<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period
Ended March 31, 1997 Commission File Number 0-5214
Peerless Mfg. Co.
________________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 75-0724417
________________________________________________________________________
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) identification No.)
2819 Walnut Hill Lane Dallas, Texas 75229
P. O. Box 540667 Dallas, Texas 75354
________________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 357-6181
None
________________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceeding 12 months (or for shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 14, 1997
_____________________________ _________________________________
Common stock, $1.00 par value 1,451,992 Shares
<PAGE>
PEERLESS MFG. CO.
INDEX
Page
Number
Part I: Financial Information _________
Condensed Consolidated Balance Sheets for the
periods ended March 31, 1997 and June 30, 1996 3
Condensed Consolidated Statements of Earnings for the
three and nine months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended March 31, 1997 and 1996 5
Notes to the Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
Part II: Other Information 10
Exhibits 11 - 12
Signatures 13
2 of 13
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<C> <C>
MARCH 31, JUNE 30,
1997 1996
<S> ------------ ------------
ASSETS (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $658,420 $2,082,329
Short term investments 299,511 246,659
Accounts receivable 11,620,325 8,700,762
Inventories:
Raw materials 1,263,567 1,094,774
Work in process 2,820,299 2,757,798
Finished goods 215,984 286,393
Deferred income taxes 226,214 226,214
Other 638,339 620,072
----------- -----------
Total current assets 17,742,659 16,015,001
Property,plant and equipment-net 1,504,724 1,213,859
Property held for investment-net 906,982 948,775
Other assets 403,189 453,390
----------- -----------
$20,557,554 $18,631,025
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $1,145,550 $0
Accounts payable-trade 5,706,246 4,329,645
Advance payments from customers 434,130 435,549
Commissions payable 944,291 566,766
Accrued liabilities 958,619 1,332,441
----------- -----------
Total current liabilities 9,188,836 6,664,401
Deferred income taxes 86,768 86,768
Stockholders' equity:
Common stock-authorized 4,000,000 shares of $1 par
value; issued and outstanding, 1,455,992 shares at
March 31, 1997 and 1,446,742 at June 30, 1996 1,455,992 1,446,742
Additional paid-in capital 2,572,441 2,489,879
Unamortized value of restricted stock issue (74,013) (33,750)
Cumulative foreign currency translation adjustment (65,443) 23,842
Retained earnings 7,392,973 7,953,143
----------- -----------
11,281,950 11,879,856
----------- -----------
$20,557,554 $18,631,025
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
3 of 13
</TABLE>
<PAGE>
<TABLE>
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
March 31, March 31,
-------------------------- --------------------------
<C> <C> <C> <C>
1997 1996 1997 1996
<S> ---------- ---------- ---------- ----------
Net sales $14,826,299 $8,625,252 $32,102,952 $23,932,261
Cost of goods sold 11,391,915 5,865,651 23,519,214 17,119,929
---------- ---------- ---------- ----------
Gross profit 3,434,384 2,759,601 8,583,738 6,812,332
Operating expenses
Marketing and engineering 2,757,240 1,926,270 7,103,733 5,636,403
General and administrative 486,248 420,649 1,386,795 1,093,595
---------- ---------- ---------- ----------
Operating earnings(loss) 190,896 412,682 93,210 82,334
Other income(expense)
Interest (11,266) 3,936 (263) 34,048
Sundry (66,371) 84,163 116,370 52,924
---------- ---------- ---------- ----------
(77,637) 88,099 116,107 86,972
---------- ---------- ---------- ----------
before Federal Income Tax 113,259 500,781 209,317 169,306
Federal Income Tax
Current 35,370 155,670 43,195 38,084
Deferred 0 0 0 0
---------- ---------- ---------- ----------
35,370 155,670 43,195 38,084
---------- ---------- ---------- ----------
Net earnings(loss) $77,889 $345,111 $166,122 $131,222
========== ========== ========== ==========
Earnings(loss) per common share $0.05 $0.24 $0.11 $0.09
========== ========== ========== ==========
Weighted average number of common
shares outstanding 1,455,298 1,446,742 1,454,494 1,446,742
========== ========== ========== ==========
Cash dividend per common share $0.125 $0.125 $0.250 $0.250
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these statements.
4 of 13
</TABLE>
<PAGE>
<TABLE>
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
March 31,
-------------------------
<C> <C>
1997 1996
<S> ------------ ------------
Cash flows from operating activities:
Net earnings(loss) from operating activities $166,122 $131,222
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 244,305 228,866
Other 39,988 47,518
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (2,919,563) (1,537,940)
Inventories (160,885) (1,003,372)
Other current assets (18,281) (35,164)
Other assets 49,126 231,037
Increase (decrease) in:
Accounts payable 1,376,601 1,184,761
Commissions payable 377,525 (60,306)
Advance payments from customers (1,419) 285,207
Accrued liabilities (554,571) (86,297)
---------- ----------
(1,567,175) (745,690)
---------- ----------
Net cash (used in) provided by continuing operations (1,401,053) (614,468)
Cash flows from investing activities:
Net purchases of short term investments (52,852) 343,805
Purchase of equipment net of disposals (480,741) (62,174)
---------- ----------
Net cash used in investing activities (533,593) 281,631
Cash flows from financing activities:
Dividends paid (545,529) (542,528)
Net borrowing 1,145,550 650,000
---------- ----------
Net cash used in financing activities 600,021 107,472
Effect of exchange rate on cash (89,285) (13,680)
---------- ----------
Net increase (decrease) in cash
and cash equivalents (1,423,910) (239,045)
Cash and cash equivalents at beginning of period 2,082,329 961,747
---------- ----------
Cash and cash equivalents at end period $658,420 $722,702
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
5 of 13
</TABLE>
<PAGE>
PEERLESS MFG. CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments,
consisting of only the normal recurring accruals, necessary
to present fairly its financial position as of March 31,
1997, and June 30, 1996 and the results of operations and
cash flows for the nine months ended March 31, 1997 and
1996.
2. The results for the interim periods are not necessarily
indicative of the results to be expected for the full year.
Peerless Mfg. Co. designs and manufactures custom contracted
pressure vessels and other products to customer
specifications, sales of which are obtained by competitive
bids and may result in material sales and profitability
increases or decreases when comparing interim periods
between years. The Company generally recognizes sales of
custom-contracted products at the completion of the
manufacturing process, which is normally less than one year.
The percentage-of-completion method is used for significant
long-term contracts.
3. The adjusted backlog of uncompleted orders and letters of
intent at March 31, 1997 was approximately $22,200,000 as
compared to a March 31, 1996 backlog of $17,600,000. Of the
$22,200,000 backlog at March 31, 1997, approximately 47% is
scheduled to be completed in the current fiscal year.
4. The Company has a formal agreement with two banks for an
aggregate of $7,500,000 continuing lines of credit,
renewable annually. Under the terms of these agreements,
loans bear interest at the prevailing prime rate and the
Company is required to pay 1/4 of 1% per annum on the unused
portion of the facility. The Company had $1,145,550
outstanding under these lines at March 31, 1997, and
$650,000 outstanding at March 31, 1996.
5. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited, Peerless
International N.V. and its wholly-owned foreign subsidiary,
Peerless Europe B.V. All significant intercompany accounts
and transactions have been eliminated in the consolidation.
6. The FASB has issued Statement of Financial Accounting
Standards No. 128 Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early
adoption of the new standard is not permitted. The adoption
of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the
financial statements.
6 of 13
<PAGE>
Item 2. Management's discussion and analysis of financial
-------------------------------------------------
condition and results of operations.
------------------------------------
PEERLESS MFG. CO.
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
statements are subject to inherent risks and uncertainties, some
of which cannot be predicted or quantified. Actual results could
differ materially from those projected in the forward-looking
statements as a result of changes in market conditions, increased
competition, or other factors.
Capital Resources and Liquidity
- - -------------------------------
As a general policy, the Company maintains corporate liquidity at
a level adequate to support existing operations and planned
internal growth, and to allow continued operations through
periods of unanticipated adversity.
Cash and equivalents decreased $1,423,910 from June 30, 1996.
Company operations used $1,401,053 of cash during the nine months
ended March 31, 1997. Additional uses of cash for the nine
months ended March 31, 1997 included expenditures of $480,741 for
fixed asset acquisitions and $545,529 for dividend payments.
As indicated, operations used $1,401,053 of cash in the nine
months ended March 31, 1997. Funds used in operations were
primarily from increases in accounts receivable of $2,919,563,
inventories of $160,885, accrued liabilities and advances from
customers of $554,571 and $1,419 respectively. These uses of
cash were offset by provisions in accounts payable of $1,376,601,
commissions payable of $377,525 and other assets of $30,845.
The Company has historically and continues to finance plant
expansion, equipment purchases, acquisitions and working capital
requirements primarily through the retention of earnings, which
is reflected by the absence of long-term debt. In addition to
retained earnings, the Company has from time to time used two
short-term bank credit lines totaling $7,500,000 to supplement
working capital. At March 31, 1997 the Company had currently
drawn down $1,145,550 on these two lines of credit. The Company
has no material commitments for capital expenditures other than
its established program of maintaining existing plant and
equipment.
7 of 13
<PAGE>
Changes - Third Quarter of Fiscal 1997 vs. Third Quarter 1996
- - --------------------------------------------------------------
Results of 3rd Qtr. Nine Months
Operations 1997 vs.1996 1997 vs. 1996
- - --------------------- --------------------- ---------------------
Sales $6,201,047 increase $8,170,691 increase
71.9% 34.1%
Sales for the three months ended March 31, 1997 compare favorably
to sales for the three months ended March 31, 1996 largely
reflective of a $5,000,000 shipment to a international customer.
Sales for the nine months ended March 31, 1997 compare favorably
to sales for the nine months ended March 31, 1996.
- - --------------------- --------------------- ---------------------
Gross Profit $674,783 increase $1,771,406 increase
24.5% 26.0%
Gross profit for the three months ended March 31, 1997 compare
favorably to gross profit for the three months ended March 31,
1996. Gross profit as a percent of sales was 23.2% for the three
months ended March 31, 1997 vs. 32.0% for the three months ended
March 31, 1996. Though gross profit increased by $674,783 for
the quarter, as indicated above, the gross profit percentage on
sales declined from 32.0% to 23.2% and is primarily related to
adverse affects of a cost overrun related to a substantial
international project in the Company's environmental equipment
division.
- - --------------------- --------------------- ---------------------
Operating Expenses $893,569 increase $1,760,530 increase
38.0% 26.2%
Operating expenses for the three months ended March 31, 1997
increased $893,569 from the three months ended March 31, 1996.
This increase is primarily attributable to agent commissions,
engineering expenses and selling general & administrative
expenses of $389,515, $285,445 and $242,627 respectively. These
increases reflect the operating expenses to support the
additional sales as reflected above.
8 of 13
<PAGE>
3rd Qtr. Nine Months
1997 vs.1996 1997 vs. 1996
- - --------------------- --------------------- ---------------------
Other Income(Expense) $165,736 decrease $29,135 increase
The decrease in Other Income is largely reflective of the
$110,000 insurance proceeds received during the three months
ended March 31, 1996 for the excess of cost for refurbishment of
the Company's facilities, and a Foreign Currency Losses recorded
during the three months ended March 31, 1997 of approximately
$188,000, offset by additional Miscellaneous Income from rental
properties received during the three months ended March 31, 1997
of approximately $167,000.
- - --------------------- --------------------- ---------------------
Net Earnings (Loss) $267,222 decrease $34,900 increase
The decrease in net earnings for the three months ended March 31,
1997, when compared to the equivalent period in the preceding
fiscal year, reflects a cost overrun principally related to a
substantial international project in the Company's environmental
equipment division.
9 of 13
<PAGE>
PEERLESS MFG. CO.
PART II
OTHER INFORMATION
Item 1 -- Legal proceedings
- - ----------------------------
In March 1997 the Company entered into a final agreement
with Senior Engineering Company ("Senior"), settling
effective April 1, 1997 the action the Company filed against
Senior in Peerless Mfg. Co. v. Senior Engineering Company on
November 13, 1995, in the United States District Court for
the Northern District of Texas. Pursuant to the settlement
agreement, the Company and Senior have established a
strategic alliance to cooperate in the marketing and sales of
technology and equipment to the nuclear power generation
industry.
Item 9 -- Exhibits and Reports -- Form 8-K
- - -------------------------------------------
There were no reports on Form 8-K for the three months ended
March 31, 1997.
10 of 13
<PAGE>
EXHIBITS:
3(a) The Company's Articles of Incorporation, as amended to
date (filed as Exhibit 1 to the Company's Registration
Statement on Form S-1, Registration No. 2-35767, and
amended by the Company's December 12, 1990 Form 8
amending Exhibit 3(a) to the Company's Annual Report on
Form 10-K dated June 30, 1990, and incorporated herein
by reference).
3(b) The Company's Bylaws, as amended to date (filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-
K, dated June 30, 1993, and incorporated herein by
reference).
10(a) Incentive Compensation Plan effective January 1, 1981,
as amended January 23, 1991 (filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K, dated June
30, 1991, and incorporated herein by reference).
10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co.,
effective December 13, 1985 (filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K, dated June
30, 1993, and incorporated herein by reference).
10(c) 1991 Restricted Stock Plan for Non-Employee Directors
of Peerless Mfg. Co., adopted subject to shareholder
approval May 24, 1991, and approved by shareholders
November 20, 1991 (filed as Exhibit 10(e) to the
Company's Annual Report on Form 10-K dated June 30,
1991, and incorporated herein by reference).
10(d) Employment Agreement, dated as of April 29, 1994, by
and between the Company and Sherrill Stone (filed as
Exhibit 10(d) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
11 of 13
<PAGE>
10(e) Agreement, dated as of April 29, 1994, by and between
the Company and Sherrill Stone (filed as Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated
herein by reference).
10(f) Fifth Amended and Restated Loan Agreement, dated as of
February 3, 1997, between NationsBank of Texas, N.A.
and the Company.*
10(g) Loan Agreement, dated as of March 7, 1997, by and
between Texas Commerce Bank National Association and
the Company.*
21 Subsidiaries of the Company (filed as Exhibit 21 to the
Company's Annual Report on Form 10-K dated June 30,
1993, and incorporated herein by reference).
27 Financial Data Schedule.*
*Filed herewith
12 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
PEERLESS MFG. CO.
Dated: May 14, 1997
/s/ Sherrill Stone /s/ Kent J. Van Houten
By: Sherrill Stone By: Kent J. Van Houten
Chairman, President and Secretary - Treasurer and
Chief Executive Officer Chief Financial Officer
13 of 13
<PAGE>
NationsBank of Texas, N.A.
FIFTH AMENDED AND RESTATED LOAN AGREEMENT
This Loan Agreement ("Agreement") dated as of February 3, 1997,
by and between NationsBank of Texas, N.A., a national banking
association ("Bank") and the Borrower described below.
In consideration of the Loan or Loans and Letters of Credit
described below and the mutual covenants and agreements
contained herein, and intending to be legally bound hereby,
Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other
terms defined herein, the following terms shall have the meaning
set forth with respect thereto:
A. Borrower: Peerless Mfg. Co., a Texas corporation
B. Borrower's Address: 2819 Walnut Hill Lane Dallas, Texas
75229
C. Collateral Account. Collateral Account means each deposit
account in which Bank has a perfected, first priority Lien, not
subject to any claim of any other Person.
D. Collateral Policy. Collateral Policy means each
effective insurance policy insuring the life of Don Sillars in
which Bank has a perfected, first priority Lien in the cash
value and all death benefits, together with such other
assurances as Bank may require to evidence its interest in such
policy.
E. Compliance Certificate. Compliance Certificate mean a
certificate in the form of Exhibit B.
F. Current Assets. Current Assets means the aggregate amount
of all the assets of the Borrower and its Subsidiaries, on a
consolidated basis, assets which would, in accordance with
GAAP, properly be defined as current assets.
G. Current Liabilities. Current Liabilities means the
aggregate amount of all current liabilities of the
Borrower and its Subsidiaries, on a consolidated basis, as
determined in accordance with GAAP, but in any event shall
include all liabilities except those having a maturity date which
is more than one year from the date as of which such
computation is being made, plus the amount equal to the
difference (but not less than zero) of (i) the aggregate
undrawn amount of all Letters of Credit, minus (ii) the sum
of (a) the aggregate amount in each Collateral Account, plus
(b) the aggregate cash value of each Collateral Policy.
H. Hazardous Materials. Hazardous Materials include all
materials defined as hazardous materials or substances under any
local, state or federal environmental laws, rules or
regulations, and petroleum, petroleum products, oil and
asbestos.
<PAGE>
I. Investment. Investment means any acquisition of all
or substantially all assets of any Person, or any direct or
indirect purchase or other acquisition of, or a beneficial
interest in, capital stock or other securities of any other
Person, or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing
accounts, and similar expenditures in the ordinary course of
business), or capital contribution to or investment in any
other Person, including without limitation the incurrence or
sufferance of Debt or accounts receivable of any other Person
that are not current assets or do not arise from sales to that
other Person in the ordinary course of business.
J. Lien. Lien means any mortgage, pledge, security
interest, encumbrance, lien, or charge of any kind, including
without limitation any agreement to give or not to give any
of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the
filing of or agreement to give any financing statement or other
similar form of public notice under the laws of any jurisdiction.
K. Loan. Any loan described in Section 2 hereof and any
subsequent loan which states that it is subject to this
Agreement.
L. Loan Documents. Loan Documents means this Agreement and any
and all promissory notes executed by Borrower in favor of
Bank, each application for issuance of a Letter of Credit
and all other documents, instruments, guarantees,
certificates and agreements executed and/or delivered by
Borrower, any guarantor or third party in connection with any
Loan or Letter of Credit.
M. Net Income. Net Income means net profit after taxes of
the Borrower and its Subsidiaries, on a consolidated basis,
determined in accordance with GAAP.
N. Net Loss. Net Loss means net loss after taxes of the
Borrower and its Subsidiaries, on a consolidated basis,
determined in accordance with GAAP.
O. Person. Person means an individual, partnership, joint
venture, corporation, trust, tribunal, unincorporated
organization, and government, or any department, agency,
or political subdivision thereof.
P. Subsidiary. Subsidiary means as to any Person, a
corporation, partnership or other entity of which shares of
stock or other ownership interests having ordinary voting
power (other than such stock or such other ownership
interests having such power only by reason of the happening of
a contingency) to elect a majority of the board of directors or
other managers of such corporation, partnership, or other entity
are at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more
intermediaries, or both by such Person.
Q. TCB Agreement. TCB Agreement means the Loan Agreement dated
as of March 7, 1997, between Borrower and Texas Commerce
<PAGE>
Bank National Association.
R. Accounting Terms. All accounting terms not specifically
defined or specified herein shall have the meanings generally
attributed to such terms under generally accepted accounting
principles ("GAAP"), as in effect from time to time, consistently
applied, with respect to the financial statements referenced in
Section 3.H. hereof.
2. LOANS.
A. Loan. Bank hereby agrees to make (or has made) one or more
loans to Borrower in the aggregate principal face amount of
$5,000,000 (as such amount may be reduced, the "Line"),
provided, the aggregate unpaid principal of all loans shall
not at any time exceed the difference between (i) the Line,
minus (ii) the undrawn amount of all outstanding Letters of
Credit. The obligation to repay the loans is evidenced by the
promissory note dated February 3, 1997 (the promissory
note or notes together with any and all renewals,
extensions or rearrangements thereof being hereafter
collectively referred to as the "Note") having a maturity date,
repayment terms and interest rate as set forth in the Note (a
copy of which is attached as Exhibit A).
i. Revolving Credit Feature. The Note provides for a revolving
line of credit under which Borrower may from time to time,
borrow, repay and re-borrow funds.
ii. Usage Fee. Borrower will pay hereafter on February 3, 1997
and on the last day of each quarter for the period from and
including the date the Line was established to and including
the maturity date of the Line, a usage fee at a rate per annum
of .25% of the average daily unused portion of the Line during
such period. The Borrower may at any time upon written notice
to the Bank permanently reduce the amount of the Line at which
time the obligation of the Borrower to pay a usage fee shall
thereupon correspondingly be reduced.
iii. Letter of Credit Subfeature. As a subfeature under the
Line, Bank may from time to time up to and including December
11, 1998, issue letters of credit for the account of Borrower
(each, a "Letter of Credit" and collectively, "Letters of
Credit"); provided, however, that the form and substance of
each Letter of Credit shall be subject to approval by Bank in its
sole discretion; and provided further that the aggregate
undrawn amount of all outstanding Letters of Credit shall not
at any time exceed the difference between (a) the Line, minus
(b) the aggregate unpaid principal amount of all Loans. No
Letter of Credit shall have an expiry subsequent to December 11,
1998 or 366 or more days after the issuance date; provided
Borrower may request that Bank issue Letters of Credit having
an expiry after December 11, 1998 or an expiry 366 or more
days after the issuance date ("Extended Expiry LC"), if the
undrawn amount of such Extended Expiry LC plus the aggregate
undrawn amount of all other Extended Expiry LCs does not
exceed an amount equal to the sum of (a) the amount of each
Collateral Account plus (b) 95% of the cash value of each
Collateral Policy. The undrawn amount of all Letters of Credit
<PAGE>
plus any and all amounts paid by Bank in connection with
drawings under any Letter of Credit for which the Bank has not
been reimbursed shall be reserved under the Line and shall
not be available for advances thereunder. Each draft paid by
Bank under a Letter of Credit shall be deemed an advance under
the Line and shall be repaid in accordance with the terms of
the Line; provided however, that if the Line is not available
for any reason whatsoever, at the time any draft is paid by
Bank, or if advances are not available under the Line in such
amount due to any limitation of borrowing set forth herein, then
the full amount of such drafts shall be immediately due and
payable, together with interest thereon, from the date such
amount is paid by Bank to the date such amount is fully repaid
by Borrower, at that rate of interest applicable to advances
under the Line. In such event, Borrower agrees that Bank, at
Bank's sole discretion may debit any Collateral Account or
Borrower's deposit accounts with Bank or obtain all or any of
the cash value of any Collateral Policy for the amount of such
draft. If at any time prior to December 12, 1997 the sum of (a)
the aggregate unpaid principal of the Loans, plus (b) the
aggregate undrawn amount of all outstanding Letters of Credit
exceeds the Line, Borrower shall immediately pay to Bank the
amount of such excess, together with accrued, unpaid interest
on the amount of such excess. If at any time after December
12, 1997 the aggregate undrawn amount of all Extended Expiry LCs
exceeds the sum of (a) the amount of each Collateral Account,
plus (b) 95% of the cash value of each Collateral Policy,
Borrower shall immediately deliver to Bank, for deposit into
a Collateral Account, an amount in cash equal to such excess.
Letters of Credit shall be priced at a rate of 1.5% per annum of
the face amount of the Letter of Credit, which fee is due
and payable on issuance of the Letters of Credit. Bank shall
send to Borrower notice of Bank's election to pursue any remedy
with respect to the Collateral Policy three days prior to
enforcing such remedy.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Texas
and has the power and authority to own its property and to
carry on its business in each jurisdiction in which Borrower
does business. Each Subsidiary of Borrower is a corporation,
duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized (as
indicated on Schedule 1) and has the power and authority to own
its property and to carry on its business in each jurisdiction
in which it does business.
B. Authority and Compliance. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur
and perform the obligations provided for therein, all of
which have been duly authorized by all proper and
necessary action of the Board of Directors of Borrower. No
consent or approval of any public authority or other third party
is required as a condition to the validity of any Loan Document,
and Borrower and each Subsidiary of Borrower is in compliance
with all laws and regulatory requirements to which it is
<PAGE>
subject.
C. Binding Agreement. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally
binding obligations of Borrower, enforceable in accordance with
their terms.
D. Litigation. There is no proceeding involving Borrower or
any Subsidiary of Borrower pending or, to the knowledge of
Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as
disclosed to Bank in writing and acknowledged by Bank prior to
the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw,
stock provision, partnership agreement or other document
pertaining to the organization, power or authority of
Borrower or any Subsidiary of Borrower and no provision of
any existing agreement, mortgage, indenture or contract
binding on Borrower or any Subsidiary of Borrower or
affecting its respective property, which would conflict with or
in any way prevent the execution, delivery or carrying out of the
terms of this Agreement and the other Loan Documents.
F. Ownership of Assets. Borrower and each Subsidiary of
Borrower has good title to its respective assets, and its
respective assets are free and clear of Liens, except those
granted to Bank and as disclosed to Bank in writing prior to the
date of this Agreement.
G. Investments. Neither Borrower nor any Subsidiary of
Borrower has any Investments except as described on Schedule 1.
Schedule 1 is a complete and correct description of the name
and jurisdiction of organization of each Subsidiary of
Borrower.
H. Taxes. All taxes and assessments due and payable by
Borrower and each Subsidiary of Borrower have been paid or are
being contested in good faith by appropriate proceedings and
Borrower and each Subsidiary of Borrower have filed all tax
returns which it is required to file.
I. Financial Statements. The financial statements of
Borrower heretofore delivered to Bank have been prepared in
accordance with GAAP applied on a consistent basis throughout
the period involved and fairly present Borrower's financial
condition as of the date or dates thereof, and there has been no
material adverse change in Borrower's financial condition or
operations since June 30, 1996. All factual information
furnished by Borrower to Bank in connection with this
Agreement and the other Loan Documents is and will be accurate
and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the
omission of any material fact necessary to make such information
not misleading.
J. Place of Business. Borrower's chief executive office is
located at:
<PAGE>
2819 Walnut Hill Lane Dallas, Texas 75229
K. Environmental. The conduct of Borrower's and each of
Borrower's Subsidiary's business operations and the condition of
Borrower's and each of Borrower's Subsidiary's property does not
and will not violate any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental
Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial
interpretation thereof relating primarily to the environment or
Hazardous Materials.
L. Continuation of Representations and Warranties.
All representations and warranties made under this Agreement
shall be deemed to be made at and as of the date hereof and at
and as of the date of any advance under any Loan and the
issuance of any Letter of Credit.
4. AFFIRMATIVE COVENANTS. Until full and final payment
and performance of all obligations of Borrower under the Loan
Documents, Borrower will, unless Bank consents otherwise in
writing (and without limiting any requirement of any other Loan
Document):
A. Financial Statements and Other Information. Maintain a
system of accounting satisfactory to Bank and in accordance with
GAAP applied on a consistent basis throughout the period
involved, permit Bank's officers or authorized representatives
to visit and inspect Borrower's books of account and other
records at such reasonable times and as often as Bank may
desire, and pay the reasonable fees and disbursements of
any accountants or other agents of Bank selected by Bank for
the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records
will be located at Borrower's chief executive office set forth
above. All financial statements called for below shall be
prepared in form and content acceptable to Bank and by
independent certified public accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank consolidated and consolidating
financial statements of Borrower for each fiscal year of
Borrower, within 90 days after the close of each such fiscal
year.
ii. Furnish to Bank consolidated and consolidating
financial statements (including a balance sheet and profit and
loss statement) of Borrower for each quarter of each fiscal
year of Borrower, within 45 days after the close of each such
period.
iii. Furnish to Bank a Compliance Certificate for (and executed
by an authorized representative of) Borrower concurrently with
and dated as of the date of delivery of each of the
financial statements as required in paragraphs i and ii above,
containing (a) a certification that the financial statements of
even date are true and correct and that the Borrower is not in
default under the terms of this Agreement, and (b) computations
<PAGE>
and conclusions, in such detail as Bank may request, with
respect to compliance with this Agreement, and the other Loan
Documents, including computations of all quantitative covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and
financial condition of Borrower and its Subsidiaries, from
time to time, as Bank may reasonably request.
B. Insurance. Maintain, and cause each Subsidiary of
Borrower to maintain, insurance with responsible insurance
companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar
businesses operating in the same vicinity, specifically to
include fire and extended coverage insurance covering all
assets, and liability insurance, all to be with such companies
and in such amounts as are satisfactory to Bank and
providing for at least 30 days prior notice to Bank of
any cancellation thereof. Satisfactory evidence of such
insurance will be supplied to Bank prior to funding under the
Loan(s) or issuance of the first Letter of Credit and 30 days
prior to each policy renewal.
C. Existence and Compliance. Maintain, and cause each
Subsidiary of Borrower to maintain, its existence, good standing
and qualification to do business, where required and comply
with all laws, regulations and governmental requirements
including, without limitation, environmental laws
applicable to it or to any of its property, business
operations and transactions.
D. Adverse Conditions or Events. Promptly advise Bank in
writing of (i) any condition, event or act which comes to its
attention that would or might materially adversely affect
Borrower's or any of Borrower's Subsidiary's financial
condition or operations or Bank's rights under the Loan
Documents, (ii) any litigation filed by or against Borrower
or any Subsidiary of Borrower, (iii) any event that has
occurred that would constitute an event of default under any Loan
Documents and (iv) any uninsured or partially uninsured loss
through fire, theft, liability or property damage.
E. Taxes and Other Obligations. Pay, and cause each
Subsidiary of Borrower to pay, all of its taxes, assessments
and other obligations, including, but not limited to taxes,
costs or other expenses arising out of this transaction, as the
same become due and payable, except to the extent the same are
being contested in good faith by appropriate proceedings in a
diligent manner.
F. Maintenance. Maintain, and cause each Subsidiary of
Borrower to maintain, all of its tangible property in good
condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, trademarks,
privileges, permits, franchises, certificates and the like
necessary for the operation of its business.
G. Environmental. Immediately advise Bank in writing of (i)
any and all enforcement, cleanup, remedial, removal, or other
<PAGE>
governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local
laws, ordinances or regulations relating to any Hazardous
Materials affecting Borrower's or any of Borrower's
Subsidiary's business operations; and (ii) all claims made or
threatened by any third party against Borrower or any Subsidiary
of Borrower relating to damages, contribution, cost
recovery, compensation, loss or injury resulting from any
Hazardous Materials. Borrower shall immediately notify Bank of
any remedial action taken by Borrower or any Subsidiary of
Borrower with respect to Borrower's or any of Borrower's
Subsidiary's business operations. Borrower will not use or
permit, and will cause each Subsidiary of Borrower to not use or
permit, any other party to use any Hazardous Materials at any
of Borrower's or any of Borrower's Subsidiary's places of
business or at any other property owned by Borrower or any
Subsidiary of Borrower except such materials as are
incidental to Borrower's or any of Borrower's Subsidiary's
normal course of business, maintenance and repairs and which
are handled in compliance with all applicable environmental
laws. Borrower agrees to permit Bank, its agents,
contractors and employees to enter and inspect any of
Borrower's or any of Borrower's Subsidiary's places of
business or any other property of Borrower and each Subsidiary
of Borrower at any reasonable times upon three (3) days prior
notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to
insure that Borrower and each Subsidiary of Borrower are
complying with this covenant and Borrower shall reimburse
Bank on demand for the costs of any such environmental
investigation and audit. Borrower shall provide, and shall
cause each Subsidiary of Borrower to provide, Bank, its
agents, contractors, employees and representatives with
access to and copies of any and all data and documents
relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Borrower's and
each Subsidiary's of Borrower business operations within five
(5) days of the request therefore.
5. NEGATIVE COVENANTS. Until full and final payment and
performance of all obligations of Borrower under the Loan
Documents, Borrower will not, and will not permit any
Subsidiary of Borrower to, without the prior written consent of
Bank (and without limiting any requirement of any other Loan
Documents):
A. Financial Condition.
i. Borrower shall not permit the ratio of (a) Current Assets
divided by (b) Current Liabilities to be less than 1.0 to 1.0 as
at the last day of each calendar quarter.
ii. Borrower shall not permit
a) Net Income to be less than or equal to $0 for the nine
months ending on March 31, 1997. b) Net Income to be less than
or equal to $500,000 for the twelve months ending on June 30,
1997. c) Net Loss to be less than $0 by more than $300,000 for
the three months ending September 30, 1997.
<PAGE>
B. Investments. Make an Investment in or to any Person;
provided, Borrower may make Investments in the existing
Subsidiaries of Borrower identified on Schedule 1 if the
aggregate of all existing Investments in such Subsidiaries (as
disclosed on Schedule 1), plus all future Investments in such
Subsidiaries, does not exceed at any time $2,000,000.
C. Extensions of Credit. Make any loan or advance to any
Person; provided Borrower may make loans and/or advances to
Subsidiaries under the terms specified in Section "B.
Investments" above.
D. Transfer of Assets or Control. Sell, lease, assign or
otherwise dispose of or transfer any assets, except in the
normal course of its business, or enter into any merger or
consolidation.
E. Liens. Grant, suffer or permit any contractual or
noncontractual Lien on any of its assets, or fail to promptly pay
when due all lawful claims, whether for labor, materials or
otherwise; or agree with any Person to not grant any Lien on any
of its assets.
F. Borrowings. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety
or guarantor for the debt for another, or otherwise) other
than to Bank, except for normal trade debts incurred in the
ordinary course of Borrower's and each of Borrower's
Subsidiary's business, and except for (i) existing
indebtedness disclosed to Bank in writing and acknowledged by
Bank prior to the date of this Agreement and (ii) indebtedness
under the TCB Agreement.
G. TCB Agreement. Amend, modify or restate the TCB Agreement,
or any related agreement, as they exist on March 7, 1997.
H. Character of Business. Change the general character of
business as conducted at the date hereof, or engage in any type
of business not reasonably related to its business as presently
conducted.
6. DEFAULT. Borrower shall be in default under this Agreement
and under each of the other Loan Documents if any one or more
of the following shall occur for any reason whatsoever, whether
voluntary or involuntary, by operation of law, or otherwise:
A. Borrower shall fail to pay any principal, interest, fees or
other amounts payable under any Loan Document on the date due;
B. Any representation or warranty made or deemed made by
Borrower (or any of its officers or representatives) under or
in connection with any Loan Document shall prove to have been
incorrect or misleading in any material respect when made or
deemed made;
C. Borrower or any Subsidiary of Borrower shall fail to
perform or observe any term or covenant contained in any Loan
Document;
<PAGE>
D. Any Loan Document or provision thereof shall, for any
reason, not be valid and binding on Borrower or not be in full
force and effect, or shall be declared to be null and
void; the validity or enforceability of any Loan Document
shall be contested by Borrower; or Borrower shall deny that
it has any or further liability or obligation under any Loan
Document;
E. The occurrence of any event described in Section 9(e) or
(f) of the Note with respect to Borrower or any Subsidiary of
Borrower;
F. Borrower or any Subsidiary of Borrower shall fail to pay any
debt (other than debt under the Loan Documents) or obligations
in respect of capital leases in an aggregate amount of $50,000
or more when due; or Borrower or any Subsidiary of Borrower
shall fail to perform or observe any term or covenant
contained in any agreement or instrument relating to any such
debt, when required to be performed or observed, and such
failure can result in acceleration of the maturity of such debt;
G. Borrower or any Subsidiary of Borrower shall have any
final judgment(s) outstanding against it for the payment of
$50,000 or more, and such judgment(s) shall remain unstayed, in
effect, and unpaid for the period of time after which the
judgment holder may and may cause the creation of Liens against
or seizure of any of its property;
H. Borrower or any Subsidiary of Borrower shall be required
under any environmental law (i) to implement any remedial,
neutralization, or stabilization process or program, the cost
of which exceeds $50,000, or (ii) to pay any penalty, fine, or
damages in an aggregate amount of $50,000 or more;
I. Other than with respect to any Loan Document, Borrower or
any Subsidiary of Borrower shall fail to timely and properly
observe, keep or perform any term, covenant, agreement or
condition in any other loan agreement, promissory note,
security agreement, deed of trust, deed to secure debt,
mortgage, assignment or other contract securing or evidencing
payment of any indebtedness of Borrower or any Subsidiary
of Borrower to Bank or any affiliate or subsidiary of
NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If an event of default shall occur,
Bank shall have all rights, powers and remedies available under
each of the Loan Documents (including Section 11) as well as
all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any
party is required or may desire to give to any other party
under any provision of this Agreement must be in writing
delivered to the other party at the following address:
Borrower:
Peerless Mfg. Co. 2819 Walnut Hill Lane Dallas, Texas 75229
Attn: Kent Van Houten
<PAGE>
Bank:
NationsBank of Texas, N.A. 901 Main Street, 7th Floor P.O.
Box 831000 Dallas, Texas 75283-1000 Attn: Brian Gordon, Vice
President
or to such other address as any party may designate by written
notice to the other party. Each such notice, request and
demand shall be deemed given or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class
postage prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all costs and
expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house
counsel if permitted by applicable law), incurred by Bank in
connection with (a) negotiation and preparation of this
Agreement and each of the Loan Documents, and (b) all other
costs and attorneys' fees incurred by Bank for which Borrower
is obligated to reimburse Bank in accordance with the terms of
the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and
agree as follows, without limiting any requirement of any other
Loan Document:
A. Cumulative Rights and No Waiver. Each and every right
granted to Bank under any Loan Document, or allowed it by law or
equity shall be cumulative of each other and may be exercised in
addition to any and all other rights of Bank, and no delay in
exercising any right shall operate as a waiver thereof, nor
shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise
of any other right. Borrower expressly waives any
presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on
Borrower in any case shall, of itself, entitle Borrower to any
other or future notice or demand in similar or other
circumstances.
B. Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by
and interpreted in accordance with the laws of Texas and
applicable United States federal law.
C. Amendment. No modification, consent, amendment or waiver of
any provision of this Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be
in writing and signed by an officer of Bank, and then shall be
effective only in the specified instance and for the purpose
for which given. This Agreement is binding upon Borrower,
its successors and assigns, and inures to the benefit of Bank,
its successors and assigns; however, no assignment or other
<PAGE>
transfer of Borrower's rights or obligations hereunder shall be
made or be effective without Bank's prior written consent, nor
shall it relieve Borrower of any obligations hereunder. There is
no third party beneficiary of this Agreement.
D. Documents. All documents, certificates and other items
required under this Agreement to be executed and/or delivered to
Bank shall be in form and content satisfactory to Bank and its
counsel.
E. Partial Invalidity. The unenforceability or invalidity of
any provision of this Agreement shall not affect the
enforceability or validity of any other provision herein
and the invalidity or unenforceability of any provision of
any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it
may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the
contrary contained in Section 10(G), Borrower shall indemnify,
defend and hold Bank and its successors and assigns harmless
from and against any and all claims, demands, suits, losses,
damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions
contemplated hereby, including but not limited to actual or
threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due
to a release or alleged release of Hazardous Materials,
arising from Borrower's or any of Borrower's Subsidiary's
business operations, any other property owned by Borrower or any
Subsidiary of Borrower or in the surface or ground water
arising from Borrower's or any of Borrower's Subsidiary's
business operations, or gaseous emissions arising from
Borrower's or any of Borrower's Subsidiary's business
operations or any other condition existing or arising from
Borrower's or any of Borrower's Subsidiary's business operations
resulting from the use or existence of Hazardous Materials,
whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include,
but are not limited to, liability for damages resulting from
the personal injury or death of an employee of Borrower or any
Subsidiary of Borrower, regardless of whether Borrower of such
Subsidiary of Borrower has paid the employee under the
workmen' s compensation laws of any state or other similar
federal or state legislation for the protection of employees.
The term "property damage" as used in this paragraph includes,
but is not limited to, damage to any real or personal property
of Borrower or any Subsidiary of Borrower, Bank, and of any
third parties. Borrower's obligations under this paragraph
shall survive the repayment of the obligations of Borrower under
the Loan Documents and any deed in lieu of foreclosure or
foreclosure of any Deed to Secure Debt, Deed of Trust,
Security Agreement or Mortgage securing the obligations of
Borrower under the Loan Documents.
G. Survivability. All covenants, agreements, representations
and warranties made herein or in the other Loan Documents shall
survive the making of the Loan and the issuance of each Letter
<PAGE>
of Credit and shall continue in full force and effect so long
as the Loan or any Letter of Credit is outstanding or the
obligation of Bank to make any advances under the Line or issue
any Letter of Credit or honor any draft under any Letter of
Credit shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING
OUT OF OR RELATING TO THIS, INSTRUMENT, AGREEMENT OR DOCUMENT
OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING
ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE
STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE
OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE
SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE
CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR
LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY,
UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF
ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND
ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR (II) BE
A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR
(III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF
HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR
CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE
<PAGE>
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed under seal by their duly
authorized representatives as of the date first above written.
BORROWER: BANK:
PEERLESS MFG. CO. NATIONSBANK OF TEXAS, N.A.
By: /s/ Kent J. Van Houten By: /s/ Brian Gordon
Name: Kent J. Van Houten Name: Brian Gordon
Title: Chief Financial Officer Title: Vice President
Secretary/Treasurer
<PAGE>
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of March 7,
1997, by and between TEXAS COMMERCE BANK NATIONAL
ASSOCIATION a national banking association ("Bank") and the
Borrower described below. In consideration of the Loan or Loans
described below and the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, Bank
and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other
terms defined herein, the following terms shall have the meaning
set forth with respect thereto:
A. Borrower: Peerless Mfg. Co., a Texas Corporation
B. Borrower's Address:2819 Walnut Hill Lane, Dallas, Texas 75229
C. Current Assets. Current Assets means the aggregate amount
of all the assets of the Borrower and its Subsidiaries, on a
consolidated basis, assets which would, in accordance with GAAP,
properly be defined as current assets.
D. Current Liabilities. Current Liabilities means the
aggregate amount of all current liabilities of the
Borrower and its Subsidiaries, on a consolidated basis, as
determined in accordance with GAAP, but in any event shall
include all liabilities except those having a maturity date which
is more than one year from the date as of which such
computation is being made.
E. Hazardous Materials. Hazardous Materials include all
materials defined as hazardous materials or substances
under any local, state or federal environmental laws,
rules or regulations, and petroleum, petroleum products, oil
and asbestos.
F. Lien. Lien shall mean any mortgage, pledge, charge,
encumbrance, security interest, collateral assignment or other
lien or restriction of any kind, whether based on common law,
constitutional provision, statute or contract.
G. Loan. Any loan described in Section 2 hereof and any
subsequent loan which states that it is subject to this Loan
Agreement.
H. Loan Documents. Loan Documents means this Loan Agreement
and any and all promissory notes executed by Borrower in
favor of Bank and all other documents, instruments,
guarantees, certificates and agreements executed and/or
delivered by Borrower, any guarantor or third party in connection
with any Loan.
I. NationsBank Loan Documents means the Fifth Amended and
Restated Loan Agreement dated as of February 3, 1997, between
Borrower and NationsBank of Texas, N.A.("NationsBank") and
any and all promissory notes executed by Borrower in favor of
NationsBank and all other documents, instruments, guarantees,
certificates and agreements executed and/or delivered by
Borrower, any guarantor or third party in connection with any
loan to NationsBank.
J. Net Income. Net Income means net profit after taxes of the
Borrower and its Subsidiaries, on a consolidated basis,
determined in accordance with GAAP.
K. Net Loss. Net Loss means net loss after taxes of the
Borrower and its Subsidiaries, on a consolidated basis,
determined in accordance with GAAP.
<PAGE>
L. Obligations means all principal, interest and other
amountswhich are or become owing to Bank under this Note, any
Application or any other Loan Document.
M. Obligor means Borrower and any guarantor, surety,
co-signer, general partner or other person who may now or
hereafter be obligated to pay all or any part of the
Obligations.
N. Person means any individual, Corporation, trust,
unincorporated organization, Governmental Authority or any other
form of entity.
O. Proper Form means in form and substance satisfactory to the
Bank.
P. Subsidiary. Subsidiary means as to any Person, a
corporation, partnership or other entity of which shares of
stock or other ownership interests having ordinary voting
power (other than such stock or such other ownership interests
having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or
other managers of such corporation, partnership or other entity
are at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more
intermediaries, or both by such Person.
Q. Accounting Terms. All accounting terms not specifically
defined or specified herein shall have the meanings generally
attributed to such terms under generally accepted accounting
principles ("GAAP"), as in effect from time to time,
consistently applied, with respect to the financial statements
referenced in Section 3.H. hereof.
2. LOANS.
A. Before making any Loan or issuing any Letter of Credit, Bank
may require satisfaction of the following conditions precedent:
(1) Bank has received the following, each duly executed and in
form acceptable to Bank: (a) if requested by Bank, a Request
for Loan, substantially in the form of Exhibit A, not later than
one (1) Business Day before the date (which shall also be a
Business Day) of the proposed Loan; (b) such other documents as
Bank reasonably requires; and (c) in the case of Letters of
Credit, Bank's standard form Application for the Issuance of
an Irrevocable Standby Letter of Credit in form and
substance acceptable to Bank and its legal counsel (each
such application an "Application" and collectively,
"Applications") duly executed and delivered by Borrower or
Borrower and a Subsidiary, if applicable two (2) Business
Days, prior to the date on which the Letter of Credit is to
be issued; and (2) no Event of Default has occurred and is
continuing; and (3) making the Loan or the issuance of a
Letter of Credit is not prohibited by, and will not subject Bank
to any penalty or onerous condition under any legal
requirement as determined by Bank.
B. Loan. Bank hereby agrees to make (or has made) one or more
Loans to Borrower in the aggregate principal face amount of TWO
MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($2,500,000.00) (the "Commitment"). The Commitment shall be
reduced by an amount equal to the sum of: (a) the face amount of
all outstanding Letters of Credit; and (b) the amount of any
unreimbursed drawings or other amounts owing to the Bank under
<PAGE>
or in respect of any Letter of Credit or Application;
(items (a) and (b) are hereinafter collectively referred to as
the "L/C Obligations") such that, on any date, the sum of (1.)
all Loans outstanding on such date and (2.) all L/C
Obligations on such date, does not exceed the Commitment.. The
obligation to repay the Loans is evidenced by a promissory
note or notes dated March 7, 1997 (the promissory note or notes
together with any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred
to as the "Note") having a maturity date, repayment terms and
interest rate as set forth in the Note.
i. Revolving Credit Feature. The Loan provides for a revolving
line of credit (the "Line") under which Borrower may from time
to time, borrow, repay and re-borrow funds.
ii. Usage Fee. Borrower will pay hereafter on May 15, 1997
and on the same day of each quarter for the period from and
including the date the Line was established to and including
the maturity date of the Line, a usage fee at a rate per annum
of .25% of the average daily unused portion of the Line during
such period. The Borrower may at any time upon written notice
to the Bank permanently reduce the amount of the Line at which
time the obligation of the Borrower to pay a usage fee shall
thereupon correspondingly be reduced.
iii. Letter of Credit Subfeature. As a subfeature under the
Line, Bank may from time to time up to and including December
12, 1997, issue letters of credit for the account of Borrower
(each, a "Letter of Credit" and collectively, "Letters of
Credit"); provided, however, that Bank shall have received
an application ("Application" or "Applications")
substantially in the form of the Bank's standard application
therefor duly completed and executed by the Borrower in Proper
Form not less than two (2) Business Day(s) prior to the date on
which the Letter of Credit is to be issued; and provided further
that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed $2,500,000.00. No Letter
of Credit shall have an expiration date subsequent to December
12, 1998, unless 100% secured by a Bank CD. The undrawn
amount of all Letters of Credit plus any and all amounts
paid by Bank in connection with drawings under any Letter of
Credit for which the Bank has not been reimbursed shall be
reserved under the Commitment and shall not be available for
advances thereunder. Each draft paid by Bank under a Letter of
Credit shall be deemed an advance under the Line and shall be
repaid in accordance with the terms of the Line; provided
however, that if the Line is not available for any reason
whatsoever, at the time any draft is paid by Bank, or if
advances are not available under the Line in such amount due to
any limitation of borrowing set forth herein, then the full
amount of such drafts shall be immediately due and payable,
together with interest thereon, from the date such amount is
paid by Bank to the date such amount is fully repaid by
Borrower, at that rate of interest applicable to advances under
the Line. In such event, Borrower agrees that Bank, at
Bank's sole discretion may debit Borrower's deposit account
with Bank for the amount of such draft. Letters of Credit
shall be priced at a rate of 1.00% per annum of the face amount
<PAGE>
of the Letter of Credit.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Bank as follows:
A. Good Standing. Borrower and each of Borrower's Subsidiaries
is a corporation, duly organized, validly existing and in good
standing under the laws of Texas, or in the jurisdiction in
which it is organized, and has the power and authority to own
its property and to carry on its business in each
jurisdiction in which Borrower or Subsidiary does business.
B. Authority and Compliance. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur
and perform the obligations provided for therein, all of
which have been duly authorized by all proper and necessary
action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third
party is required as a condition to the validity of any Loan
Document, and Borrower is in compliance with all laws and
regulatory requirements to which it is subject.
C. Binding Agreement. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally
binding obligations of Borrower, enforceable in accordance with
their terms.
D. Litigation. There is no proceeding involving Borrower
pending or, to the knowledge of Borrower, threatened
before any court or governmental authority, agency or
arbitration authority, except as disclosed to Bank in writing
and acknowledged by Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw,
stock provision, partnership agreement or other document
pertaining to the organization, power or authority of Borrower
and no provision of any existing agreement, mortgage,
indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this
Agreement and the other Loan Documents.
F. Ownership of Assets. Borrower has good title to its assets,
and its assets are free and clear of liens, except those granted
to Bank and as disclosed to Bank in writing prior to the
date of this Agreement.
G. Taxes. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by
appropriate proceedings and the Borrower has filed all tax
returns which it is required to file.
H. Financial Statements. The financial statements of
Borrower heretofore delivered to Bank have been prepared in
accordance with GAAP applied on a consistent basis throughout
the period involved and fairly present Borrower's financial
condition as of the date or dates thereof, and there has been no
material adverse change in Borrower's financial condition or
operations since December 31, 1996. All factual information
<PAGE>
furnished by Borrower to Bank in connection with this Agreement
and the other Loan Documents is and will be accurate and
complete on the date as of which such information is delivered to
Bank and is not and will not be incomplete by the omission of
any material fact necessary to make such information not
misleading.
I. Place of Business. Borrower's chief executive office is
located at 2819 Walnut Hill Lane, Dallas, Texas 75229.
J. Environmental. The conduct of Borrower's business
operations and the condition of Borrower's property does not and
will not violate any federal laws, rules or ordinances for
environmental protection regulations of the Environmental
Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial
interpretation thereof relating primarily to the environment or
Hazardous Materials.
K. Continuation of Representations and Warranties.
All representations and warranties made under this Agreement
shall be deemed to be made at and as of the date hereof and at
and as of the date of any advance under any Loan and the
issuance of any Letter of Credit.
L. Business Purposes. All Loans are for business,
commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural
use, as such terms are used in Chapter One of the Texas
Credit Code and shall be for the purpose of financing accounts
receivable.
M. No Margin Stock. No Loan shall be used for the
purchase or carrying of any "margin stock" as that term is
defined in Regulation "U" of the Board of Governors of the
Federal Reserve System.
4. AFFIRMATIVE COVENANTS. Until full payment and performance
of all obligations of Borrower under the Loan Documents,
Borrower will, unless Bank, consents otherwise in writing (and
without limiting any requirement of any other Loan Document).
A. Financial Condition. Maintain Borrower's financial
condition as follows, determined in accordance with GAAP
applied on a consistent basis throughout the period involved
except to the extent modified by the following definitions:
i. Maintain a Current Ratio (defined as Current Assets
divided by Current Liabilities plus Letters of Credit
outstanding under the Letter of Credit Subfeature of not
less than 1.0 to 1.0 for each calendar quarter.
ii. * Net income shall be greater than $0 for the nine
months ending on March 31, 1997. Net income shall be
greater than $500,000 for the twelve months ending on June 30,
1997. * Net loss shall not be greater than $300,000 for the
three months ending September 30, 1997.
B. Financial Statements and Other Information. Maintain a
<PAGE>
system of accounting satisfactory to Bank and in accordance with
GAAP applied on a consistent basis throughout the period
involved, permit Bank's officers or authorized representatives
to visit and inspect Borrower's books of account and other
records at such reasonable times and as often as Bank may
desire, and pay the reasonable fees and disbursements of
any accountants or other agents of Bank selected by Bank for
the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records
will be located at Borrower's chief executive office set forth
above. All financial statements called for below shall be
prepared in form and content acceptable to Bank and by
independent certified public accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank consolidated and consolidating
financial statements of Borrower for each fiscal year of
Borrower, within 90 days after the close of each such fiscal
year.
ii. Furnish to Bank consolidated and consolidating
financial statements including a balance sheet and profit and
loss statement) of Borrower for each quarter of each fiscal year
of Borrower, within 45 days after the close of each such period.
iii. Furnish to Bank a REPORTING REQUIREMENTS, COVENANTS
AND COMPLIANCE CERTIFICATE for (and executed by an
authorized representative of) Borrower as attached hereto
as Exhibit B, concurrently with and dated as of the date of
delivery of each of the financial statements as required in
paragraphs i and ii above, containing (a) a certification
that the financial statements of even date are true and
correct and that the Borrower is not in default under the
terms of this Agreement, and (b) computations and
conclusions, in such detail as Bank may request, with
respect to compliance with this Agreement, and the other
Loan Documents, including computations of all quantitative
covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and
financial condition of Borrower and, respectively, from time
to time, as Bank may reasonably request.
C. Insurance. Maintain insurance with responsible
insurance companies on such of its properties, in such amounts
and against such risks as is customarily maintained by similar
businesses operating in the same vicinity, specifically to
include fire and extended coverage insurance covering all
assets, all to be with such companies and in such amounts as are
satisfactory to Bank and providing for at least 30 days prior
notice to Bank of any cancellation thereof. Satisfactory
evidence of such insurance will be supplied to Bank prior to
funding under the Loan(s) and 30 days prior to each policy
renewal.
D. Existence and Compliance. Maintain its existence, good
standing and qualification to do business, where required and
<PAGE>
comply with all laws, regulations and governmental
requirements including, without limitation, environmental
laws applicable to it or to any of its property, business
operations and transactions.
E. Adverse Conditions or Events. Promptly advise Bank in
writing of (i) any condition, event or act which comes to its
attention that would or might materially adversely affect
Borrower's financial condition or operations or Bank's rights
under the Loan Documents, (ii) any litigation filed by or
against Borrower, (iii) any event that has occurred that would
constitute an event of default under any Loan Documents and (iv)
any uninsured or partially uninsured loss through fire, theft,
liability or property damage.
F. Taxes and Other Obligations. Pay all of its taxes,
assessments and other obligations, including, but not limited to
taxes, costs or other expenses arising out of this transaction,
as the same become due and payable, except to the extent the same
are being contested in good faith by appropriate proceedings in a
diligent manner.
G. Maintenance. Maintain all of its tangible property in
good condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, trademarks,
privileges, permits, franchises, certificates and the like
necessary for the operation of its business.
H. Environmental. Immediately advise Bank in writing of (i)
any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local
laws, ordinances or regulations relating to any Hazardous
Materials affecting Borrower's business operations; and (ii)
all claims made or threatened by any third party against
Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous
Materials. Borrower shall immediately notify Bank of any remedial
action taken by Borrower with respect to Borrower's business
operations. Borrower will not use or permit any other party to
use any Hazardous Materials at any of Borrower's places of
business or at any other property owned by Borrower except
such materials as are incidental to Borrower's normal course
of business, maintenance and repairs and which are handled
in compliance with all applicable environmental laws.
Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's places of
business or any other property of Borrower at any reasonable
times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower is complying
with this covenant and Borrower shall reimburse Bank on demand
for the costs of any such environmental investigation and
audit. Borrower shall provide Bank, its agents,
contractors, employees and representatives with access to and
copies of any and all data and documents relating to or dealing
with any Hazardous Materials used, generated, manufactured,
stored or disposed of by Borrowers business operations within
five (5) days of the request therefore.
<PAGE>
I. Collateral. This Loan Agreement and all Applications
are presently unsecured. Borrower agrees to provide Bank a
security interest in any collateral which is hereafter pledged
by Borrower to secure other indebtedness for borrowed money,
such security interest to be pari passu with the security
interest granted to another lender; provided however, that with
respect to letters of credit issued by NationsBank or other
lender which are cash secured, this provision shall mean that
letters of credit issued by Bank on similar terms and conditions
(i.e. letter of credit expiry date extends beyond the
maturity date of a line of credit) shall also be cash secured
and not that Bank shall share in the cash collateral securing
such letters of credit.
5. Negative Covenants. Until full payment and performance of
all obligations of Borrower under the Loan Documents, Borrower
will not, without the prior written consent of Bank (and
without limiting any requirement of any other Loan Documents):
Until full payment and performance of all obligations of
Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any
requirement of any other Loan Documents):
A. Make an investment in, or loan or advance, to any
Subsidiary, including but not limited to Peerless International
N.V., Peerless Europe B.V., and Peerless Europe Ltd., that
would cause the aggregate amount of investments, loans or
advances in subsidiaries to exceed $2,000,000 at any time.
B. Extend loans or advances to any individual,
partnership corporation or other entity not considered in the
normal course of Borrower's business.
C. Sell, lease, assign or otherwise dispose of or transfer
any assets, except in the normal course of its business, or enter
into any merger or consolidation, or transfer control or
ownership of Borrower or form or acquire any subsidiary.
D. Fail to promptly pay when due all lawful claims, whether
for labor, materials or otherwise.
E. Create, incur, assume or become liable in any matter for
any indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor
for the debt of another, or otherwise) except for normal
trade debts incurred in the ordinary course of Borrower's
business, and except for existing indebtedness disclosed to
Bank in writing prior to the date of this agreement.
F. Change the general character of business as conducted at the
date hereof, or engage in any type of business not reasonably
related to its business as presently conducted.
G. Amend, modify or restate the NationsBank Loan Documents as
they exist on March 7, 1997.
6. DEFAULT. Borrower shall be in default under this Agreement
and under each of the other Loan Documents if it shall default
<PAGE>
in the payment of any amounts due and owing under the Loan or
should it fail to timely and properly observe, keep or perform
any term, covenant, agreement or condition in any Loan
Document or in any other loan agreement, promissory note,
security agreement, deed of trust, deed to secure debt,
mortgage, assignment or other contract securing or
evidencing payment of any indebtedness of Borrower to Bank or
any affiliate or subsidiary of Texas Commerce Bank National
Association.
7. REMEDIES UPON DEFAULT. If an event of default shall occur,
Bank shall have all rights, powers and remedies available under
each of the Loan Documents as well as all rights and remedies
available at law or in equity.
8. NOTICES. All notices, requests or demands which any
party is required or may desire to give to any other party
under any provision of this Agreement must be in writing
delivered to the other party at the following address:
Borrower: Peerless Mfg. Co.
Attention: Sherrill Stone
2819 Walnut Hill Lane, Dallas, Texas 75229
Bank: Texas Commerce Bank National Association
Attention: David L. Howard
2200 Ross Avenue
P.O. Box 660197
Dallas, TX 75266-0197
or to such other address as any party may designate by written
notice to the other party. Each such notice request and
demand shall be deemed given or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class
postage prepaid;
B. If sent by any other means, upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all costs and
expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house
counsel if permitted byapplicable law), incurred by Bank in
connection with (a) negotiation and preparation of this
Agreement and each of the Loan Documents, and (b) all other
costs and attorneys' fees incurred by Bank for which Borrower
is obligated to reimburse Bank in accordance with the Terms of
the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and
agree as follows, without limiting any requirement of any other
Loan Document:
A. Cumulative Rights and No Waiver. Each and every right
granted to Bank under any Loan Document, or allowed it by law or
equity shall be cumulative of each other and may be exercised in
addition to any and all other rights of Bank, and no delay in
exercising any right shall operate as a waiver thereof, nor
<PAGE>
shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise
of any other right. Borrower expressly waives any
presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on
Borrower in any case shall, of itself entitle Borrower to any
other future notice or demand in similar or other
circumstances.
B. Applicable Law. This Loan Agreement and the rights
and obligations of the parties hereunder shall be governed
by and interpreted in accordance with the laws of Texas and
applicable United States federal law.
C. Amendment. No modification, consent, amendment or waiver of
any provision of this Loan Agreement, nor consent to any
departure by Borrower therefrom, shall be effective unless the
same shall be in writing and signed by an officer of Bank, and
then shall be effective only in the specified instance and for
the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to
the benefit of Bank, its successors and assigns; however,
no assignment or other transfer of Borrower's rights or
obligations hereunder shall be made or be effective without
Bank's prior written consent, nor shall it relieve Borrower of
any obligations hereunder. There is no third party beneficiary
of this Loan Agreement.
D. Documents. All documents, certificates and other items
required under this Loan Agreement to be executed and/or
delivered to Bank shall be in form and content satisfactory to
Bank and its counsel.
E. Partial Invalidity. The enforceability or invalidity of
any provision of this Loan Agreement shall not affect the
enforceability or validity of any other provision herein and
the invalidity or unenforceability of any provision of any
Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may
apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the
contrary contained in Section 10(G), Borrower shall indemnify,
defend and hold Bank and its successors and assigns harmless
from and against any and all claims, demands, suits, losses,
damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions
contemplated hereby, including but not limited to actual or
threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due
to a release or alleged release of Hazardous Materials,
arising from Borrower's business operations, any other property
owned by Borrower or in the surface or ground water arising
from Borrower's business operations, or gaseous emissions
arising from Borrower's business operations or any other
condition existing or arising from Borrower's business
operations resulting from the use or existence of Hazardous
<PAGE>
Materials, whether such claim proves to be true or false.
Borrower further agrees that its indemnity obligations shall
include, but are not limited to, liability for damages
resulting from the personal injury or death of an employee of
the Borrower, regardless of whether the Borrower has paid the
employee under the workmen's compensation laws of any state or
other similar federal or state legislation for the protection
of employees. The term "property damage" as used in this
paragraph includes, but is not limited to, damage to any real or
personal property of the Borrower, the Bank, and of any third
parties. The Borrower's obligations under this paragraph shall
survive the repayment of the Loan and any deed in lieu
of foreclosure or foreclosure of any Deed to Secure Debt,
Deed of Trust, Security Agreement or Mortgage securing the
Loan.
G. Survivability. All covenants, agreements, representations
and warranties made herein or in the other Loan Documents shall
survive the making of the Loan and shall continue in full force
and affect so long as the Loan is outstanding or the obligation
of the Bank to make any advances under the Line shall not have
expired.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING
OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT
OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING
ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE
STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE
OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE
SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE
CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR
LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY,
UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF
ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND
ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR (II) BE
A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR
(III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF
<PAGE>
HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR
CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
13. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed under seal by their duly
authorized representatives as of the date first above written.
BORROWER: PEERLESS MFG. CO.
By: /s/ Kent J. Van Houten (Seal)
Name: Kent J. Van Houten
Title: Chief Financial Officer
[Corporate Seal]
BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ David L. Howard (Seal)
Name: David L. Howard
Title: Vice President
If the Borrower is a corporation, the signature should be
attested by the Secretary or Assistant Secretary of the
corporation and the corporate seal affixed.
Attest: /s/ Kent J. Van Houten (Seal)
Name: Kent J. Van Houten
Title: Secretary/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 658,420
<SECURITIES> 299,511
<RECEIVABLES> 11,761,534
<ALLOWANCES> 141,209
<INVENTORY> 4,299,850
<CURRENT-ASSETS> 17,742,659
<PP&E> 7,904,515
<DEPRECIATION> 5,492,809
<TOTAL-ASSETS> 20,557,554
<CURRENT-LIABILITIES> 9,188,836
<BONDS> 0
0
0
<COMMON> 1,455,992
<OTHER-SE> 9,825,958
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<INTEREST-EXPENSE> 21,527
<INCOME-PRETAX> 209,317
<INCOME-TAX> 43,195
<INCOME-CONTINUING> 166,122
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</TABLE>
