,000 shares of $1 par value; issued and outstanding, 1,455,992 shares at March 31, 1997 and 1,446,742 at June 30, 1996 1,455,992 1,446,742 Additional paid-in capital 2,572,441 2,489,879 Unamortized value of restricted stock issue (74,013) (33,750) Cumulative foreign currency translation adjustment (65,443) 23,842 Retained earnings 7,392,973 7,953,143 ----------- ----------- 11,281,950 11,879,856 ----------- ----------- $20,557,554 $18,631,025 =========== =========== The accompanying notes are an integral part of these statements. 3 of 13
PEERLESS MFG. CO. CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended -------------------------- -------------------------- March 31, March 31, -------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Net sales $14,826,299 $8,625,252 $32,102,952 $23,932,261 Cost of goods sold 11,391,915 5,865,651 23,519,214 17,119,929 ---------- ---------- ---------- ---------- Gross profit 3,434,384 2,759,601 8,583,738 6,812,332 Operating expenses Marketing and engineering 2,757,240 1,926,270 7,103,733 5,636,403 General and administrative 486,248 420,649 1,386,795 1,093,595 ---------- ---------- ---------- ---------- Operating earnings(loss) 190,896 412,682 93,210 82,334 Other income(expense) Interest (11,266) 3,936 (263) 34,048 Sundry (66,371) 84,163 116,370 52,924 ---------- ---------- ---------- ---------- (77,637) 88,099 116,107 86,972 ---------- ---------- ---------- ---------- before Federal Income Tax 113,259 500,781 209,317 169,306 Federal Income Tax Current 35,370 155,670 43,195 38,084 Deferred 0 0 0 0 ---------- ---------- ---------- ---------- 35,370 155,670 43,195 38,084 ---------- ---------- ---------- ---------- Net earnings(loss) $77,889 $345,111 $166,122 $131,222 ========== ========== ========== ========== Earnings(loss) per common share $0.05 $0.24 $0.11 $0.09 ========== ========== ========== ========== Weighted average number of common shares outstanding 1,455,298 1,446,742 1,454,494 1,446,742 ========== ========== ========== ========== 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 13
PEERLESS MFG. CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the nine months ended March 31, ------------------------- 1997 1996 ------------ ------------ Cash flows from operating activities: Net earnings(loss) from operating activities $166,122 $131,222 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 244,305 228,866 Other 39,988 47,518 Changes in assets and liabilities (Increase) decrease in: Accounts receivable (2,919,563) (1,537,940) Inventories (160,885) (1,003,372) Other current assets (18,281) (35,164) Other assets 49,126 231,037 Increase (decrease) in: Accounts payable 1,376,601 1,184,761 Commissions payable 377,525 (60,306) Advance payments from customers (1,419) 285,207 Accrued liabilities (554,571) (86,297) ---------- ---------- (1,567,175) (745,690) ---------- ---------- Net cash (used in) provided by continuing operations (1,401,053) (614,468) Cash flows from investing activities: Net purchases of short term investments (52,852) 343,805 Purchase of equipment net of disposals (480,741) (62,174) ---------- ---------- Net cash used in investing activities (533,593) 281,631 Cash flows from financing activities: Dividends paid (545,529) (542,528) Net borrowing 1,145,550 650,000 ---------- ---------- Net cash used in financing activities 600,021 107,472 Effect of exchange rate on cash (89,285) (13,680) ---------- ---------- Net increase (decrease) in cash and cash equivalents (1,423,910) (239,045) Cash and cash equivalents at beginning of period 2,082,329 961,747 ---------- ---------- Cash and cash equivalents at end period $658,420 $722,702 ========== ========== The accompanying notes are an integral part of these statements. 5 of 13
PEERLESS MFG. CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only the normal recurring accruals, necessary to present fairly its financial position as of March 31, 1997, and June 30, 1996 and the results of operations and cash flows for the nine months ended March 31, 1997 and 1996. 2. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. Peerless Mfg. Co. designs and manufactures custom contracted pressure vessels and other products to customer specifications, sales of which are obtained by competitive bids and may result in material sales and profitability increases or decreases when comparing interim periods between years. The Company generally recognizes sales of custom-contracted products at the completion of the manufacturing process, which is normally less than one year. The percentage-of-completion method is used for significant long-term contracts. 3. The adjusted backlog of uncompleted orders and letters of intent at March 31, 1997 was approximately $22,200,000 as compared to a March 31, 1996 backlog of $17,600,000. Of the $22,200,000 backlog at March 31, 1997, approximately 47% is scheduled to be completed in the current fiscal year. 4. The Company has a formal agreement with two banks for an aggregate of $7,500,000 continuing lines of credit, renewable annually. Under the terms of these agreements, loans bear interest at the prevailing prime rate and the Company is required to pay 1/4 of 1% per annum on the unused portion of the facility. The Company had $1,145,550 outstanding under these lines at March 31, 1997, and $650,000 outstanding at March 31, 1996. 5. The Company consolidates the accounts of its wholly-owned foreign subsidiaries, Peerless Europe Limited, Peerless International N.V. and its wholly-owned foreign subsidiary, Peerless Europe B.V. All significant intercompany accounts and transactions have been eliminated in the consolidation. 6. The FASB has issued Statement of Financial Accounting Standards No. 128 Earnings Per Share, which is effective for financial statements issued after December 15, 1997. Early adoption of the new standard is not permitted. The adoption of this new standard is not expected to have a material impact on the disclosure of earnings per share in the financial statements. 6 of 13 Item 2. Management's discussion and analysis of financial ------------------------------------------------- condition and results of operations. ------------------------------------ PEERLESS MFG. CO. 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, or other factors. Capital Resources and Liquidity - - ------------------------------- As a general policy, the Company maintains corporate liquidity 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 decreased $1,423,910 from June 30, 1996. Company operations used $1,401,053 of cash during the nine months ended March 31, 1997. Additional uses of cash for the nine months ended March 31, 1997 included expenditures of $480,741 for fixed asset acquisitions and $545,529 for dividend payments. As indicated, operations used $1,401,053 of cash in the nine months ended March 31, 1997. Funds used in operations were primarily from increases in accounts receivable of $2,919,563, inventories of $160,885, accrued liabilities and advances from customers of $554,571 and $1,419 respectively. These uses of cash were offset by provisions in accounts payable of $1,376,601, commissions payable of $377,525 and other assets of $30,845. The Company has historically and continues 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 addition to retained earnings, the Company has from time to time used two short-term bank credit lines totaling $7,500,000 to supplement working capital. At March 31, 1997 the Company had currently drawn down $1,145,550 on these two lines of credit. The Company has no material commitments for capital expenditures other than its established program of maintaining existing plant and equipment. 7 of 13 Changes - Third Quarter of Fiscal 1997 vs. Third Quarter 1996 - - -------------------------------------------------------------- Results of 3rd Qtr. Nine Months Operations 1997 vs.1996 1997 vs. 1996 - - --------------------- --------------------- --------------------- Sales $6,201,047 increase $8,170,691 increase 71.9% 34.1% Sales for the three months ended March 31, 1997 compare favorably to sales for the three months ended March 31, 1996 largely reflective of a $5,000,000 shipment to a international customer. Sales for the nine months ended March 31, 1997 compare favorably to sales for the nine months ended March 31, 1996. - - --------------------- --------------------- --------------------- Gross Profit $674,783 increase $1,771,406 increase 24.5% 26.0% Gross profit for the three months ended March 31, 1997 compare favorably to gross profit for the three months ended March 31, 1996. Gross profit as a percent of sales was 23.2% for the three months ended March 31, 1997 vs. 32.0% for the three months ended March 31, 1996. Though gross profit increased by $674,783 for the quarter, as indicated above, the gross profit percentage on sales declined from 32.0% to 23.2% and is primarily related to adverse affects of a cost overrun related to a substantial international project in the Company's environmental equipment division. - - --------------------- --------------------- --------------------- Operating Expenses $893,569 increase $1,760,530 increase 38.0% 26.2% Operating expenses for the three months ended March 31, 1997 increased $893,569 from the three months ended March 31, 1996. This increase is primarily attributable to agent commissions, engineering expenses and selling general & administrative expenses of $389,515, $285,445 and $242,627 respectively. These increases reflect the operating expenses to support the additional sales as reflected above. 8 of 13 3rd Qtr. Nine Months 1997 vs.1996 1997 vs. 1996 - - --------------------- --------------------- --------------------- Other Income(Expense) $165,736 decrease $29,135 increase The decrease in Other Income is largely reflective of the $110,000 insurance proceeds received during the three months ended March 31, 1996 for the excess of cost for refurbishment of the Company's facilities, and a Foreign Currency Losses recorded during the three months ended March 31, 1997 of approximately $188,000, offset by additional Miscellaneous Income from rental properties received during the three months ended March 31, 1997 of approximately $167,000. - - --------------------- --------------------- --------------------- Net Earnings (Loss) $267,222 decrease $34,900 increase The decrease in net earnings for the three months ended March 31, 1997, when compared to the equivalent period in the preceding fiscal year, reflects a cost overrun principally related to a substantial international project in the Company's environmental equipment division. 9 of 13 PEERLESS MFG. CO. PART II OTHER INFORMATION Item 1 -- Legal proceedings - - ---------------------------- In March 1997 the Company entered into a final agreement with Senior Engineering Company ("Senior"), settling effective April 1, 1997 the action the Company filed against Senior in Peerless Mfg. Co. v. Senior Engineering Company on November 13, 1995, in the United States District Court for the Northern District of Texas. Pursuant to the settlement agreement, the Company and Senior have established a strategic alliance to cooperate in the marketing and sales of technology and equipment to the nuclear power generation industry. Item 9 -- Exhibits and Reports -- Form 8-K - - ------------------------------------------- There were no reports on Form 8-K for the three months ended March 31, 1997. 10 of 13 EXHIBITS: 3(a) The Company's Articles of Incorporation, as amended to date (filed as Exhibit 1 to the Company's Registration Statement on Form S-1, Registration No. 2-35767, and amended by the Company's December 12, 1990 Form 8 amending Exhibit 3(a) to the Company's Annual Report on Form 10-K dated June 30, 1990, and incorporated herein by reference). 3(b) The Company's Bylaws, as amended to date (filed as Exhibit 3(b) to the Company's Annual Report on Form 10- K, dated June 30, 1993, 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 the Company's 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 the Company's 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 the Company's Annual Report on Form 10-K dated June 30, 1991, and incorporated herein by reference). 10(d) Employment Agreement, dated as of April 29, 1994, by and between the Company and Sherrill Stone (filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, and incorporated herein by reference). 11 of 13 10(e) Agreement, dated as of April 29, 1994, by and between the Company and Sherrill Stone (filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, and incorporated herein by reference). 10(f) Fifth Amended and Restated Loan Agreement, dated as of February 3, 1997, between NationsBank of Texas, N.A. and the Company.* 10(g) Loan Agreement, dated as of March 7, 1997, by and between Texas Commerce Bank National Association and the Company.* 21 Subsidiaries of the Company (filed as Exhibit 21 to the Company's Annual Report on Form 10-K dated June 30, 1993, and incorporated herein by reference). 27 Financial Data Schedule.* *Filed herewith 12 of 13 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: May 14, 1997 /s/ Sherrill Stone /s/ Kent J. Van Houten By: Sherrill Stone By: Kent J. Van Houten Chairman, President and Secretary - Treasurer and Chief Executive Officer Chief Financial Officer 13 of 13 EX-10.F 2 NationsBank of Texas, N.A. FIFTH AMENDED AND RESTATED LOAN AGREEMENT This Loan Agreement ("Agreement") dated as of February 3, 1997, by and between NationsBank of Texas, N.A., a national banking association ("Bank") and the Borrower described below. 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. 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. D. 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. E. Compliance Certificate. Compliance Certificate mean a certificate in the form of Exhibit B. F. 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. G. 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. H. 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. I. 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. J. 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. K. Loan. Any loan described in Section 2 hereof and any subsequent loan which states that it is subject to this Agreement. L. 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. M. Net Income. Net Income means net profit after taxes of the Borrower and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP. N. Net Loss. Net Loss means net loss after taxes of the Borrower and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP. O. Person. Person means an individual, partnership, joint venture, corporation, trust, tribunal, unincorporated organization, and government, or any department, agency, or political subdivision thereof. P. 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. Q. TCB Agreement. TCB Agreement means the Loan Agreement dated as of March 7, 1997, between Borrower and Texas Commerce Bank National Association. R. 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.H. 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 $5,000,000 (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. The obligation to repay the loans is evidenced by the promissory note dated February 3, 1997 (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 February 3, 1997 and on the last day of each 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 11, 1998, 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. No Letter of Credit shall have an expiry subsequent to December 11, 1998 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, 1998 or an expiry 366 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. The undrawn amount of all Letters of Credit plus any and all amounts paid by Bank in connection with drawings under any Letter of Credit for which the Bank has not been reimbursed shall be reserved under the Line and shall not be available for advances thereunder. 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, 1997 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, 1997 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 to carry on its business in each jurisdiction in which Borrower does business. 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 to carry on its business in each jurisdiction in which it does business. 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 action of the Board of Directors 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. 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 disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. 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, 1996. All factual information furnished by Borrower to Bank in connection with this Agreement and the other Loan Documents 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 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. 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. 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 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 acceptable to Bank and by independent certified public accountants acceptable to Bank. In addition, Borrower will: i. Furnish to Bank consolidated and consolidating financial statements of Borrower for each fiscal year of Borrower, within 90 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 45 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 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 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 30 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 30 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. 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 and (iv) any uninsured or partially uninsured loss through fire, theft, liability or property damage. E. Taxes and Other Obligations. Pay, and cause each Subsidiary of Borrower to pay, all of its taxes, assessments and other 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) any and all 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 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 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 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 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 a) Net Income to be less than or equal to $0 for the nine months ending on March 31, 1997. b) Net Income to be less than or equal to $500,000 for the twelve months ending on June 30, 1997. c) Net Loss to be less than $0 by more than $300,000 for the three months ending September 30, 1997. 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 existing Investments in such Subsidiaries (as disclosed on Schedule 1), plus all future Investments in such Subsidiaries, does not exceed at any time $2,000,000. C. Extensions of Credit. Make any loan or advance to any Person; provided Borrower may make loans and/or advances to Subsidiaries under the terms specified in Section "B. Investments" above. 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. E. Liens. Grant, suffer or permit any contractual or noncontractual Lien on any of its assets, 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. 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 the TCB Agreement. G. TCB Agreement. Amend, modify or restate the TCB Agreement, or any related agreement, as they exist on March 7, 1997. 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 Borrower (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 Subsidiary of Borrower 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 Borrower 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 Borrower; or Borrower shall deny that it has any or further liability or obligation under any Loan Document; E. The occurrence of any event described in Section 9(e) or (f) of the Note with respect to Borrower or any Subsidiary of Borrower; F. Borrower or any Subsidiary of Borrower 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 Borrower or any Subsidiary of Borrower 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, and such failure can result in acceleration of the maturity of such debt; G. Borrower or any Subsidiary of Borrower 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; H. Borrower or any Subsidiary of Borrower 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; I. Other than with respect to any Loan Document, Borrower or any Subsidiary of Borrower 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 Borrower or any Subsidiary of Borrower to Bank or any affiliate or subsidiary of NationsBank Corporation. 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: Kent Van Houten Bank: NationsBank of Texas, N.A. 901 Main Street, 7th Floor P.O. Box 831000 Dallas, Texas 75283-1000 Attn: Brian Gordon, 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 immediately upon 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 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 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. 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. NATIONSBANK OF TEXAS, N.A. By: /s/ Kent J. Van Houten By: /s/ Brian Gordon Name: Kent J. Van Houten Name: Brian Gordon Title: Chief Financial Officer Title: Vice President Secretary/Treasurer EX-10.G 3 LOAN AGREEMENT This Loan Agreement (the "Agreement") dated as of March 7, 1997, by and between TEXAS COMMERCE BANK NATIONAL ASSOCIATION a national banking association ("Bank") and the Borrower described below. In consideration of the Loan or Loans 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. 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. D. 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. E. 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. F. Lien. Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract. G. Loan. Any loan described in Section 2 hereof and any subsequent loan which states that it is subject to this Loan Agreement. H. Loan Documents. Loan Documents means this Loan Agreement and any and all promissory notes executed by Borrower in favor of Bank 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. I. NationsBank Loan Documents means the Fifth Amended and Restated Loan Agreement dated as of February 3, 1997, between Borrower and NationsBank of Texas, N.A.("NationsBank") and any and all promissory notes executed by Borrower in favor of NationsBank 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 to NationsBank. J. Net Income. Net Income means net profit after taxes of the Borrower and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP. K. Net Loss. Net Loss means net loss after taxes of the Borrower and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP. L. Obligations means all principal, interest and other amountswhich are or become owing to Bank under this Note, any Application or any other Loan Document. M. Obligor means Borrower and any guarantor, surety, co-signer, general partner or other person who may now or hereafter be obligated to pay all or any part of the Obligations. N. Person means any individual, Corporation, trust, unincorporated organization, Governmental Authority or any other form of entity. O. Proper Form means in form and substance satisfactory to the Bank. P. 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. Q. 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.H. hereof. 2. LOANS. A. Before making any Loan or issuing any Letter of Credit, Bank may require satisfaction of the following conditions precedent: (1) Bank has received the following, each duly executed and in form acceptable to Bank: (a) if requested by Bank, a Request for Loan, substantially in the form of Exhibit A, not later than one (1) Business Day before the date (which shall also be a Business Day) of the proposed Loan; (b) such other documents as Bank reasonably requires; and (c) in the case of Letters of Credit, Bank's standard form Application for the Issuance of an Irrevocable Standby Letter of Credit in form and substance acceptable to Bank and its legal counsel (each such application an "Application" and collectively, "Applications") duly executed and delivered by Borrower or Borrower and a Subsidiary, if applicable two (2) Business Days, prior to the date on which the Letter of Credit is to be issued; and (2) no Event of Default has occurred and is continuing; and (3) making the Loan or the issuance of a Letter of Credit is not prohibited by, and will not subject Bank to any penalty or onerous condition under any legal requirement as determined by Bank. B. Loan. Bank hereby agrees to make (or has made) one or more Loans to Borrower in the aggregate principal face amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($2,500,000.00) (the "Commitment"). The Commitment shall be reduced by an amount equal to the sum of: (a) the face amount of all outstanding Letters of Credit; and (b) the amount of any unreimbursed drawings or other amounts owing to the Bank under or in respect of any Letter of Credit or Application; (items (a) and (b) are hereinafter collectively referred to as the "L/C Obligations") such that, on any date, the sum of (1.) all Loans outstanding on such date and (2.) all L/C Obligations on such date, does not exceed the Commitment.. The obligation to repay the Loans is evidenced by a promissory note or notes dated March 7, 1997 (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. i. Revolving Credit Feature. The Loan provides for a revolving line of credit (the "Line") under which Borrower may from time to time, borrow, repay and re-borrow funds. ii. Usage Fee. Borrower will pay hereafter on May 15, 1997 and on the same day of each 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, 1997, issue letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided, however, that Bank shall have received an application ("Application" or "Applications") substantially in the form of the Bank's standard application therefor duly completed and executed by the Borrower in Proper Form not less than two (2) Business Day(s) prior to the date on which the Letter of Credit is to be issued; and provided further that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed $2,500,000.00. No Letter of Credit shall have an expiration date subsequent to December 12, 1998, unless 100% secured by a Bank CD. The undrawn amount of all Letters of Credit plus any and all amounts paid by Bank in connection with drawings under any Letter of Credit for which the Bank has not been reimbursed shall be reserved under the Commitment and shall not be available for advances thereunder. 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 Borrower's deposit account with Bank for the amount of such draft. Letters of Credit shall be priced at a rate of 1.00% per annum of the face amount of the Letter of Credit. 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Bank as follows: A. Good Standing. Borrower and each of Borrower's Subsidiaries is a corporation, duly organized, validly existing and in good standing under the laws of Texas, or in the jurisdiction in which it is organized, and has the power and authority to own its property and to carry on its business in each jurisdiction in which Borrower or Subsidiary does business. 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 action of the appropriate governing body 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 is in compliance with all laws and regulatory requirements to which it is subject. 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 pending or, to the knowledge of Borrower, threatened before any court or governmental authority, agency or arbitration authority, except as disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. 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 and no provision of any existing agreement, mortgage, indenture or contract binding on Borrower or affecting its 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 has good title to its assets, and its 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. Taxes. All taxes and assessments due and payable by Borrower have been paid or are being contested in good faith by appropriate proceedings and the Borrower has filed all tax returns which it is required to file. H. 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 December 31, 1996. All factual information furnished by Borrower to Bank in connection with this Agreement and the other Loan Documents 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 not misleading. I. Place of Business. Borrower's chief executive office is located at 2819 Walnut Hill Lane, Dallas, Texas 75229. J. Environmental. The conduct of Borrower's business operations and the condition of Borrower'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. K. 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. L. Business Purposes. All Loans are for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One of the Texas Credit Code and shall be for the purpose of financing accounts receivable. M. No Margin Stock. No Loan shall be used for the purchase or carrying of any "margin stock" as that term is defined in Regulation "U" of the Board of Governors of the Federal Reserve System. 4. AFFIRMATIVE COVENANTS. Until full 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 Condition. Maintain Borrower's financial condition as follows, determined in accordance with GAAP applied on a consistent basis throughout the period involved except to the extent modified by the following definitions: i. Maintain a Current Ratio (defined as Current Assets divided by Current Liabilities plus Letters of Credit outstanding under the Letter of Credit Subfeature of not less than 1.0 to 1.0 for each calendar quarter. ii. * Net income shall be greater than $0 for the nine months ending on March 31, 1997. Net income shall be greater than $500,000 for the twelve months ending on June 30, 1997. * Net loss shall not be greater than $300,000 for the three months ending September 30, 1997. B. Financial Statements and Other Information. Maintain a system of accounting 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 acceptable to Bank and by independent certified public accountants acceptable to Bank. In addition, Borrower will: i. Furnish to Bank consolidated and consolidating financial statements of Borrower for each fiscal year of Borrower, within 90 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 45 days after the close of each such period. iii. Furnish to Bank a REPORTING REQUIREMENTS, COVENANTS AND COMPLIANCE CERTIFICATE for (and executed by an authorized representative of) Borrower as attached hereto as Exhibit B, 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 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 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, respectively, from time to time, as Bank may reasonably request. C. Insurance. 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, all to be with such companies and in such amounts as are satisfactory to Bank and providing for at least 30 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) and 30 days prior to each policy renewal. D. Existence and Compliance. 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. E. 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 financial condition or operations or Bank's rights under the Loan Documents, (ii) any litigation filed by or against Borrower, (iii) any event that has occurred that would constitute an event of default under any Loan Documents and (iv) any uninsured or partially uninsured loss through fire, theft, liability or property damage. F. Taxes and Other Obligations. Pay all of its taxes, assessments and other 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. G. Maintenance. 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. H. Environmental. Immediately advise Bank in writing of (i) any and all 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 business operations; and (ii) all claims made or threatened by any third party against 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 with respect to Borrower's business operations. Borrower will not use or permit any other party to use any Hazardous Materials at any of Borrower's places of business or at any other property owned by Borrower except such materials as are incidental to Borrower's normal course of business, maintenance and repairs and which are handled in compliance with all applicable environmental laws. Borrower agrees to permit Bank, its agents, contractors and employees to enter and inspect any of Borrower's places of business or any other property 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 is complying with this covenant and Borrower shall reimburse Bank on demand for the costs of any such environmental investigation and audit. Borrower shall 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 Borrowers business operations within five (5) days of the request therefore. I. Collateral. This Loan Agreement and all Applications are presently unsecured. Borrower agrees to provide Bank a security interest in any collateral which is hereafter pledged by Borrower to secure other indebtedness for borrowed money, such security interest to be pari passu with the security interest granted to another lender; provided however, that with respect to letters of credit issued by NationsBank or other lender which are cash secured, this provision shall mean that letters of credit issued by Bank on similar terms and conditions (i.e. letter of credit expiry date extends beyond the maturity date of a line of credit) shall also be cash secured and not that Bank shall share in the cash collateral securing such letters of credit. 5. Negative Covenants. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will not, without the prior written consent of Bank (and without limiting any requirement of any other Loan Documents): Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will not, without the prior written consent of Bank (and without limiting any requirement of any other Loan Documents): A. Make an investment in, or loan or advance, to any Subsidiary, including but not limited to Peerless International N.V., Peerless Europe B.V., and Peerless Europe Ltd., that would cause the aggregate amount of investments, loans or advances in subsidiaries to exceed $2,000,000 at any time. B. Extend loans or advances to any individual, partnership corporation or other entity not considered in the normal course of Borrower's business. C. 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, or transfer control or ownership of Borrower or form or acquire any subsidiary. D. Fail to promptly pay when due all lawful claims, whether for labor, materials or otherwise. E. Create, incur, assume or become liable in any matter for any indebtedness (for borrowed money, deferred payment for the purchase of assets, lease payments, as surety or guarantor for the debt of another, or otherwise) except for normal trade debts incurred in the ordinary course of Borrower's business, and except for existing indebtedness disclosed to Bank in writing prior to the date of this agreement. F. 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. G. Amend, modify or restate the NationsBank Loan Documents as they exist on March 7, 1997. 6. DEFAULT. Borrower shall be in default under this Agreement and under each of the other Loan Documents if it shall default in the payment of any amounts due and owing under the Loan or should it fail to timely and properly observe, keep or perform any term, covenant, agreement or condition in any Loan Document or 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 Borrower to Bank or any affiliate or subsidiary of Texas Commerce Bank National Association. 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 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. Attention: Sherrill Stone 2819 Walnut Hill Lane, Dallas, Texas 75229 Bank: Texas Commerce Bank National Association Attention: David L. Howard 2200 Ross Avenue P.O. Box 660197 Dallas, TX 75266-0197 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 immediately upon 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 byapplicable 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 future notice or demand in similar or other circumstances. B. Applicable Law. This Loan 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 Loan 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 Loan 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 Loan Agreement. D. Documents. All documents, certificates and other items required under this Loan 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 enforceability or invalidity of any provision of this Loan 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 business operations, any other property owned by Borrower or in the surface or ground water arising from Borrower's business operations, or gaseous emissions arising from Borrower's business operations or any other condition existing or arising from Borrower'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 the Borrower, regardless of whether the 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 the Borrower, the Bank, and of any third parties. The Borrower's obligations under this paragraph shall survive the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan. G. Survivability. All covenants, agreements, representations and warranties made herein or in the other Loan Documents shall survive the making of the Loan and shall continue in full force and affect so long as the Loan is outstanding or the obligation of the Bank to make any advances under the Line shall not have expired. 12. 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 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. 13. 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. 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: PEERLESS MFG. CO. By: /s/ Kent J. Van Houten (Seal) Name: Kent J. Van Houten Title: Chief Financial Officer [Corporate Seal] BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ David L. Howard (Seal) Name: David L. Howard Title: Vice President If the Borrower is a corporation, the signature should be attested by the Secretary or Assistant Secretary of the corporation and the corporate seal affixed. Attest: /s/ Kent J. Van Houten (Seal) Name: Kent J. Van Houten Title: Secretary/Treasurer EX-27 4
5 9-MOS JUN-30-1997 MAR-31-1997 658,420 299,511 11,761,534 141,209 4,299,850 17,742,659 7,904,515 5,492,809 20,557,554 9,188,836 0 0 0 1,455,992 9,825,958 20,557,554 32,102,952 32,102,952 23,519,214 23,519,214 7,076,976 36,574 21,527 209,317 43,195 166,122 0 0 0 166,122 0.11 0
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