<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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Commission File Number 0-5214
PEERLESS MFG. CO.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 75-0724417
- - -------------------------------------------------------------------- --------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
2819 Walnut Hill Lane, Dallas, Texas 75229
- - -------------------------------------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 357-6181
--------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1.00 The Nasdaq Stock Market's National Market
</TABLE>
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Indicate by 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 such 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
At September 19, 1996, Peerless Mfg. Co. had 1,454,742 shares of common stock,
$1.00 par value outstanding. The Company estimates that the aggregate market
value of the common stock on September 19, 1996 (based upon the closing price
of these shares on Nasdaq) held by non-affiliates was approximately
$15,539,946.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held on or about
November 21, 1996 (Part III).
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- - ---- ----
<S> <C> <C>
PART I
1 Business . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Properties . . . . . . . . . . . . . . . . . . . . . . . 6
3 Legal Proceedings . . . . . . . . . . . . . . . . . . . 6
4 Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . 7
PART II
5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . 7
6 Selected Financial Data . . . . . . . . . . . . . . . . 8
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 9
8 Financial Statements and Supplementary Data . . . . . . 14
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 34
PART III
10 Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . . . . 34
11 Executive Compensation . . . . . . . . . . . . . . . . . 34
12 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . 34
13 Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . 34
PART IV
14 Exhibits, Financial Statement Schedule,
and Reports on Form 8-K . . . . . . . . . . . . . . . 35
</TABLE>
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PART I
ITEM 1. BUSINESS.
Peerless Mfg. Co. (the "Company" or "Registrant") was organized in
1933 as a proprietorship and was incorporated as a Texas corporation in 1946.
The Company has wholly owned subsidiaries in the Netherlands, the United
Kingdom, the Netherlands Antilles and Barbados.
Products and Operations
The Company is engaged in the business of designing, engineering,
manufacturing and selling highly specialized products, referred to as
"separators" or "filters," which are used for a variety of purposes in cleaning
gases and liquids as they move through a piping system. The Company also
packages these products on skids complete with instruments, controls and
related valves and piping. These products are used, among other applications,
to remove solid and liquid contaminants from natural gas, and salt water
aerosols from the combustion intake air of ship board gas turbine and diesel
engines.
The Company also designs, engineers, manufactures and sells
specialized products referred to as "pulsation dampeners." These products are
used primarily to reduce or eliminate vibrations caused by acoustical
pulsations commonly found in piping connected to the reciprocating compressors
generally used to move gases and air. Pulsation dampeners reduce noise levels,
improve efficiency and prolong the life of piping systems.
The Company's products are also used as components in selective
catalytic reduction systems. Selective catalytic reduction equipment is used
to separate nitrogen oxide (NOx) emissions from exhaust gases caused by burning
hydrocarbon fuels such as gasoline, natural gas and oil. Additionally, the
Company sells gas odorization equipment, quick-opening closures, parts for its
products and other miscellaneous items. It also renders certain engineering
services.
While the Company manufactures and stocks a limited number of items of
equipment for immediate delivery, the vast majority of its products are
designed and constructed for specific customer requirements or specifications.
In certain cases, the Company's products and components are designed by the
Company but produced by subcontractors under Company supervision.
The Company markets its products worldwide through manufacturers'
representatives, who sell on a commission basis under the general direction of
an officer of the Company. Additionally, a number of the Company's employees
sell Company products directly to customers. The Company has a sales office in
Singapore with a staff of seven engineering and administrative employees. The
Company's United Kingdom subsidiary, Peerless Europe Ltd., began operations in
January of 1992 and currently has a staff of ten full-time employees. The
Company's Netherlands subsidiary has three full-time employees.
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Customers and Export Sales
Gas separators and filters are sold to gas producers and gas
gathering, transmission and distribution companies, and to chemical
manufacturers and oil refineries, either directly or through contractors
engaged to build plants and pipelines. Separators and filters are also sold to
manufacturers of compressors, turbines, and nuclear and conventional steam
generating equipment. Marine separation/filtration systems are sold primarily
to ship builders. Pulsation dampeners are purchased by customers in the same
industries as purchasers of separators and filters (except ship builders and
steam generating equipment manufacturers). Selective catalytic reduction
equipment is sold to gas turbine operators, refineries and others who desire or
may be required to reduce nitrogen oxide (NOx) emissions.
The Company is not dependent upon any single customer or group of
customers. Due to the custom-designed nature of its business and the nature of
the products it sells, the Company's major customers typically vary from year
to year. During Fiscal 1996 and 1995 no single customer accounted for 10% or
more of Company revenues. During Fiscal 1994, the Company's largest customer,
Mobil Oil Indonesia, accounted for approximately 10.5% of Company revenues. No
other customer accounted for 10% or more of Company revenues during Fiscal
1994.
Sales to foreign customers have been a part of the Company's business
for more than forty years. During Fiscal 1996, foreign sales amounted to
$19,434,000, or 57.8% of total consolidated revenue. Sales in Asia were
approximately $4.5 million, or 13.4%, $7.0 million, or 21.8%, and $6.3 million,
or 24.6%, of net sales in Fiscal 1996, 1995 and 1994, respectively. Due to the
custom-designed and project-specific nature of its products, the Company's
sales to any geographic region may vary from year to year. For a breakdown of
the Company's foreign sales by geographic area during Fiscal 1996, 1995 and
1994, see Note I of the Notes to Consolidated Financial Statements.
There are certain risks attendant to the Company's foreign sales.
These include the possibility that foreign purchasers may default in the
payment of amounts due, and that collection of such amounts may be more
difficult than for U.S. customers, that foreign exchange rates may fluctuate
adversely, that the U.S. and foreign governments may impose regulatory burdens
upon exports and imports of the Company's products, and that the Company may be
required to perform its obligations under product warranties, which might
result in added expense due to the requirement that it perform such services in
a foreign country. The Company has not, however, incurred substantial expenses
to date involving these risks.
The Company believes that its credit and collection risks are reduced
to a significant extent because a substantial part of foreign sales are made
either to large, well-established foreign companies or to foreign operations of
domestic companies. When sales are made to smaller foreign enterprises, the
Company generally requires an appropriate guarantee of payment or a letter of
credit from a banking institution. In addition, products sold to foreign
customers are generally priced to provide a higher profit margin, designed in
part to cover the risk of
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potentially greater warranty costs. In order to minimize the risks of
fluctuating currency exchange rates, the Company generally requires payment in
U.S. dollars (or in the functional currency of its foreign subsidiaries) for
its foreign product sales. The Company hedges its exposure, if substantial, to
foreign currency fluctuations on firm commitment sales under contracts that are
not denominated in U.S. dollars.
Backlog
The Company's backlog of incomplete orders at June 30, 1996 was
approximately $15,300,000 compared to approximately $15,875,000 in 1995.
Virtually all of the June 30, 1996 backlog is presently expected to be
completed and shipped in Fiscal 1997. Backlog has been calculated under the
Company's normal practice of including incomplete orders for products that are
deliverable over various periods and that may be changed or cancelled in the
future.
Competition and Other Market Factors
There are a number of competitors in the manufacture and sale of
separators, filters and pulsation dampeners, some of which are larger than the
Company and have greater financial resources. In addition, several smaller
manufacturers also produce custom-designed equipment that is competitive with
the Company's specialized products and services. The Company believes that
performance, reliability and warranty service are the prime competitive factors
in the markets in which it competes. The Company believes that because of its
reputation in those areas, it is a world leader in sales of custom-built
separators, filters and pulsation dampeners.
The markets for the Company's products are highly competitive
worldwide. In addition, competition may increase as larger and better financed
foreign companies become attracted to the market potential for products
manufactured by the Company.
Patents, Licenses and Product Development
The Company considers itself a world leader in the technology required
to design and apply its high efficiency vapor/liquid separation and filtration
equipment. The Company believes it is also a leader in the design, manufacture
and application of high efficiency pulsation dampeners for reciprocating
compressors, and in the production of selective catalytic reduction component
equipment. The Company's expenditures for new product development and
improvements were approximately $515,000 in Fiscal 1996 and $526,000 in Fiscal
1995.
The Company has several patents on its products and processes that are
important to its business. However, other companies are marketing competitive
products which may not infringe upon the Company's patents. Royalty revenues,
included in net sales, are $451,620, $272,673 and $143,394 in Fiscal 1996, 1995
and 1994, respectively.
Employees
At June 30, 1996, the Company and its subsidiaries had approximately
160 employees.
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Raw Materials
The Company purchases the raw materials and component parts essential
to its business from established sources with which it has had commercial
relationships for many years. During the fiscal year ended June 30, 1996, the
Company experienced no unusual problems in purchasing required materials and
parts, and the Company believes that raw materials and component parts will be
available in sufficient quantities for it to meet anticipated demand for its
products. However, conditions may occur from time to time which could make it
difficult to obtain desired materials within timely delivery schedules.
Environmental Regulation
The Company does not believe that its compliance with federal, state
or local statutes or regulations relating to the protection of the environment
has had any material effect upon capital expenditures, earnings or the
competitive position of the Company. The manufacturing processes of the Company
do not emit substantial foreign substances into the environment. Regulations
related to nitrous oxide (NOx) emissions have in the past resulted in increased
sales of the Company's component parts for selective catalytic reduction
equipment, and further regulations in that area could increase demand for that
equipment.
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Executive Officers of the Company
The executive officers of the Company on September 19, 1996 are listed
below. Each of these officers has been employed by the Company for at least
five years in the same position or a similar capacity, except as noted:
Name and Age Position
------------ --------
Sherrill Stone, 59 Chairman of the Board, President and Chief
Executive Officer (1)
Dayle B. Ellis, 43 Executive Vice President and
Chief Operating Officer (2)
Edward Perry, 58 Vice President (3)
G. D. Cornwell, 52 Vice President (4)
Kent J. Van Houten, 43 Chief Financial Officer and
Secretary - Treasurer (5)
- - --------------------
(1) Responsible for formulation of corporate policy, investment and new
business opportunities. Mr. Stone assumed the duties of Chairman of
the Board and Chief Executive Officer of the Company on March 31,
1993.
(2) Responsible for marketing, manufacturing and engineering operations of
the Company. Mr. Ellis assumed the duties of Executive Vice President
and Chief Operating Officer of the Company on July 17, 1996.
(3) Responsible for marketing, manufacturing and engineering of filters
and separators associated with pressure applications.
(4) Responsible for marketing, manufacturing and engineering of liquid
vapor separators.
(5) Mr. Van Houten is responsible for financial and administrative
operations, and has been employed by the Company since May 22, 1995.
He previously was Manager of Financial Accounting at The Austin
Company.
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ITEM 2. PROPERTIES.
The principal executive offices of the Registrant are located in
Dallas, Texas, on approximately twelve acres of land owned by the Company.
These facilities include two one story buildings, one containing approximately
4,000 square feet of space used for the Company's executive and sales offices,
and the second containing 3,600 square feet used for research and development.
The Company also utilizes 20,000 square feet of a 40,000 square foot building
located on the same site, with the remaining portion leased to other companies.
Rental income from such properties is not material to the Company's results of
operations. The Company owns approximately 21,600 additional square feet of
manufacturing facilities in Denton, Texas, and approximately 29,000 square feet
of manufacturing facilities in Carrollton, Texas. The Company also owns a
79,800 square foot Dallas manufacturing plant which was closed in 1983, and is
now leased to other companies for periods of three years or less.
During Fiscal 1996, the estimated average utilization of the Company's
manufacturing facilities was approximately 90% in Denton, Texas, and 90% in
Carrollton, Texas. Because of the availability and use by the Company of
subcontractors, high utilization rates do not necessarily indicate a capacity
problem. The Company believes that its office and manufacturing facilities are
adequate and suitable for its present requirements. While future needs may
require additional manufacturing facilities, space at the Denton, Texas
location is available for expansion. The Company has also determined that a
number of locations in the immediate area could be leased in the event future
needs require such action.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to
claims arising in the ordinary course of business operations. In addition, the
Company has been named as a defendant in three lawsuits alleging damages
suffered by former employees or independent contractors of the Company. In Roy
L. Greeson v. Peerless Mfg. Co., filed June 17, 1994 in the 68th Judicial
District Court, Dallas County, Texas, the plaintiff alleged that while working
for a temporary employment agency, he was assigned to perform work at the
Company. He further asserted that while at the Company he was injured and that
the negligence of the Company caused his personal injuries. The plaintiff
seeks lost earnings, front pay, past and future medical expenses and damages
for past and future pain and suffering. An out of court settlement was agreed
to and signed February 14, 1996. The amount of the settlement had no material
impact to the financial statements of the Company.
In David Kyle Miller v. Peerless Mfg. Co., filed August 25, 1995 in
the 167th Judicial District Court, Dallas County, Texas, the plaintiff, a
former employee, alleged that while employed by the Company he was injured and
that these injuries were caused by the negligence and gross negligence of the
Company. The plaintiff seeks damages including exemplary and/or punitive
damages, damages for mental and emotional pain and anguish, physical
impairment, loss of income, medical expenses and conscious physical pain and
suffering. An out of court settlement was agreed to and signed August 29,
1996. The amount of such settlement had no material impact to the financial
statements of the Company.
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In Florentino San Miguel v. Carl W. Yarbrough, and Peerless Mfg. Co.,
filed June 28, 1996 in the 211th Judicial District Court, Denton, Texas,
Plaintiff alleged that while employed by the Company he was injured and that
these injuries were caused by the negligence and gross negligence of the
Company. The plaintiff seeks damages including exemplary damages, prejudgment
and postjudgment interest and court costs. At this early stage of the lawsuit,
the Company is unable to determine the likelihood of the Company's success.
The Company intends to vigorously defend the case.
In Peerless Mfg. Co. v. Senior Engineering Company, the Company filed
the action on November 13, 1995, alleging that Senior Engineering Company
("Senior") had misappropriated certain of the Company's trade secrets, breached
certain contractual obligations owed to the Company, and breached its duty of
good faith and fair dealing in connection with Senior's efforts to market
moisture separation technology and systems in competition with the Company. By
its action, the Company sought both damages and injunctive relief against
Senior. On or about February 19, 1996, the Company and Senior entered into a
preliminary agreement to resolve the Company's claims and settle the case. As
a part of such preliminary agreement, all proceedings in the action were abated
as of December 29, 1995, and remain abated. The Company and Senior are in the
process of negotiating and preparing final documents which, when executed, will
bring the case to an end. The Company believes that the current negotiations
will be successful and will result in the settlement of the case. In the event
such negotiations are not consummated, the Company intends to vigorously pursue
the claims it has asserted in the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the Nasdaq Stock Market's
National Market under the symbol PMFG. The Company's Board of Directors
reviews the financial position of the Company periodically to determine the
advisability of paying dividends. The following table sets forth, for the
periods indicated, the range of the daily high and low closing bid prices for
the Company's Common Stock as reported by Nasdaq Stock Market's National Market
and cash dividends paid per share.
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<TABLE>
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Quarter Ended: Closing Bid Prices Cash Dividends
High Low Per Share
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<S> <C> <C> <C>
Fiscal 1995
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September 30, 1994 $14 $ 9-3/4 $.125
December 31, 1994 16-1/2 11 .125
March 31, 1995 11-3/4 9-1/2 .125
June 30, 1995 12-3/4 9-1/2 .125
Fiscal 1996
- - -----------
September 30, 1995 $12-3/4 $ 9-7/8 $.125
December 31, 1995 11-5/8 9-1/4 .125
March 31, 1996 9-3/4 8-3/4 .125
June 30, 1996 11-5/8 9-5/8 .125
</TABLE>
The number of record holders of the Company's Common Stock on August
16, 1996 was 233. The Company estimates that approximately 700 additional
shareholders own shares in broker names.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data
regarding the Company's results of operations and financial position. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes included elsewhere herein.
<TABLE>
<CAPTION>
Year ended June 30
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1996 1995 1994 1993 1992
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $33,643,998 $32,089,132 $25,567,560 $25,797,270 $23,058,643
Gross profit 10,213,237 10,583,128 9,038,606 8,828,398 8,518,020
Earnings before income taxes
1,133,955 1,860,468 1,227,959 267,092 1,393,594
Net earnings $ 789,721 $ 1,226,246 $ 780,275 $ 155,059 $ 979,549
=========== =========== =========== =========== ===========
Earnings per
common share: $.55 $.85 $.54 $.11 $.68
==== ==== ==== ==== ====
Total assets $18,631,025 $17,156,055 $18,022,466 $14,261,243 $14,669,889
=========== =========== =========== ========== ===========
Long-term obligations --- --- --- --- ---
Cash dividend per common
share $ .50 $ .50 $ .50 $ .50 $ .50
=========== =========== =========== =========== ===========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity And Capital Resources
As a general policy, the Company maintains corporate liquidity at a
level it believes adequate to support existing operations and planned growth,
as well as continue operations during reasonable periods of unanticipated
adversity. Management also intends to direct additional resources to strategic
new product development, market expansion and continuing improvement of
existing products to enhance the Company's position as a market leader and to
promote planned internal growth and profitability.
The Company has historically financed and continues to finance working
capital requirements and any expansion, equipment purchases or acquisitions
primarily through the retention of earnings, which is reflected by the absence
of long-term debt on the Company's consolidated balance sheet. In addition to
retained earnings, the Company has infrequently used a short term bank credit
line of $5,000,000 to supplement working capital. During early Fiscal 1995 and
Fiscal 1996, it was necessary for the Company to use its short-term bank credit
line in order to finance a temporary shortfall in working capital. At June 30,
1996, the Company had no amounts outstanding against its credit line. The
Company pays an annual commitment fee of 0.25% of the unused balance under the
credit line. The Company has no material commitments for capital expenditures
other than replacing equipment and maintaining its existing plants and
equipment. During Fiscal 1996 the Company purchased fixed assets totaling
$273,593, consisting primarily of replacement manufacturing equipment, computer
hardware and software, office equipment and building improvements. This is
compared to purchases of $339,199 during Fiscal 1995. The Company believes
that these sources will be sufficient to satisfy its needs in the foreseeable
future.
Working capital was $9,350,600 at June 30, 1996, substantially
unchanged from $9,031,200 at June 30, 1995.
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The following table sets forth certain information related to working
capital for the Company's last three fiscal years:
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Average working capital as
a percentage of net sales 25.6% 27.5% 31.0%
Annual accounts receivable
turnover(1) 3.8 6.0 3.3
Annual inventory turnover(2) 5.7 6.7 4.8
</TABLE>
(1) Annual accounts receivable turnover is computed by dividing annual
net sales by the average monthly accounts receivable.
(2) Annual inventory turnover is computed by dividing the cost of goods
sold by the average monthly inventory.
Although year-end working capital increased from Fiscal 1995 to Fiscal
1996, the average working capital decrease as a percentage of net sales is
related to increased sales volume of approximately $1,555,000 reported in
Fiscal 1996 over Fiscal 1995. The decrease in annual accounts receivable
turnover reflects the Company's growth in foreign sales. The process of
collecting foreign receivables usually takes longer than that of domestic
receivables due to the length of time required for ocean-going shipments of
equipment as well as the time involved in processing the required
documentation. The decrease in average inventory turnover is due primarily to
larger projects and more costs included in work in process during Fiscal 1996
compared to Fiscal 1995.
Results of Operations
The following table sets forth various measures of performance
expressed as percentages of net sales for the Company's last three fiscal
years, as well as the Company's effective income tax rate for the same periods:
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Gross profit margin 30.4% 33.0% 35.3%
Operating expenses 26.9% 27.5% 31.1%
Earnings before income taxes 3.4% 5.8% 4.8%
Effective income tax rate 30.4% 34.1% 36.5%
</TABLE>
Inflation did not have a material impact on the Company's operating
results during the last three fiscal years.
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Comparison of Fiscal 1996 to Fiscal 1995
Net Sales
The Company's net sales increased approximately $1,555,000, or 4.8%,
to $33,644,000 in Fiscal 1996 as compared to $32,089,000 in Fiscal 1995.
Compared to Fiscal 1995, Fiscal 1996 domestic sales decreased by 1.0% from
$14,389,000 to $14,244,000. Foreign sales increased from $17,700,000 in Fiscal
1995 to $19,400,000 in Fiscal 1996, an increase of 9.6%. The increase was
primarily the result of additional sales realized in Europe.
The Company's backlog of unfilled orders decreased slightly from
$15,875,000 at June 30, 1995 to $15,300,000 at June 30, 1996.
Sales decreased from $3,346,000 in Fiscal 1995 to $2,562,000 in Fiscal
1996 at the Company's Singapore sales office. The backlog of unfilled orders
at June 30, 1996 includes approximately $510,000 of orders generated through
the Singapore office. The Company continues to believe that its sales in Asia
are enhanced by its maintenance of a Singapore office.
During Fiscal 1996, Peerless Europe Ltd., the Company's UK subsidiary,
contributed Fiscal 1996 sales revenue of $5,394,000, representing an increase
of $1,760,000, or 48.4% over Fiscal 1995 revenue of $3,634,000. This
subsidiary continued to operate solidly during Fiscal 1996, with a year-end
backlog of approximately $1,000,000.
Peerless Europe B.V., the Company's Dutch subsidiary which became
operational as a trading company late in Fiscal 1993, continued its efforts
during Fiscal 1996 to implement the Company's direct marketing strategy in
Europe. Sales revenue increased from $1,155,000 in Fiscal 1995 to $2,105,000
in Fiscal 1996.
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $3,696,000 in Fiscal 1995 to $6,013,000 in Fiscal 1996. During
Fiscal 1996, the SCR division, which designs and manufactures equipment used to
remove nitrogen oxide (NOx) emissions caused by boilers, gas burners, turbines
and internal combustion engines, experienced an improvement in its order intake
activity and ended the year with a backlog of unfilled orders of approximately
$4,838,000.
Gross Profit Margin
The Company's gross profit margin decreased from 33.0% of net sales in
Fiscal 1995 to 30.4% of net sales in Fiscal 1996. The decrease resulted from a
change in product mix of orders completed in Fiscal 1996.
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Operating Expenses
Operating expenses increased from $8,818,000 in Fiscal 1995 to
$9,058,000 in Fiscal 1996. However, operating expenses as a percent of sales
decreased slightly from 27.5% in Fiscal 1995 to 26.9% in Fiscal 1996, due
primarily to the increase in net sales.
Income Tax
The Company's effective income tax rate decreased from 34.1% in Fiscal
1995 to 30.4% in Fiscal 1996. For a further discussion of the Company's federal
income taxes, see Note H to the Company's Consolidated Financial Statements.
Comparison of Fiscal 1995 to Fiscal 1994
Net Sales
The Company's net sales increased approximately $6,500,000, or 25.5%,
to $32,089,000 in Fiscal 1995 as compared to $25,568,000 in Fiscal 1994.
Compared to Fiscal 1994, Fiscal 1995 domestic sales increased by 27.6% from
$11,268,000 to $14,389,000. Foreign sales increased from $14,300,000 in Fiscal
1994 to $17,700,000 in Fiscal 1995, an increase of 23.8%. The increase was
primarily the result of additional sales realized in Europe.
The Company's backlog of unfilled orders declined slightly from
$17,100,000 at June 30, 1994 to $15,875,000 at June 30, 1995.
Sales decreased from $4,612,000 in Fiscal 1994 to $3,346,000 in Fiscal
1995 at the Company's Singapore sales office. The backlog of unfilled orders
at June 30, 1995 includes approximately $425,000 of orders generated through
the Singapore office. The Company continues to believe that its sales in the
Far East are enhanced by its maintenance of an office in that region of the
world.
During Fiscal 1995, Peerless Europe Ltd., the Company's UK subsidiary,
contributed Fiscal 1995 sales revenue of $3,634,000, representing an increase
of $1,491,000, or 69.6% over Fiscal 1994 revenue of $2,143,000. Although this
subsidiary continued to operate at a small loss during Fiscal 1995, with a
year-end backlog of approximately $1,800,000, it is currently expected that the
subsidiary will be profitable in Fiscal 1996.
Peerless Europe B.V., the Company's Dutch subsidiary which became
operational as a trading company late in Fiscal 1993, continued its efforts
during Fiscal 1995 to implement the Company's direct marketing strategy in
Europe. Sales revenue increased from $178,000 in Fiscal 1994 to $1,155,000 in
Fiscal 1995, as the subsidiary turned profitable in Fiscal 1995 as compared to
a loss in Fiscal 1994.
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $1,458,000 in Fiscal 1994 to $3,696,000 in Fiscal 1995. During
Fiscal 1995, the SCR division,
12
<PAGE> 15
which designs and manufactures equipment used to remove nitrogen oxide (NOx)
emissions caused by boilers, gas burners, turbines and internal combustion
engines, experienced an improvement in its order intake activity and ended the
year with a backlog of unfilled orders of approximately $3,832,000.
Gross Profit Margin
The Company's gross profit margin decreased from 35.3% of net sales in
Fiscal 1994 to 33.0% of net sales in Fiscal 1995. The decrease resulted from a
change in product mix of orders completed in Fiscal 1995.
Operating Expenses
Operating expenses increased from $7,953,000 in Fiscal 1994 to
$8,818,000 in Fiscal 1995. However, operating expenses as a percent of sales
decreased from 31.1% in Fiscal 1994 to 27.5% in Fiscal 1995, due primarily to
the increase in net sales.
Income Tax
The Company's effective income tax rate decreased from 36.5% in Fiscal
1994 to 34.1% in Fiscal 1995. For a further discussion of the Company's federal
income taxes, see Note H to the Company's Consolidated Financial Statements.
13
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 AND 1995 . . . . . . . . . 16
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS
ENDED JUNE 30, 1996, 1995 AND 1994 . . . . . . . . . . . . . 18
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JUNE 30, 1996,
1995 AND 1994 . . . . . . . . . . . . . . . . . . . . . . . . 19
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 1996, 1995 AND 1994 . . . . . . . . . . . . . 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JUNE 30, 1996, 1995 AND 1994 . . . . . . . . . . 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . 32
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT . . . . . . . . . . . . 33
</TABLE>
14
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Peerless Mfg. Co.
We have audited the accompanying consolidated balance sheets of Peerless Mfg.
Co. and Subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Peerless Mfg. Co.
and Subsidiaries as of June 30, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
September 13, 1996
15
<PAGE> 18
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,082,329 $ 1,561,747
Short-term investments 246,659 221,968
Accounts receivable - principally trade - net of allowance for
doubtful accounts of $100,000 and $99,082 in 1996
and 1995, respectively 8,700,762 9,135,623
Inventories 4,138,965 2,816,774
Deferred income taxes 226,214 232,554
Other 620,072 334,876
----------- -----------
TOTAL CURRENT ASSETS 16,015,001 14,303,542
PROPERTY, PLANT AND EQUIPMENT - AT COST, less
accumulated depreciation 1,213,859 1,282,275
PROPERTY HELD FOR INVESTMENT - AT COST, less
accumulated depreciation 948,775 952,823
OTHER ASSETS 453,390 617,415
----------- -----------
$18,631,025 $17,156,055
=========== ===========
</TABLE>
16
<PAGE> 19
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 4,329,645 $ 3,096,025
Advance payments from customers 435,549 600,957
Commissions payable 566,766 509,512
Accrued expenses
Compensation 549,210 593,550
Warranty reserve 286,384 317,092
Other 496,847 155,236
----------- -----------
TOTAL CURRENT LIABILITIES 6,664,401 5,272,372
DEFERRED INCOME TAXES 86,768 97,704
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock - authorized, 4,000,000 shares of $1 par value;
issued and outstanding, 1,446,742 shares 1,446,742 1,446,742
Additional paid-in capital 2,489,879 2,493,428
Unamortized value of restricted stock grants (33,750) (97,107)
Cumulative foreign currency translation adjustment 23,842 56,110
Retained earnings 7,953,143 7,886,806
----------- -----------
11,879,856 11,785,979
----------- -----------
$18,631,025 $17,156,055
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 20
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $33,643,998 $32,089,132 $25,567,560
COST OF GOODS SOLD 23,430,761 21,506,004 16,528,954
----------- ----------- ----------
GROSS PROFIT 10,213,237 10,583,128 9,038,606
OPERATING EXPENSES
Marketing and engineering 5,945,206 5,885,595 5,349,216
General and administrative 3,112,463 2,932,410 2,604,008
----------- ----------- ----------
9,057,669 8,818,005 7,953,224
----------- ----------- ----------
OPERATING PROFIT 1,155,568 1,765,123 1,085,382
OTHER INCOME (EXPENSE)
Interest income 45,559 93,974 37,073
Interest expense (16,858) (8,040) (35,596)
Other, net (50,314) 9,411 141,100
----------- ----------- ----------
(21,613) 95,345 142,577
----------- ----------- ----------
EARNINGS BEFORE INCOME TAXES 1,133,955 1,860,468 1,227,959
INCOME TAX EXPENSE (BENEFIT)
Current 348,830 612,853 468,063
Deferred (4,596) 21,369 (20,379)
----------- ----------- ----------
344,234 634,222 447,684
----------- ----------- ----------
NET EARNINGS $ 789,721 $ 1,226,246 $ 780,275
=========== =========== ==========
Earnings per common share $ .55 $ .85 $ .54
=========== =========== ==========
Weighted average number of common
shares outstanding 1,446,742 1,442,039 1,437,192
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 21
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Unamortized foreign
Additional value of currency
Common paid-in restricted translation Retained
stock capital stock grant adjustment earnings Total
---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of July 1, 1993 $1,437,492 $2,384,702 $ (85,554) $(108,918) $7,319,498 $10,947,220
Net earnings - - - - 780,275 780,275
Issuance of 3,000 shares of common stock 3,000 27,750 (30,750) - - -
Forfeiture of 3,750 shares of common stock (3,750) (27,031) 30,781 - - -
Translation adjustment - - - 32,855 - 32,855
Cash dividends paid ($.50 per share) - - - - (718,091) (718,091)
Amortization of restricted stock grants - - 35,682 - - 35,682
Income tax expense related to restricted stock plans - (1,551) - - - (1,551)
---------- ---------- ---------- --------- ---------- -----------
Balances as of June 30, 1994 1,436,742 2,383,870 (49,841) (76,063) 7,381,682 11,076,390
Net earnings - - - - 1,226,246 1,226,246
Issuance of 12,000 shares of common stock 12,000 123,000 (135,000) - - -
Forfeiture of 2,000 shares of common stock (2,000) (18,500) 20,500 - - -
Translation adjustment - - - 132,173 - 132,173
Cash dividends paid ($.50 per share) - - - - (721,122) (721,122)
Amortization of restricted stock grants - - 67,234 - - 67,234
Income tax benefit related to restricted stock plans - 5,058 - - - 5,058
---------- ---------- ---------- --------- ---------- -----------
Balances as of June 30, 1995 1,446,742 2,493,428 (97,107) 56,110 7,886,806 11,785,979
Net earnings - - - - 789,721 789,721
Translation adjustment - - - (32,268) - (32,268)
Cash dividends paid ($.50 per share) - - - - (723,384) (723,384)
Amortization of restricted stock grants - - 63,357 - - 63,357
Income tax expense related to restricted stock plans - (3,549) - - - (3,549)
---------- ---------- --------- --------- ---------- -----------
Balances as of June 30, 1996 $1,446,742 $2,489,879 $ (33,750) $ 23,842 $7,953,143 $11,879,856
========== ========== ========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE> 22
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 789,721 $1,226,246 $ 780,275
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 416,207 386,364 392,524
Deferred income taxes (4,596) 21,369 (20,379)
Exchange loss 28,628 56,368 -
Other (2,342) 5,058 (1,551)
Changes in operating assets and liabilities
Accounts receivable 616,280 (323,226) (2,253,588)
Inventories (1,580,993) 1,810,607 (2,429,406)
Other current assets (285,196) 108,174 15,010
Other assets 156,025 (195,985) (78,551)
Accounts payable 1,240,661 464,022 1,320,851
Advance payments from customers (165,408) (1,624,268) 1,834,049
Commissions payable 57,254 6,981 (54,684)
Accrued expenses 266,563 (133,144) 342,836
---------- ---------- ----------
743,083 582,320 (932,889)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,532,804 1,808,566 (152,614)
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of short-term investments (24,691) 415,017 685,984
Purchase of property and equipment (273,593) (339,199) (116,285)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (298,284) 75,818 569,699
</TABLE>
20
<PAGE> 23
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net changes in short-term borrowings $ - $ (260,400) $ 190,813
Dividends paid (723,384) (721,122) (718,091)
---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (723,384) (981,522) (527,278)
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS 9,446 25,691 32,855
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 520,582 928,553 (77,338)
Cash and cash equivalents at beginning of year 1,561,747 633,194 710,532
---------- ---------- ----------
Cash and cash equivalents at end of year $2,082,329 $1,561,747 $ 633,194
========== ========== ==========
Supplemental information on cash flows:
- - --------------------------------------
Interest paid $ 16,858 $ 9,597 $ 33,961
Income taxes paid $ 138,018 $1,059,500 $ 60,069
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 24
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
Nature of Operations
Peerless Mfg. Co. designs, engineers, and manufactures specialized products
for the removal of contaminants from gases and liquids and for air pollution
abatement. The Company's products are manufactured principally at plants
located in Dallas, Texas and are sold worldwide with the principal markets
located in the United States and Europe. Primary customers are equipment
manufacturers, engineering contractors and operators of power plants.
Consolidation
The Company consolidates the accounts of its wholly-owned foreign
subsidiaries, Peerless Europe Limited (Europe Limited), Peerless
International N.V. (International) and Peerless Europe B.V. (Europe B.V.).
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Depreciable Assets
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally by the straight-line method.
22
<PAGE> 25
Revenue Recognition
The Company generally recognizes sales of custom-contracted products at the
completion of the manufacturing process. The percentage-of-completion
method is used for significant long-term contracts.
Percentage-of-completion is determined using the actual labor incurred to
date as compared to management's estimate of total labor to be incurred on
each contract.
23
<PAGE> 26
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
Earnings Per Common Share
Earnings per common share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
year. There are no common stock equivalents or other dilutive securities.
Foreign Currency
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange and statements of earnings items
are translated at the weighted average exchange rates for the year. The
resulting translation adjustments are made directly to a separate component
of stockholders' equity. Gains and losses from foreign currency
transactions, such as those resulting from the settlement of foreign
receivables or payables, are included in the consolidated statements of
earnings.
The Company enters into forward exchange contracts in anticipation of future
movements in certain foreign exchange rates and to hedge against foreign
currency fluctuations. Realized and unrealized gains and losses on these
contracts are included in net income, except that gains and losses on
contracts to hedge specific foreign currency commitments are deferred and
accounted for as part of the underlying transaction.
Reclassifications
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
Financial Instruments
The carrying amount for cash and cash equivalents approximates fair value
because of the short-term nature of these items. Short-term investments are
carried at fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
24
<PAGE> 27
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE B - CONCENTRATIONS OF CREDIT RISK
A significant portion of the Company's sales are to customers whose
activities are related to the oil and gas industry, including some who are
located in foreign countries. The Company generally extends credit to these
customers. Its exposure to credit risk is affected by conditions within the
oil and gas industry. Also, with respect to foreign sales, collection may
be more difficult in the event of a default.
However, the Company closely monitors extensions of credit and has never
experienced significant credit losses. Substantially all foreign sales are
made to large, well-established companies. The Company generally requires
collateral or guarantees on foreign sales to smaller companies.
NOTE C - INVENTORIES
Principal components of inventories are as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $1,094,774 $ 988,275
Work in process 2,757,798 1,590,050
Finished goods 286,393 238,449
---------- ----------
$4,138,965 $2,816,774
========== ==========
</TABLE>
NOTE D - PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR INVESTMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Buildings $ 1,418,842 $ 1,364,693
Equipment 2,300,777 2,224,037
Furniture and fixtures 1,114,583 1,078,826
------------ -----------
4,834,202 4,667,556
Less accumulated depreciation (3,880,559) (3,645,497)
------------ ----------
953,643 1,022,059
Land 260,216 260,216
------------ -----------
$ 1,213,859 $ 1,282,275
============ ===========
</TABLE>
25
<PAGE> 28
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE D - PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR INVESTMENT -
CONTINUED
Property held for investment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Buildings $ 1,641,776 $ 1,639,792
Equipment 158,171 102,963
------------ ------------
1,799,947 1,742,755
Less accumulated depreciation (1,380,582) (1,319,342)
---------- -----------
419,365 423,413
Land 529,410 529,410
------------ ------------
$ 948,775 $ 952,823
============ ============
</TABLE>
NOTE E - CREDIT ARRANGEMENT
The Company has an agreement with a bank for an unsecured continuing line of
credit in the amount of $5,000,000 due upon demand, with interest at the
bank's prime lending rate (8.25% at June 30, 1996) paid monthly. The bank
charges usage fees at an annual rate of .25% of the average daily unused
portion of the line. At June 30, 1996 and 1995, no amounts were outstanding
under the line. The Company had letters of credit outstanding under
separate arrangements of $3,259,533 and $2,898,534 at June 30, 1996 and
1995, respectively. Other assets with a cost of approximately $545,000 were
pledged against the letters of credit outstanding at June 30, 1996.
NOTE F - RESTRICTED STOCK PLANS
The Company has a restricted stock plan whereby the Company can award up to
75,000 shares of common stock to employees. Sale of the stock awarded is
restricted for five years from the date of grant. For the year ended June
30, 1995, the Company awarded 12,000 shares of common stock which had a fair
value at the date of grant of $135,000. There were no awards for the years
ended June 30, 1994 or 1996. Compensation under the plan is charged to
earnings over the restriction period and amounted to $63,357, $67,234 and
$18,907 in 1996, 1995 and 1994, respectively. At June 30, 1996, 8,750
shares were available for issuance.
The Company also has a restricted stock plan for non-employee directors of
the Company. Vesting is pro rata over a three-year period. Pursuant to the
plan, the maximum number of shares that may be granted is 16,200 shares. No
awards have been made since 1991. Compensation under the plan is charged to
earnings over the vesting period and amounted to $16,775 in 1994. At June
30, 1996, 5,400 shares were available for issuance.
26
<PAGE> 29
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
The tax effect of income tax deductions that differ from compensation
expense under these plans is credited or charged to additional paid-in
capital.
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan to provide eligible employees with a
retirement savings plan. All employees are eligible to participate in the
plan upon completing 90 days of service. Company contributions are
voluntary and at the discretion of the Board of Directors of the Company.
The Company's contribution expense for the years ended June 30, 1996, 1995
and 1994 was $109,000, $103,000 and $98,000, respectively.
27
<PAGE> 30
] PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES
Deferred taxes are provided for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities. The temporary differences that give rise to the deferred tax
assets or liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets
Restricted stock grants $ 19,125 $ 18,754
Accrued compensation 97,760 90,020
Warranty reserve 97,237 107,461
Inventories - 9,167
Foreign subsidiaries' net operating loss carryforwards 15,371 37,493
Interest expense 116,240 103,385
Other 70,158 15,613
-------- --------
415,891 381,893
Less valuation allowance (160,405) (121,091)
--------- --------
255,486 260,802
Deferred tax liabilities
Property, plant and equipment (88,491) (85,475)
Inventories (22,962) -
Other (4,587) (40,477)
-------- --------
(116,040) (125,952)
--------- --------
Net deferred tax asset $139,446 $134,850
======== ========
</TABLE>
28
<PAGE> 31
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES - CONTINUED
Deferred tax assets and liabilities included in the balance sheet are as
follows:
<TABLE>
<CAPTION>
June 30,
---------------------
1996 1995
-------- --------
<S> <C>
Current deferred tax asset $226,214 $232,554
Noncurrent deferred tax liability (86,768) (97,704)
-------- --------
$139,446 $134,850
======== ========
The effective income tax rate varies from the statutory rate due to the following:
As a percentage
of pretax earnings
----------------------
1996 1995 1994
------ ------ ------
Income tax expense at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in income taxes resulting from
Foreign sales corporation exclusions (1.5) (3.1) (3.7)
Tax-exempt interest income ( .4) ( .8) ( .2)
Change in valuation allowance (3.5) (1.4) 4.0
Other 1.8 5.4 2.4
---- ---- ----
Income tax expense at effective rate 30.4% 34.1% 36.5%
==== ==== ====
</TABLE>
The valuation allowance relates to deferred tax assets of foreign
subsidiaries. These assets are recoverable only from future income of the
respective foreign subsidiaries. Utilization of foreign net operating
carryforwards reduced income tax expense by approximately $19,000 and
$55,000 for 1996 and 1995, respectively.
29
<PAGE> 32
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations consist of a dominant industry segment, the
designing and manufacturing of specialized products for the removal of
contaminants from gases and liquids and for air pollution abatement,
principally in the United States and the United Kingdom.
Information about the Company's operations in different geographic areas as
of and for the years ended June 30, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
United United
States Kingdom Other Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
- - ----
Net sales to unaffiliated
customers $26,775,000 $4,764,000 $2,105,000 $ - $33,644,000
Transfers between
geographic areas 984,000 630,000 - (1,614,000) -
----------- ---------- ---------- ----------- -----------
Total $27,759,000 $5,394,000 $2,105,000 $(1,614,000) $33,644,000
=========== ========== ========== =========== ===========
Operating profit (loss) $ 1,071,000 $ 145,000 $ (39,000) $ (21,000) $ 1,156,000
=========== ========== ========== =========== ===========
Identifiable assets $17,684,000 $2,112,000 $1,599,000 $(2,764,000) $18,631,000
=========== ========== ========== =========== ===========
1995
- - ----
Net sales to unaffiliated
customers $27,673,000 $3,261,000 $1,155,000 $ - $32,089,000
Transfers between
geographic areas 479,000 373,000 - (852,000) -
----------- ---------- ---------- ----------- -----------
Total $28,152,000 $3,634,000 $1,155,000 $ (852,000) $32,089,000
=========== ========== ========== =========== ===========
Operating profit (loss) $ 1,764,000 $ (13,000) $ 9,000 $ 5,000 $ 1,765,000
=========== ========== ========== =========== ===========
Identifiable assets $16,048,000 $2,113,000 $1,237,000 $(2,242,000) $17,156,000
=========== ========== ========== =========== ===========
</TABLE>
30
<PAGE> 33
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1996, 1995 and 1994
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION - CONTINUED
<TABLE>
<CAPTION>
United United
States Kingdom Other Eliminations Consolidated
----------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1994
----
Net sales to unaffiliated
customers $23,270,000 $2,120,000 $ 178,000 $ - $25,568,000
Transfers between
geographic areas 599,000 23,000 - (622,000) -
----------- ---------- --------- ----------- -----------
Total $23,869,000 $2,143,000 178,000 $ (622,000) $25,568,000
=========== ========== ========= =========== ===========
Operating profit (loss) $ 1,260,000 $ (21,000) $(149,000) $ (5,000) $ 1,085,000
=========== ========== ========= =========== ===========
Identifiable assets $17,494,000 $1,693,000 $ 675,000 $(1,840,000) $18,022,000
=========== ========== ========= =========== ===========
</TABLE>
Transfers between the geographic areas primarily represent intercompany
export sales and are accounted for based on established sales prices between
the related companies. In computing operating profit (loss), no allocations
of general corporate expenses have been made.
Identifiable assets of geographic areas are those assets related to the
Company's operations in each area. United States assets consist of all
other operating assets of the Company.
Export sales account for a significant portion of the Company's revenues and
are summarized by geographic area as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> C> <C>
North and South America (excluding U.S.A.) $ 4,625,000 $ 3,817,000 $ 4,050,000
Europe 8,760,000 6,051,000 3,353,000
Asia 4,502,000 7,011,000 6,293,000
Other 1,547,000 826,000 599,000
----------- ----------- -----------
$19,434,000 $17,705,000 $14,295,000
=========== =========== ===========
</TABLE>
31
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Peerless Mfg. Co.
In connection with our audit of the consolidated financial statements of
Peerless Mfg. Co. and Subsidiaries referred to in our report dated September
13, 1996, which is included in Part II of this form, we have also audited
Schedule II for each of the three years in the period ended June 30, 1996. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
September 13, 1996
32
<PAGE> 35
PEERLESS MFG. CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
June 30,
<TABLE>
<CAPTION>
Additions
Balance at ---------------------------------
beginning of Charged to Charged to Balance at
Description period expenses other accounts(1) Deductions(2) end of period
----------- ------------ ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1996
- - ----
Allowance for doubtful accounts $99,082 $44,307 $852 $44,241 $100,000
======= ======= ==== ======= ========
1995
- - ----
Allowance for doubtful accounts $85,827 $55,401 $ - $42,146 $ 99,082
======= ======= ==== ======= ========
1994
- - ----
Allowance for doubtful accounts $39,176 $60,000 $ - $13,349 $ 85,827
======= ======= ==== ======= ========
</TABLE>
(1) Amounts represent current year collections on accounts previously
written off.
(2) Amounts represent current year write offs.
33
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information concerning the Company's Directors, reference is made to
the information set forth under the caption "Election of Directors and Stock
Ownership of Certain Beneficial Owners" in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held November 21, 1996 (the "Proxy
Statement"), which information is incorporated herein by reference.
For information concerning the Company's Executive Officers, see Item 1,
"Business - Executive Officers of the Company" and the Proxy Statement, which
information regarding the executive officers is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning the Company's executive compensation, reference
is made to the information set forth under the caption "Executive Compensation"
in the Proxy Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning the security ownership of certain
beneficial owners and management, reference is made to the information set
forth under the caption "Election of Directors and Stock Ownership of Certain
Beneficial Owners" in the Proxy Statement, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning certain relationships and related
transactions, reference is made to the information set forth under the caption
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement, which information is incorporated herein by reference.
34
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(A) 1. All Financial Statements: see Item 8 "Financial Statements and
Supplementary Data" in Part II of this Report.
2. Financial Statement Schedule and Exhibits filed in Part IV of this
report are as follows:
SCHEDULES*:
II - Valuation and Qualifying Account - Years Ended June 30,
1996, 1995 and 1994
*All other schedules are omitted because the required information is
inapplicable or the information is presented in the financial
statements and the related notes.
(B) Reports on Form 8-K: None
(C) Exhibits: see Index to Exhibits, pages 37-38
35
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PEERLESS MFG. CO.
(Registrant)
By: /s/ SHERRILL STONE
--------------------------------------
Sherrill Stone, Chairman,
President, and Chief Executive
Officer
Date: September 27, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date:
September 27, 1995 /s/ SHERRILL STONE
--------------------------------------
Sherrill Stone, Chairman of the
Board, President, Director and
Chief Executive Officer
September 27, 1995 /s/ KENT J. VAN HOUTEN
--------------------------------------
Kent J. Van Houten, Treasurer,
Principal Financial Officer and
Principal Accounting Officer
September 27, 1995 /s/ DONALD A. SILLERS, JR.
--------------------------------------
Donald A. Sillers, Jr., Director
September 27, 1995 /s/ J. V. MARINER
--------------------------------------
J. V. Mariner, Director
September 27, 1995 /s/ BERNARD S. LEE
--------------------------------------
Bernard S. Lee, Director
September 27, 1995 /s/ D. D. BATTERSHELL
--------------------------------------
D. D. Battershell, Director
36
<PAGE> 39
INDEX TO EXHIBITS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 15
FINANCIAL STATEMENT SCHEDULES:
II Valuation and Qualifying Accounts - Years
Ended June 30, 1996, 1995 and 1994 (included in Item 8) 33
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).
37
<PAGE> 40
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).
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) Loan Agreement, dated as of December 14, 1993, between
NationsBank of Texas, N.A. and the Company (filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by
reference).
10(g) Second Amended and Restated Loan Agreement, dated as of February
13, 1995, by and between NationsBank of Texas, N.A. and the
Company*
10(h) Third Amended and Restated Loan Agreement, dated as of December
12, 1995, by and between NationsBank of Texas, N.A. 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
38
<PAGE> 1
EXHIBIT 10(g)
NATIONSBANK OF TEXAS, N.A.
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
This Second Amended and Restated Loan Agreement (the "Agreement")
dated as of February 13, 1995, 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 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 75354
C. HAZARDOUS MATERIALS. Hazardous Materials include all
materials defined as hazardous wastes or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
D. LOAN(S). Loan(s) means collectively any and all loans
heretofore or hereafter made by Bank to the Borrower.
E. 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.
F. 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) a loan
or loans to Borrower in the aggregate principal amount of $5,000,000. The
obligation to repay the loan is evidenced by a promissory note or notes dated
February 13, 1995 (the promissory note or notes together with any other
promissory notes heretofore or hereafter executed by Borrower in favor of Bank
and 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.
B. 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.
C. USAGE FEE. Borrower will pay hereafter on February
13, 1995 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.
- 1 -
<PAGE> 2
D. LETTER OF CREDIT SUBFEATURE. As a subfeature under
the Line, Bank may from time to time up to and including December 12, 1995,
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 $5,000,000. No
Letter of Credit shall have an expiration date subsequent to December 12, 1995
unless 100% secured by a NationsBank CD or 105% secured by the cash value of
life insurance on Don Sillers. 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 Borrower's deposit account with Bank for the amount
of such draft.
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.
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
Document 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 fee and clear of hens, 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.
- 2 -
<PAGE> 3
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 June 30, 1994. To the best of Borrower's knowledge, 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 75354
J. ENVIRONMENTAL MATTERS. Environmental Law Compliance.
The conduct of Borrower's business operations do not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency and any applicable local or state law,
rule, regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials and 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 Borrower's
business operations within five (5) days of the request therefore.
K. CONTINUATION OF REPRESENTATION 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 future
advance under any Loan.
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 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 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 financial statements (including a
balance sheet and profit and loss statement) of Borrower for each quarter of
each fiscal year of Borrower, within 30 days after the close of each such
period.
- 3 -
<PAGE> 4
iii. Furnish to Bank promptly such additional information, reports
and statements respecting the business operations and financial condition of
Borrower from time to time, as Bank may reasonably request.
B. 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, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and with respect to insurance on the Collateral, to
contain a mortgagee clause naming Bank as a loss payee or an additional insured
(as applicable) as its interest may appear 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.
C. 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.
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 financial condition or
operations, the Collateral, 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.
E. 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.
F. 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.
G. NOTIFICATION OF ENVIRONMENTAL CLAIMS. Borrower shall
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.
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):
A. 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, or transfer control or
ownership of the Borrower or from or acquire any subsidiary.
B. LIENS. Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its assets, except in favor of
Bank, or fail to promptly pay when due all lawful claims, whether for labor,
materials or otherwise.
- 4 -
<PAGE> 5
C. INVESTMENTS. Make an investment in 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
in subsidiaries to exceed $1,700,000 at any time.
D. EXTENSIONS OF CREDIT. Make any loan or advance to any
individual, partnership, corporation or other entity. Borrower may make loans
and/or advances to subsidiaries, provided however that such loans and advances
to subsidiaries shall not exceed an aggregate of $1,700,000 at any time.
E. 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 business, and except for existing
indebtedness disclosed to Bank in writing and acknowledged by Bank prior to the
date of this Agreement.
F. 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 it shall default in the payment of
any amount due and owing under the Loans 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, mortgage, assignment or other contract securing or
evidencing payment of any indebtedness 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 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.
1819 Walnut Hill Lane
Dallas, Texas 75354
Bank: NationsBank of Texas, N.A.
Brian Gordon
901 Main Street, 7th Floor
P.O. Box 831000
Dallas, Texas 75283-1000
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 hand delivery, upon delivery;
B. 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.
9. COSTS, EXPENSES AND ATTORNEY'S 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), incurred by Bank in connection
with (a) negotiation and preparation of this Agreement and each of the Loan
Documents, and (b) Bank's continued administration thereof.
- 5 -
<PAGE> 6
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 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 unenforceability 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. 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 effect so
long as the Loan is outstanding or the obligation of the Bank to make any
advances under the Line shall not have expired.
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<PAGE> 7
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 AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, 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 JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (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 THIS AGREEMENT'S EXECUTION 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 AGREEMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT;
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
AGREEMENT. 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 OF CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
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<PAGE> 8
12. NOTICE OF FINAL AGREEMENT:
THIS WRITTEN LOAN AGREEMENT 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.
Dated: 2/13/95
NationsBank of Texas, N.A. Borrower:
By: /s/ BRIAN GORDON Peerless Mfg. Co.
-----------------------------------
By: /s/ GENE B. ELROD, CFO
Brian Gordon, Assistant Vice President ---------------------------------
Gene B. Elrod, CFO
------------------------------------
Print Name and Title
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<PAGE> 1
EXHIBIT 10(h)
NATIONSBANK OF TEXAS, N.A.
THIRD AMENDED AND RESTATED
LOAN AGREEMENT
This Third Amended and Restated Loan Agreement (the "Agreement") dated
as of December 12, 1995, 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 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. HAZARDOUS MATERIALS. Hazardous Materials include all
materials defined as hazardous wastes or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
D. LOAN(S). Loan(s) means collectively any and all loans
heretofore or hereafter made by Bank to the Borrower.
E. 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.
F. 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) a loan
or loans to Borrower in the aggregate principal amount of $5,000,000. The
obligation to repay the loan is evidenced by a promissory note or notes dated
December 12, 1995 (the promissory note or notes together with any other
promissory notes heretofore or hereafter executed by Borrower in favor of Bank
and 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.
B. 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.
C. USAGE FEE. Borrower will pay hereafter on December
12, 1995 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.
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<PAGE> 2
D. LETTER OF CREDIT SUBFEATURE. As a subfeature under
the Line, Bank may from time to time up to and including December 12, 1996,
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 $5,000,000. No
Letter of Credit shall have an expiration date subsequent to December 12, 1996
unless 100% secured by a NationsBank CD or 105% secured by the cash value of
life insurance on Don Sillers. 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 Borrower's deposit account with Bank for the amount
of such draft.
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 km
be power and authority to own is property and to carry on its business in each
jurisdiction in which Borrower 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 bay 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.
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<PAGE> 3
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 June 30, 1995. To the best of Borrower's knowledge, 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 MATTERS. Environmental Law Compliance.
The conduct of Borrower's business operations do not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency and any applicable local or state law,
rule, regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials and 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 Borrower's
business operations within five (5) days of the request therefore.
K. CONTINUATION OF REPRESENTATION 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 future
advance under any Loan.
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 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 the Bank consolidated 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 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.
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<PAGE> 4
iii. Furnish to Bank promptly such additional information, reports
and statements respecting the business operations and financial condition of
Borrower from time to time, as Bank may reasonably request.
B. 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, liability insurance, all to be with such companies and in such
amounts as are satisfactory to Bank and with respect to insurance on the
Collateral, to contain a mortgagee clause naming Bank as a loss payee or an
additional insured (as applicable) as its interest may appear 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.
C. 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.
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 financial condition or
operations, the Collateral, 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.
E. 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.
F. 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.
G. NOTIFICATION OF ENVIRONMENTAL CLAIMS. Borrower shall
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.
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):
A. 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, or transfer control or
ownership of the Borrower or from or acquire any subsidiary.
B. LIENS. Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its assets, except in favor of
Bank, or fail to promptly pay when due all lawful claims, whether for labor,
materials or otherwise.
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<PAGE> 5
C. INVESTMENTS. Make an investment in any subsidiary,
including but not limited to Peerless International N.V., Peerless Europe B.V.,
Peerless Mfg. Co. Singapore, and Peerless Europe Ltd, that would cause the
aggregate amount of investments in subsidiaries to exceed $1,700,000 at any
time.
D. EXTENSIONS OF CREDIT. Make any loan or advance to any
individual, partnership, corporation or other entity. Borrower may make loans
and/or advances to subsidiaries, provided however that such loans and advances
to subsidiaries shall not exceed an aggregate of $1,700,000 at any time.
E. 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 business, and except for existing
indebtedness disclosed to Bank in writing and acknowledged by Bank prior to the
date of this Agreement.
F. 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 it shall default in the payment of
any amounts due and owing under the Loans 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, mortgage, assignment or other contract securing or
evidencing payment of any indebtedness 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 as well as 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
Bank: NationsBank of Texas, N.A.
Brian Gordon
901 Main Street 7th Floor
P.O. Box 831000
Dallas, Texas 75283-1000
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 hand delivery, upon delivery;
B. 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.
9. COSTS, EXPENSES AND ATTORNEY'S 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), incurred by Bank in connection
with (a) negotiation and preparation of this Agreement and each of the Loan
Documents, and (b) Bank's continued administration thereof.
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<PAGE> 6
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 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 unenforceability 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. 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 effect so
long as the Loan is outstanding or the obligation of the Bank to make any
advances under the Line shall not have expired.
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<PAGE> 7
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 AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, 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 JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (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 THIS AGREEMENT'S EXECUTION 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 AGREEMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT;
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
AGREEMENT. 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 OF CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
- 7 -
<PAGE> 8
12. NOTICE OF FINAL AGREEMENT:
THIS WRITTEN LOAN AGREEMENT 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.
Dated: 12/22/95
NationsBank of Texas, N.A. Borrower
By: /s/ BRIAN GORDON Peerless Mfg. Co.
-----------------------------------
By: /s/ SHERRILL STONE
Brian Gordon, Assistant Vice President --------------------------------
SHERRILL STONE
CHAIRMAN & CHIEF EXECUTIVE OFFICER
-----------------------------------
Print Name and Title
- 8 -
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