<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
-----
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
- --------------------------------------------------------------------------------
Commission File Number 0-5214
PEERLESS MFG. CO.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-0724417
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
2819 Walnut Hill Lane Dallas, Texas 75229
P. O. Box 540667 Dallas, Texas 75354
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 357-6181
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 17, 1998
- ----------------------------- --------------------------------------------
Common stock, $1.00 par value 1,454,492 Shares
<PAGE>
PEERLESS MFG. CO.
INDEX
Page
Number
--------
Part I: Financial Information
Condensed Consolidated Balance Sheets for the
periods ended December 31, 1997 and June 30, 1997. 3 - 4
Condensed Consolidated Statements of Earnings for the
three and six months ended December 31, 1997 and 1996. 5
Condensed Consolidated Statements of Cash Flows for
the three months ended December 31, 1997 and 1996. 6
Notes to the Condensed Consolidated Financial Statements. 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9 - 11
Part II: Other Information 12 - 13
Exhibits 14 - 15
Signatures 16
2 of 16
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<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
-------------- --------------
1997 1997
-------------- --------------
<S> (UNAUDITED) (AUDITED)
Assets <C> <C>
Current assets
Cash and cash equivalents $1,990,064 $772,553
Short term investments 260,594 259,007
Accounts receivable-principally trade-net of allowance for doubtful
accounts of $351,867 at December 31, 1997 and $312,450 at
June 30, 1997 8,712,369 9,671,067
Inventories
Raw materials 1,045,606 1,084,890
Work in process 2,581,521 1,586,213
Finished goods 235,643 322,752
Costs and earnings in excess of billings on uncompleted contracts 402,259 1,871,817
Deferred income taxes 268,964 269,721
Other 240,105 298,605
-------------- --------------
Total current assets 15,737,125 16,136,625
Property, plant and equipment-at Cost, less accumulated depreciation 1,578,125 1,527,856
Property held for investment-at Cost, less accumulated depreciation 856,920 888,383
Other assets 646,053 528,729
-------------- --------------
$18,818,223 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
3 of 16
</TABLE>
<PAGE>
<TABLE>
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
-------------- --------------
1997 1997
-------------- --------------
<S> (UNAUDITED) (AUDITED)
Liabilities and Stockholders' Equity <C> <C>
Current liabilities
Notes payable $1,550,000 $0
Accounts payable-trade 3,155,520 5,054,532
Billings in excess of costs and earnings on uncompleted contracts 47,810 363,257
Commissions payable 861,239 779,474
Accrued liabilities
Compensation 412,237 656,082
Warranty 273,641 406,903
Other 509,153 291,953
-------------- --------------
Total current liabilities 6,809,600 7,552,201
Deferred income taxes 99,962 99,962
Stockholders' equity
Common stock-authorized 4,000,000 shares of $1 par value; issued
and outstanding 1,451,992 shares at December 31, 1997 and
1,451,992 at June 30, 1997 1,451,992 1,451,992
Additional paid-in capital 2,535,221 2,535,221
Unamortized value of restricted stock grants (36,939) (44,625)
Cumulative foreign currency translation adjustment (78,346) (93,944)
Retained earnings 8,036,733 7,580,786
-------------- --------------
11,908,661 11,429,430
-------------- --------------
$18,818,223 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
4 of 16
</TABLE>
<PAGE>
<TABLE>
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $11,041,772 $9,761,204 $18,247,561 $17,276,653
Cost of goods sold 7,278,267 6,776,655 11,893,871 12,227,992
-------------- -------------- -------------- --------------
Gross profit 3,763,505 2,984,549 6,353,690 5,048,661
Operating expenses
Marketing and engineering 2,137,871 2,211,180 4,203,610 4,252,368
General and administrative 670,545 504,290 1,116,277 900,547
-------------- -------------- -------------- --------------
Operating income 955,089 269,079 1,033,803 (104,254)
Other income(expense)
Interest income 6,871 5,598 15,404 17,594
Interest expense (11,790) (6,591) (14,586) (6,591)
Foreign exchange gains(losses) (21,902) 168,355 (50,984) 177,672
Other, net (59,927) (2,289) (48,953) 11,637
-------------- -------------- -------------- --------------
(86,748) 165,073 (99,119) 200,312
-------------- -------------- -------------- --------------
Earnings from operations
before Federal income tax 868,341 434,152 934,684 96,058
Federal income tax
Current 283,387 64,799 349,481 7,825
Deferred (51,126) 0 (51,126) 0
-------------- -------------- -------------- --------------
232,261 64,799 298,355 7,825
-------------- -------------- -------------- --------------
Net earnings 636,080 369,353 636,329 88,233
============== ============== ============== ==============
Basic and diluted earnings per share $0.44 $0.25 $0.44 $0.06
============== ============== ============== ==============
Weighted average number of common
shares outstanding 1,451,992 1,454,742 1,451,992 1,454,101
============== ============== ============== ==============
Cash dividend per common share $0.125 $0.125 $0.125 $0.125
============== ============== ============== ==============
<FN>
The accompanying notes are an integral part of these statements.
5 of 16
</TABLE>
<PAGE>
<TABLE>
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
December 31,
-----------------------------
1997 1996
<S> -------------- --------------
Cash flows from operating activities: <C> <C>
Net earnings $636,329 $88,233
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 177,166 166,561
Other 7,686 24,725
Changes in operating assets and liabilities
Accounts receivable 958,698 (1,882,043)
Inventories (868,915) (1,134,162)
Cost and earnings in excess of billings
on uncompleted contracts 1,469,558 1,403,199
Other current assets 59,257 (90,308)
Other assets (116,371) 61,124
Accounts payable (1,898,972) 1,820
Billings in excess of costs and earnings
on uncompleted contracts (315,447) 90,696
Commissions payable 81,765 178,848
Accrued liabilities 21,717 (498,388)
-------------- --------------
(423,858) (1,677,928)
-------------- --------------
Net cash provided by (used in) operating activities 212,471 (1,589,695)
Cash flows from investing activities:
Net sales (purchases) of short-term investments (1,587) (2,291)
Net sales (purchases) of property and equipment (195,972) (336,531)
-------------- --------------
Net cash provided by (used in) investing activities (197,559) (338,822)
Cash flows from financing activities:
Net change in short-term borrowings 1,550,000 400,000
Dividends paid (362,999) (363,686)
-------------- --------------
Net cash used in financing activities 1,187,001 36,314
Effect of exchange rate on cash and cash equivalents 15,598 (49,295)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 1,217,511 (1,941,498)
Cash and cash equivalents at beginning of period 772,553 2,082,329
-------------- --------------
Cash and cash equivalents at end period $1,990,064 $140,831
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
6 of 16
</TABLE>
<PAGE>
PEERLESS MFG. CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of
Peerless Mfg. Co. and its subsidiaries (the "Company") have
been prepared by the Company without audit. In the opinion
of the Company's management, the financial statements
reflect all adjustments necessary to present fairly the
results of operations for the three and six months ended
December 31, 1997 and 1996, the Company's financial position
at December 31, 1997 and June 30, 1997, and cash flows for
the six months ended December 31, 1997 and 1996. These
adjustments are of a normal, recurring nature which are, in
the opinion of management, necessary for a fair presentation
of the financial position and results of operations for the
interim periods.
Certain notes and other information have been condensed or
omitted from the interim financial statements presented in
the Quarterly Report on Form 10-Q. Therefore, these
financial statements should be read in conjunction with the
Company's Annual Report Form 10-K for the Fiscal year ended
June 30, 1997 and the consolidated financial statements and
notes thereto included in the Company's June 30, 1997,
audited financial statements.
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 backlog of uncompleted orders and letters of intent at
December 31, 1997 was approximately $26,800,000 as compared
to a December 31, 1996 backlog of $24,800,000. Of the
$26,800,000 backlog at December 31, 1997, approximately 70%
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. As of December 31, 1997 and 1996,
the Company had $1,550,000 and $400,000 in loans outstanding
respectively against these lines of credit.
7 of 16
<PAGE>
5. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited, Peerless
International N.V. and Peerless Europe B.V. All significant
intercompany accounts and transactions have been eliminated
in the consolidation.
8 of 16
<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. The following discussion and
analysis should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the
fiscal year ended June 30, 1997.
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 increased $1,217,511 from June 30, 1997.
Company operations provided $212,471 and proceeds from short-term
borrowings provided $1,550,000, in anticipation of commitments
for material purchases in January 1998. Uses of cash for the six
months ended December 31, 1997 included expenditures of $197,559
for purchase of fixed assets and short-term investments and
$362,999 for dividend payments.
As indicated in the preceding paragraph, cash flows from
operating activities provided $212,471 of cash in the six months
ended December 31, 1997. Funds provided by these operations were
primarily from decreases in accounts receivable of $958,698, cost
and earnings in excess of billings on uncompleted contracts of
$1,469,558 and other current assets of $59,257, and increases in
commissions payable and accrued liabilities of $81,765 and
$21,717 respectively. These sources of cash were offset by uses
of cash in inventories of $868,915, other assets of $116,371,
accounts payable of $1,898,972 and billings in excess of cost and
earnings on uncompleted contracts of $315,447.
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 the Company's
statement of financial position. 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. The Company has no material commitments for capital
expenditures other than its established program of maintaining
existing plant and equipment.
9 of 16
<PAGE>
REVENUE: Revenue increased 13% to $11,042,000 for the three
months ended December 31, 1997 from $9,761,000 for the three
months ended December 31, 1996. For the six month period,
revenues increased 6% to $18,248,000 for the six months ended
December 31, 1997 from $17,277,000 for the six months ended
December 31, 1996. For both periods the increases were primarily
the results of increased sales volumes to customers in Asia for
filtration and separation products and increases in sales volumes
recorded for nuclear steam dryers, commercial mist extractors,
and various other marine products. These increases in both
periods were partially offset by reduced sales of its SCR
products for the three and six months ended December 31, 1997
compared to the three and six months ended December 31, 1996.
GROSS PROFIT: Gross profit increased 25% to $3,764,000 for the
three months ended December 31, 1997 from $2,985,000 for the
three months ended December 31, 1996. The increase in gross
profit attributable to the increased volumes in sales revenue was
approximately 50% of the $780,000 increase from the comparable
three month period ending December 31, 1996. For the six month
period, gross profit increased 26% to $6,354,000 for the six
months ended December 31, 1997 from $5,049,000 for the six months
ended December 31, 1996. The increase in gross profit
attributable to the increased volumes in sales revenue was
approximately 21% of the $1,305,000 increase from the comparable
six month period ended December 31, 1996.
For the three and six month period, the balance of the increase
in gross profits resulted in a change in the mix of products sold
in Fiscal 1998 compared Fiscal 1997. Sales revenue on nuclear
steam dryers and commercial mist extractors have a lower
percentage cost of goods than the Company's traditional line of
pressure vessels, allowing for increased gross profits as a
percentage of revenues. As discussed above in the revenues
section, the sales of nuclear steam dryers and commercial mist
extractors increased for the three months and six months ended
December 31, 1997 compared to the three months and six months
ended December 31, 1996, resulting in increased gross profits.
OPERATING EXPENSES: Operating expenses increased 3% to
$2,808,000 for the three months ended December 31, 1997 from
$2,715,000 for the three months ended December 31, 1996. For the
six months, operating expenses also increased 3% to $5,320,000
for the six months ended December 31, 1997 from $5,153,000 for
the six months ended December 31, 1996. Marketing and
engineering expenses declined slightly due to cost control
measures implemented over the last 12 months. General and
administrative expenses increased primarily due to various cost
increases associated with increased sales volume and profits
related to various accurals for profit sharing and compensation
plans.
10 of 16
<PAGE>
OTHER INCOME/(EXPENSE): The Company recognized net other expense
of $87,000 and $99,000 for the three and six months ending
December 31, 1997 for interest, foreign exchange losses and the
settlement of an employee issue. These expenses compare
unfavorably to the $165,000 and $200,000 net other income
associated primarily with the recording of foreign exchange gains
for the three and six months period ending December 31, 1996.
YEAR 2000 ISSUE: The Company embarked on a program of upgrading
its current computer system in 1996 and the Year 2000 Issue was
addressed.
The Company has reviewed and continues to monitor its exposure to
the SEC's Staff Legal Bulletin No. 5 regarding the Year 2000
Issue. The Company believes that the cost of addressing the Year
2000 Issue will not be material or create uncertainty that would
cause reported financial information not to be necessarily
indicative of future operating results or financial condition.
Further, the Company believes that any cost or any consequences
of incomplete or untimely resolution of any Year 2000 Issues will
not represent a known material event or uncertainty that is
reasonably expected to affect the Company's future financial
results, or cause the Company's reported financial information
not to be necessarily indicative of future operating results or
future financial condition.
SOUTHEAST ASIA: The Company does not anticipate any material
affect on the demand for its products in Southeast Asia as a
result of the current financial crisis there. Oil and gas
products in the area contribute hard currency and are still being
scheduled. Secondary projects financed in local currencies are
expected to experience some delays. The Company is hopeful also
that demand for its products in Mexico and South America could
offset the potential for reduced opportunities in Southeast Asia.
RESTRUCTURING: At the Annual Shareholders Meeting conducted
November 20, 1997, Mr. Stone, Chairman and Chief Executive
Officer of the Company, announced its organizational
restructuring and reorganization of its two separation and
filtration units into one combined group. The restructuring and
reorganization was designed to lower costs of goods and improve
on time delivery of product. The restructuring is complete and
the Company continues to audit this progress.
11 of 16
<PAGE>
PEERLESS MFG. CO.
PART II
OTHER INFORMATION
Item 1 -- Legal proceedings
- ---------------------------
Reference is made to Form 10-K Annual Report, as amended,
Item 3, Page 6, "Legal Proceedings" for the Fiscal year
ended June 30, 1997. For the three months ended September
30, 1997 there were no new proceedings filed against the
Company.
Item 4. -- Submission of Matters to a vote of Security Holders
- --------------------------------------------------------------
On November 21, 1997 the Company held its Annual Meeting of
Shareholders of Peerless Mfg. Co. The meeting involved the
re-election of Mr. Sherrill Stone, Mr. Donald A. Sillers,
Jr., Mr David D. Battershell, Mr. Bernard S. Lee and Mr.
Joseph V. Mariner, Jr. as Directors of the Company to a
classified board. The Directors were elected to serve in
their respective successor capacity as follows:
David D. Battershell - Class I Director - Term to expire at
the 1998 Annual Shareholders Meeting. Mr. Battershell had
1,284,040 votes cast for, 83,020 shares withheld from voting
for and no broker non-votes.
Bernard S. Lee - Class II Director - Term to expire at the
1999 Annual Shareholders Meeting. Mr. Lee had 1,284,440
votes cast for, 82,620 shares withheld from voting for and
no broker non-votes.
Joseph V. Mariner, Jr. - Class II Director - Term to expire
at the 1999 Annual Shareholders Meeting. Mr. Mariner had
1,221,590 shares cast for, 145,470 shares withheld from
voting for and no broker non-votes.
Sherrill Stone - Class III Director - Term to expire at the
2000 Annual Shareholders Meeting. Mr. Stone had 1,220,133
shares cast for, 146,927 shares withheld from voting for and
no broker non-votes.
Donald A. Sillers, Jr. - Class III Director - Term to expire
at the 2000 Annual Shareholders Meeting. Mr. Sillers had
1,220,140 shares cast for, 146,920 shares withheld from
voting for and no broker non-votes.
An additional matter voted upon at the meeting was to amend
the Company s Articles of Incorporation to authorize
1,000,000 shares of blank check preferred stock. The
results of voting were 601,760 shares cast for, 420,242
shares cast against, 14,005 shares abstained and 331,053
broker non-votes. The proposal was not approved.
12 of 16
<PAGE>
Another matter voted upon at the meeting was to amend the
Company s Articles of Incorporation to authorize an
additional 6,000,000 shares of the Common Stock. The
results of voting were 1,127,805 shares cast for, 232,055
shares cast against, 7,200 shares abstained and no broker
non-votes. The proposal was approved.
Item 6 -- Exhibits and Reports -- Form 8-K
- ------------------------------------------
There were no reports on Form 8-K for the three months ended
December 31, 1997.
13 of 16
<PAGE>
EXHIBITS:
3(a) The Company's Articles of Incorporation, as amended to
date.*
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, 1997, and incorporated herein by
reference).
10(a) Incentive Compensation Plan effective January 1, 1981,
as amended January 23, 1991 (filed as Exhibit 10(b) to
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).
10(e) Agreement, dated as of April 29, 1994 by and between
Company and Sherrill Stone (filed as Exhibit 10(e) to
the Company's Annual Report on Form 10-K dated June 30,
1994 and incorporated herein by reference).
14 of 16
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10(f) Sixth Amended and Restated Loan Agreement, dated as of
January 12, 1998, between NationsBank of Texas, N.A.
and the Company.*
10(g) Amended and Restated Loan Agreement, dated as of
January 12, 1998, by and between Texas Commerce Bank
National Association and the Company.*
10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted
Stock Plan, adopted by the Board of Directors December
31, 1995 and approved by the Shareholders of the
Company November 21, 1996 (filed as Exhibit 10(h) to
the Company's Annual Report on Form 10-K dated June 30,
1997 and incorporated herein by reference).
10(i) Rights Agreement between Peerless Mfg. Co. and
ChaseMellon Shareholder Services, L.L.C., adopted by the
Board of Directors May 21, 1997 (filed separately on
May 22, 1997 and incorporated herein by reference).
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
15 of 16
<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: February 17, 1998
/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
16 of 16
<PAGE>
ARTICLES OF CORRECTION
The undersigned submits these articles pursuant to Texas Civil
Statutes Article 1302-7.01 to correct a document which is an
inaccurate record of the entity action, contains an inaccurate or
erroneous statement, or was defectively or erroneously executed,
sealed, acknowledged, or verified.
ARTICLE ONE
The name of the entity is Peerless Mfg. Co.
ARTICLE TWO
The document to be corrected is the Articles of Amendment by the
Shareholder to the Articles of Incorporation, As Amended, of Peerless
Mfg. Co. which was filed in the Office of the Secretary of State on
the 4th day of November, 1969.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is the reference to
Part Four of the Texas Miscellaneous Corporation Laws Act in the
amended Article Two, the purpose clause of the Company, located in
Article II of such Articles of Amendment.
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the
document reads as follows:
ARTICLE TWO
The purpose or purposes for which the Corporation is organized are:
To transact a manufacturing business, including the manufacture of oil
and gas equipment and other engineering specialties of every kind and
character, and to purchase and sell goods, wares and merchandise used
for such business.
In addition, but without being limited by the foregoing, to buy, sell,
and deal in personal property, real property and services.
PEERLESS MFG. CO.
By: /s/ Kent J. Van Houten
-----------------------------
KENT J. VAN HOUTEN SECRETARY
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
Peerless Mfg. Co., pursuant to the provisions of Article 4.07 of the
Texas Business Corporation Act ( TBCA ), hereby adopts restated
articles of incorporation which accurately copy the articles of
incorporation and all amendments thereto that are in effect to date
and as further amended by such restated articles of incorporation as
hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the
restated articles of incorporation as follows:
Article Six is amended to increase the authorized shares of Common
Stock of the Company.
ARTICLE THREE
Such amendment made by the restated articles of incorporation has been
effected in conformity with the provisions of the Texas Business
Corporation Act and such restated articles of incorporation and such
amendment made by the restated articles of incorporation were duly
adopted by the shareholders of the corporation on the 20th day of
November, 1997.
ARTICLE FOUR
The number of shares outstanding was 1,451,992, and the number of
shares entitled to vote on the restated articles of incorporation as
so amended was 1,451,992. The number of shares voted for such
restated articles as so amended was 1,127,805; the number of shares
voted against such restated articles as so amended was 232,055; the
number of shares abstaining was 7,200.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements
thereto are hereby superseded by the following restated articles of
incorporation which accurately copy the entire text thereof and as
amended as above set forth:
<PAGE>
ARTICLES OF INCORPORATION OF PEERLESS MFG. CO.
ARTICLE ONE
The name of this corporation shall be PEERLESS MFG. CO.
ARTICLE TWO
The purpose or purposes for which the Corporation is organized are:
To transact a manufacturing business, including the manufacture of oil
and gas equipment and other engineering specialties of every kind and
character, and to purchase and sell goods, wares and merchandise used
for such business.
In addition, but without being limited by the foregoing, to buy, sell,
and deal in personal property, real property and services.
ARTICLE THREE
The place where the business of this corporation is to be transacted
is in the City of Dallas, Dallas County, Texas, and elsewhere within
or without the State of Texas, in accordance with the laws of said
State, and its principal place of business shall be in said Dallas
County, Texas.
ARTICLE FOUR
The period of its duration is perpetual.
ARTICLE FIVE
The number of directors is five (5), and the names and addresses of
the current directors are as follows:
Name Address
David D. Battershell 2819 Walnut Hill Lane
Dallas, Texas 75229
Bernard S. Lee 2819 Walnut Hill Lane
Dallas, Texas 75229
Joseph V. Mariner, Jr. 2819 Walnut Hill Lane
Dallas, Texas 75229
Sherrill Stone 2819 Walnut Hill Lane
Dallas, Texas 75229
Donald A. Sillers, Jr. 2819 Walnut Hill Lane
Dallas, Texas 75229
ARTICLE SIX
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is ten million (10,000,000)
consisting of 10,000,000 shares of Common Stock of the par value of
One Dollar ($1.00) per share.
ARTICLE SEVEN
No stockholder of this Corporation shall, by reason of his holding
shares of any class of stock of this Corporation, have any preemptive
or preferential right to purchase or subscribe for any shares of any
class of stock of this Corporation, now or hereafter to be authorized,
or any notes, debentures, bonds or other securities convertible into
or carrying options, warrants or rights to purchase shares of any
class, now or hereafter to be authorized, whether or not the issuance
of any such shares or such notes, debentures, bonds or other
securities would adversely affect the dividend or voting rights of any
such shareholder, other than such rights, if any, as the Board of
Directors, at its discretion, from time to time may grant, and at such
price as the Board of Directors at its discretion may fix; and the
Board of Directors may issue shares of any class of stock of this
Corporation or any notes, debentures, bonds or other securities
convertible into or carrying options, warrants or rights to purchase
shares of any class without offering any such shares of any class or
such notes, debentures, bonds, or other securities either in whole or
in part to the existing shareholders of any class.
ARTICLE EIGHT
The right to accumulate votes in the election of directors, and/or
cumulative voting by any shareholders is hereby expressly denied.
ARTICLE NINE
(a) The corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or
in the right of the corporation), by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including
attorney fees), judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by him in connection with such
action, suit or proceeding, if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action
or proceedings had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or on plea of nolo
contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action
or proceeding had reasonable cause to believe that his conduct was
unlawful.
(b) The corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of
the corporation to procure judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, agent or employee of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorney fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect to any claim,
issue or manner as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to
the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that
despite the adjudication of liabilities but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in sub-sections (a) and
(b), or in defense of any claim, issue or matter therein he shall be
indemnified against expenses (including attorney fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnifications under subsections (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the
specific case, by reimbursement on a current basis or otherwise, upon
a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subsections (a) and
(b). Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) by the Board of
Directors, whether interested or disinterested, and whether or not a
quorum is obtainable, if based upon a written opinion of legal
counsel, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the
Board of Directors. In the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the corporation as authorized
in this section.
(f) The indemnification provided by this section shall not be deemed
exclusive of any other right to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested director, or otherwise, both as to action in his
official capacity and as to his action in other capacities while
holding such office and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(g) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such whether
or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
ARTICLE TEN
This Corporation may enter into contracts and transact business with
one or more of its directors, officers or stockholders, or with any
corporation, firm or association in which any of its directors or
officers are stockholders, directors, officers, employees or are
otherwise interested; and no such contract or other transaction shall
be void or voidable or otherwise affected by reason of such ownership
or directorship or office in such corporation or such interest in such
other firm, corporation or association, notwithstanding that a
director or directors having such interest are present and are counted
for the purpose of determining the existence of a quorum at any
meeting of the Board of directors of the Corporation which acts upon
or in reference to such contract or transaction, and notwithstanding
that the vote of such director or directors shall have been necessary
to authorize, approve, ratify or otherwise obligate the Corporation
upon such contract or transaction; provided, however, that the fact
of such interest shall be disclosed or otherwise known to the Board of
Directors at a meeting of the Board of Directors which acts upon or in
reference to such contract or transaction.
9.14F STATEMENT
The street address of the corporation's initial registered office is
2819 Walnut Hill Lane, Dallas, Texas 75229, and the name of its
initial registered agent at such address is Sherrill Stone.
PEERLESS MFG. CO.
By: /s/ Kent J. Van Houten
-----------------------------
KENT J. VAN HOUTEN SECRETARY
<PAGE>
NationsBank of Texas, N.A.
SIXTH AMENDED AND RESTATED LOAN AGREEMENT
This Loan Agreement ("Agreement") dated as of January 12, 1998, by and
between NationsBank of Texas, N.A., a national banking association
("Bank") and the Borrower described below. This Agreement amends and
restates in its entirety the Fifth Amended and Restated Loan Agreement
dated as of February 7, 1997, between Bank and Borrower.
In consideration of the Loan or Loans and Letters of Credit described
below and the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, Bank and Borrower agree as
follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth
with respect thereto:
A. Borrower: Peerless Mfg. Co., a Texas corporation
B. Borrower's Address: 2819 Walnut Hill Lane Dallas, Texas 75229
C. 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
substantially in the form of Exhibit B.
F. Current Assets. Current Assets means the aggregate amount of all
the assets of the Borrower and its Subsidiaries, on a consolidated
basis, assets which would, in accordance with GAAP, properly be
defined as current assets.
G. Current Liabilities. Current Liabilities means the aggregate
amount of all current liabilities of the Borrower and its
Subsidiaries, on a consolidated basis, as determined in accordance
with GAAP, but in any event shall include all liabilities except those
having a maturity date which is more than one year from the date as of
which such computation is being made, plus the amount equal to the
difference (but not less than zero) of (i) the aggregate undrawn
amount of all Letters of Credit, minus (ii) the sum of (a) the
aggregate amount in each Collateral Account, plus (b) the aggregate
cash value of each Collateral Policy.
H. Hazardous Materials. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum,
petroleum products, oil and asbestos.
I. Investment. Investment means any acquisition of all or
substantially all assets of any Person, or any direct or indirect
purchase or other acquisition of, or a beneficial interest in, capital
stock or other securities of any other Person, or any direct or
indirect loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts, and similar expenditures in the
ordinary course of business), or capital contribution to or investment
in any other Person, including without limitation the incurrence or
sufferance of debt or accounts receivable of any other Person that are
not current assets or do not arise from sales to that other Person in
the ordinary course of business.
J. Lien. Lien means any mortgage, pledge, security interest,
encumbrance, lien, or charge of any kind, including without limitation
any agreement to give or not to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement or other similar form of public notice under the laws of any
jurisdiction.
K. Loan. Any loan described in Section 2 hereof and any subsequent
loan which states that it is subject to this Agreement.
L. Loan Documents. Loan Documents means this Agreement and any and
all promissory notes executed by Borrower in favor of Bank, each
application for issuance of a Letter of Credit and all other
documents, instruments, guarantees, certificates and agreements
executed and/or delivered by Borrower, any guarantor or third party in
connection with any Loan or Letter of Credit.
M. Material Adverse Effect. Material Adverse Effect means any
circumstance or event that is or would reasonably be expected to be
material and adverse to the financial condition, business operations,
prospects or properties of Borrower and its Subsidiaries, taken as a
whole.
N. Net Income. Net Income means net profit after taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
O. Net Loss. Net Loss means net loss after taxes of the Borrower and
its Subsidiaries, on a consolidated basis, determined in accordance
with GAAP.
P. Obligor. Obligor means Borrower, any Subsidiary of Borrower, any
indorser or guarantor of any obligation under any Loan Document and
any other Person liable for or the property of which secures any
obligation under any Loan Document.
Q. Person. Person means an individual, partnership, joint venture,
corporation, trust, tribunal, unincorporated organization, and
government, or any department, agency, or political subdivision
thereof.
R. 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.
S. TCB Agreement. TCB Agreement means the Loan Agreement dated as of
January 12, 1998, between Borrower and Texas Commerce Bank National
Association.
T. Accounting Terms. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to
such terms under generally accepted accounting principles ("GAAP"), as
in effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 3.I. hereof.
2. LOANS.
A. Loan. Bank hereby agrees to make (or has made) one or more loans
to Borrower in the aggregate principal face amount of $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, minus (iii) the amount of all drawings
under any Letter of Credit for which Bank has not been reimbursed.
The obligation to repay the loans is evidenced by the promissory note
dated January 11, 1998 (the promissory note or notes together with any
and all renewals, extensions or rearrangements thereof being hereafter
collectively referred to as the "Note") having a maturity date,
repayment terms and interest rate as set forth in the Note (a copy of
which is attached as Exhibit A).
i. Revolving Credit Feature. The Note provides for a revolving line
of credit under which Borrower may from time to time, borrow, repay
and re-borrow funds.
ii. Usage Fee. Borrower will pay hereafter on the last day of each
calendar quarter for the period from and including the date the Line
was established to and including the maturity date of the Line, a
usage fee at a rate per annum of .25% of the average daily unused
portion of the Line during such period. The Borrower may at any time
upon written notice to the Bank permanently reduce the amount of the
Line at which time the obligation of the Borrower to pay a usage fee
shall thereupon correspondingly be reduced.
iii. Letter of Credit Subfeature. As a subfeature under the Line,
Bank may from time to time up to and including December 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, minus
(c) the amount of all drawings under any Letter of Credit for which
Bank has not been reimbursed. No Letter of Credit shall have an
expiry subsequent to December 11, 1999 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, 1999 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. 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, 1998 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, 1998
the aggregate undrawn amount of all Extended Expiry LCs exceeds the
sum of (a) the amount of each Collateral Account, plus (b) 95% of the
cash value of each Collateral Policy, Borrower shall immediately
deliver to Bank, for deposit into a Collateral Account, an amount in
cash equal to such excess. Letters of Credit shall be priced at a
rate of 1.5% per annum of the face amount of the Letter of Credit,
which fee is due and payable on issuance of the Letters of Credit.
Bank shall send to Borrower notice of Bank's election to pursue any
remedy with respect to the Collateral Policy three days prior to
enforcing such remedy.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of Texas and has the
power and authority to own its property and is qualified to conduct
its business in each jurisdiction in which Borrower does business,
except to the extent the failure to obtain such qualifications or to
remain in good standing would not result in a Material Adverse Effect.
Each Subsidiary of Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of the jurisdiction in
which it is organized (as indicated on Schedule 1) and has the power
and authority to own its property and is qualified to conduct its
business in each jurisdiction in which it does business, except to the
extent the failure to obtain such qualifications or to remain in good
standing would not result in a Material Adverse Effect.
B. Authority and Compliance. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly
authorized by all proper and necessary corporate action of Borrower.
No consent or approval of any public authority or other third party is
required as a condition to the validity of any Loan Document, and
Borrower and each Subsidiary of Borrower is in compliance with all
laws and regulatory requirements to which it is subject, except to the
extent the failure to comply with such laws or regulatory requirements
would not result in a Material Adverse Effect.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving Borrower or any
Subsidiary of Borrower pending or, to the knowledge of Borrower,
threatened before any court or governmental authority, agency or
arbitration authority, except as (i) disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement, or (ii)
would not result in a Material Adverse Effect if adversely determined.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or any Subsidiary of
Borrower and no provision of any existing agreement, mortgage,
indenture or contract binding on Borrower or any Subsidiary of
Borrower or affecting its respective property, which would conflict
with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the other Loan Documents.
F. Ownership of Assets. Borrower and each Subsidiary of Borrower has
good title to its respective assets, and its respective assets are
free and clear of Liens, except those granted to Bank and as disclosed
to Bank in writing prior to the date of this Agreement.
G. Investments. Neither Borrower nor any Subsidiary of Borrower has
any Investments except as described on Schedule 1. Schedule 1 is a
complete and correct description of the name and jurisdiction of
organization of each Subsidiary of Borrower.
H. Taxes. All taxes and assessments due and payable by Borrower and
each Subsidiary of Borrower have been paid or are being contested in
good faith by appropriate proceedings and Borrower and each Subsidiary
of Borrower have filed all tax returns which it is required to file.
I. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved and
fairly present Borrower's financial condition as of the date or dates
thereof, and there has been no material adverse change in Borrower's
financial condition or operations since June 30, 1997. All factual
information furnished by Borrower to Bank in connection with this
Agreement and the other Loan Documents, when taken as a whole, is and
will be accurate and complete on the date as of which such information
is delivered to Bank and is not and will not be incomplete by the
omission of any material fact necessary to make such information, in
light of the circumstances under which they were made, not misleading.
J. Place of Business. Borrower's chief executive office is
located at:
2819 Walnut Hill Lane
Dallas, Texas 75229
K. Environmental. The conduct of Borrower's and each of Borrower's
Subsidiary's business operations and the condition of Borrower's and
each of Borrower's Subsidiary's property does not and will not violate
any federal laws, rules or ordinances for environmental protection,
regulations of the Environmental Protection Agency, any applicable
local or state law, rule, regulation or rule of common law or any
judicial interpretation thereof relating primarily to the environment
or Hazardous Materials.
L. TCB Agreement. Borrower has delivered to Bank a complete and
correct copy of the TCB Agreement and all related documents.
M. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and at and as of the
date of any advance under any Loan and the issuance of any Letter of
Credit.
4. AFFIRMATIVE COVENANTS. Until full and final payment and
performance of all obligations of Borrower under the Loan Documents,
Borrower will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):
A. Financial Statements and Other Information. Maintain a system of
accounting reasonably satisfactory to Bank and in accordance with GAAP
applied on a consistent basis throughout the period involved, permit
Bank's officers or authorized representatives to visit and inspect
Borrower's books of account and other records at such reasonable times
and as often as Bank may desire, and pay the reasonable fees and
disbursements of any accountants or other agents of Bank selected by
Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be
located at Borrower's chief executive office set forth above. All
financial statements called for below shall be prepared in form and
content reasonably acceptable to Bank and by independent certified
public accountants acceptable to Bank. Bank acknowledges that Grant
Thornton, L.P., independent certified accountants of Borrower on the
date hereof, is acceptable to Bank as of the date hereof.
In addition, Borrower will:
i. Furnish to Bank consolidated and consolidating financial
statements of Borrower for each fiscal year of Borrower, within 120
days after the close of each such fiscal year.
ii. Furnish to Bank consolidated and consolidating financial
statements (including a balance sheet and profit and loss statement)
of Borrower for each quarter of each fiscal year of Borrower, within
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 therewith are true and
correct and that the Borrower is not in default under the terms of
this Agreement, and (b) computations and conclusions, in such detail
as Bank may reasonably request, with respect to compliance with this
Agreement, and the other Loan Documents, including computations of all
quantitative covenants.
iv. Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition
of Borrower and its Subsidiaries, from time to time, as Bank may
reasonably request.
B. Insurance. Maintain, and cause each Subsidiary of Borrower to
maintain, insurance with responsible insurance companies on such of
its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance
covering all assets, and liability insurance, all to be with such
companies and in such amounts as are satisfactory to Bank and
providing for at least 15 days prior notice to Bank of any
cancellation thereof. Satisfactory evidence of such insurance will be
supplied to Bank prior to funding under the Loan(s) or issuance of the
first Letter of Credit and 15 days prior to each policy renewal.
C. Existence and Compliance. Maintain, and cause each Subsidiary of
Borrower to maintain, its existence, good standing and qualification
to do business, where required and comply with all laws, regulations
and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property,
business operations and transactions, except in each case, where the
failure of such Subsidiary to comply with the requirements of this
section would not result in a Material Adverse Effect.
D. Adverse Conditions or Events. Promptly advise Bank in writing of
(i) any condition, event or act which comes to its attention that
would or might materially adversely affect Borrower's or any of
Borrower's Subsidiary's financial condition or operations or Bank's
rights under the Loan Documents, (ii) any litigation filed by or
against Borrower or any Subsidiary of Borrower, (iii) any event that
has occurred that would constitute an event of default under any Loan
Documents, (iv) any uninsured or partially uninsured loss through
fire, theft, liability or property damage, and (v) any actual or
potential contingent liability which singly or in the aggregate with
all other actual or potential contingent liabilities could equal or
exceed $500,000.
E. Taxes and Other Obligations. Pay, and cause each Subsidiary of
Borrower to pay, all of its taxes, assessments and other material
obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good
faith by appropriate proceedings in a diligent manner.
F. Maintenance. Maintain, and cause each Subsidiary of Borrower to
maintain, all of its tangible property in good condition and repair
and make all necessary replacements thereof, and preserve and maintain
all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
G. Environmental. Immediately advise Bank in writing of (i) all
material enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened
pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting
Borrower's or any of Borrower's Subsidiary's business operations; and
(ii) all claims made or threatened by any third party against Borrower
or any Subsidiary of Borrower relating to damages, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous
Materials. Borrower shall immediately notify Bank of any remedial
action taken by Borrower or any Subsidiary of Borrower with respect to
Borrower's or any of Borrower's Subsidiary's material business
operations. Borrower will not use or permit, and will cause each
Subsidiary of Borrower to not use or permit, any other party to use
any Hazardous Materials at any of Borrower's or any of Borrower's
Subsidiary's places of business or at any other property owned by
Borrower or any Subsidiary of Borrower except such materials as are
incidental to Borrower's or any of Borrower's Subsidiary's normal
course of business, maintenance and repairs and which are handled in
material compliance with all applicable environmental laws. Borrower
agrees to permit Bank, its agents, contractors and employees to enter
and inspect any of Borrower's or any of Borrower's Subsidiary's places
of business or any other property of Borrower and each Subsidiary of
Borrower at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit
(including taking physical samples) to insure that Borrower and each
Subsidiary of Borrower are complying with this covenant and Borrower
shall reimburse Bank on demand for the reasonable costs of any such
environmental investigation and audit. Borrower shall provide, and
shall cause each Subsidiary of Borrower to provide, Bank, its agents,
contractors, employees and representatives with access to and copies
of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or disposed
of by Borrower's and each Subsidiary's of Borrower business operations
within five (5) days of the request written therefore.
5. NEGATIVE COVENANTS. Until full and final payment and performance
of all obligations of Borrower under the Loan Documents, Borrower will
not, and will not permit any Subsidiary of Borrower to, without the
prior written consent of Bank (and without limiting any requirement of
any other Loan Documents):
A. Financial Condition.
i. Borrower shall not permit the ratio of (a) Current Assets divided
by (b) Current Liabilities to be less than 1.0 to 1.0 as at the last
day of each calendar quarter.
ii. Borrower shall not permit
a) Net Income to be less than or equal to $100,000 for the six months
ending on December 31, 1997.
b) Net Income to be less than or equal to $500,000 for the nine
months ending on March 31, 1998.
c) Net Income to be less than or equal to $750,000 for the twelve
months ending on June 30, 1998.
d)Net Income to be less than or equal to $1 for the three months
ending September 30, 1998.
B. Investments. Make an Investment in or to any Person; provided,
Borrower may make Investments in the existing Subsidiaries of Borrower
identified on Schedule 1 if the aggregate of all Investments in such
Subsidiaries does not exceed at any time $2,000,000.
C. Extensions of Credit. Make any loan or advance to any Person;
provided Borrower may (i) make loans and/or advances to Subsidiaries
under the terms specified in Section B. Investments above, and (ii)
advances (not to exceed $50,000 in the aggregate) to employees for
moving and travel expenses, drawing accounts, and similar expenditures
in the ordinary course of Borrower's or its Subsidiary's business.
D. Transfer of Assets or Control. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its
business, or enter into any merger or consolidation; provided,
however, any Subsidiary of Borrower may dissolve or merge or
consolidate with or into Borrower or any other Subsidiary of Borrower.
E. Liens. Grant, suffer or permit any contractual or noncontractual
Lien on any of its assets (other than liens granted under the TCB
Agreement or related agreements to assure performance of obligations
related to letters of credit issued for the account of Borrower or any
of its Subsidiaries), or fail to promptly pay when due all lawful
claims, whether for labor, materials or otherwise; or agree with any
Person to not grant any Lien on any of its assets, except (i) with
respect to any failure to pay a claim, to the extent the failure to
pay such claims would not result in a Material Adverse Effect, and
(ii) as provided in the TCB Agreement.
F. Borrowings. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor for the
debt for another, or otherwise) other than to Bank, except for normal
trade debts incurred in the ordinary course of Borrower's and each of
Borrower's Subsidiary's business, and except for (i) existing
indebtedness disclosed to Bank in writing and acknowledged by Bank
prior to the date of this Agreement and (ii) indebtedness under or
evidenced by the TCB Agreement and any related promissory notes.
G. TCB Agreement. Amend, modify or restate the TCB Agreement, or any
related agreement, as they exist on January 12, 1998.
H. Character of Business. Change the general character of business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
6. DEFAULT. Borrower shall be in default under this Agreement and
under each of the other Loan Documents if any one or more of the
following shall occur for any reason whatsoever, whether voluntary or
involuntary, by operation of law, or otherwise:
A. Borrower shall fail to pay any principal, interest, fees or other
amounts payable under any Loan Document on the date due;
B. Any representation or warranty made or deemed made by any Obligor
(or any of its officers or representatives) under or in connection
with any Loan Document shall prove to have been incorrect or
misleading in any material respect when made or deemed made;
C. Borrower or any other Obligor shall fail to perform or observe any
term or covenant contained in any Loan Document;
D. Any Loan Document or provision thereof shall, for any reason, not
be valid and binding on any Obligor or not be in full force and
effect, or shall be declared to be null and void; the validity or
enforceability of any Loan Document shall be contested by any Obligor;
or any Obligor shall deny that it has any or further liability or
obligation under any Loan Document;
E. Any Obligor shall fail to pay any debt (other than debt under the
Loan Documents) or obligations in respect of capital leases in an
aggregate amount of $50,000 or more when due; or any Obligor shall
fail to perform or observe any term or covenant contained in any
agreement or instrument relating to any such debt, when required to be
performed or observed;
F. Any Obligor shall have any final judgment(s) outstanding against
it for the payment of $50,000 or more, and such judgment(s) shall
remain unstayed, in effect, and unpaid for the period of time after
which the judgment holder may and may cause the creation of Liens
against or seizure of any of its property;
G. Any Obligor shall be required under any environmental law (i) to
implement any remedial, neutralization, or stabilization process or
program, the cost of which exceeds $50,000, or (ii) to pay any
penalty, fine, or damages in an aggregate amount of $50,000 or more;
H. Other than with respect to any Loan Document, any Obligor shall
fail to timely and properly observe, keep or perform any term,
covenant, agreement or condition in any other loan agreement,
promissory note, security agreement, deed of trust, deed to secure
debt, mortgage, assignment or other contract securing or evidencing
payment of any indebtedness of any Obligor to Bank or any affiliate or
subsidiary of NationsBank Corporation.
I. The withdrawal of any material owner of Borrower, as determined by
Bank in its sole discretion;
J. The commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination
or dissolution of any Obligor or the merger or consolidation of any
Obligor with or into another entity (except as permitted by Section
5.D.);
K. The insolvency of, the business failure of, the appointment of a
custodian, trustee, liquidator or receiver for or for any of the
property of, the assignment for the benefit of creditors by, or the
filing of a petition under bankruptcy, insolvency or debtor's relief
law or the filing of a petition for any adjustment of indebtedness,
composition or extension by or against any Obligor;
L. The failure of any Obligor to timely deliver such financial
statements, including tax returns, other statements of condition or
other information, as Bank shall request from time to time;
M. The entry of a judgment against any Obligor which Bank deems to be
of a material nature, in Bank's sole discretion;
O. The seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment, or any turnover order for any
material property of any Obligor; or
P. The determination by Bank that a material adverse change has
occurred in the financial condition of any Obligor.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank
shall have all rights, powers and remedies available under each of the
Loan Documents (including Section 11) as well as all rights and
remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to the other party at
the following address:
Borrower:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Kent Van Houten
Bank:
NationsBank of Texas, N.A.
901 Main Street, 7th Floor
P.O. Box 831000
Dallas, Texas 75283-1000
Attn: Frank Izzo, Senior Vice President
or to such other address as any party may designate by written notice
to the other party. Each such notice, request and demand shall be
deemed given or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
not later than 5 days after demand the full amount of all costs and
expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel if
permitted by applicable law), incurred by Bank in connection with (a)
negotiation and preparation of this Agreement and each of the Loan
Documents, and (b) all other costs and attorneys' fees incurred by
Bank for which Borrower is obligated to reimburse Bank in accordance
with the terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and
all other rights of Bank, and no delay in exercising any right shall
operate as a waiver thereof, nor shall any single or partial exercise
by Bank of any right preclude any other or future exercise thereof or
the exercise of any other right. Borrower expressly waives any
presentment, demand, protest or other notice of any kind, including
but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall,
of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. Applicable Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted in
accordance with the laws of Texas and applicable United States federal
law.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This
Agreement is binding upon Borrower, its successors and assigns, and
inures to the benefit of Bank, its successors and assigns; however,
no assignment or other transfer of Borrower's rights or obligations
hereunder shall be made or be effective without Bank's prior written
consent, nor shall it relieve Borrower of any obligations hereunder.
There is no third party beneficiary of this Agreement.
D. Documents. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Bank shall be
in form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person
or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the contrary
contained in Section 10(G), Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and
all claims, demands, suits, losses, damages, assessments, fines,
penalties, costs or other expenses (including reasonable attorneys'
fees and court costs) arising from or in any way related to any of the
transactions contemplated hereby, including but not limited to actual
or threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due to a
release or alleged release of Hazardous Materials, arising from
Borrower's or any of Borrower's Subsidiary's business operations, any
other property owned by Borrower or any Subsidiary of Borrower or in
the surface or ground water arising from Borrower's or any of
Borrower's Subsidiary's business operations, or gaseous emissions
arising from Borrower's or any of Borrower's Subsidiary's business
operations or any other condition existing or arising from Borrower's
or any of Borrower's Subsidiary's business operations resulting from
the use or existence of Hazardous Materials, whether such claim proves
to be true or false. Borrower further agrees that its indemnity
obligations shall include, but are not limited to, liability for
damages resulting from the personal injury or death of an employee of
Borrower or any Subsidiary of Borrower, regardless of whether Borrower
of such Subsidiary of Borrower has paid the employee under the
workmen' s compensation laws of any state or other similar federal or
state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to,
damage to any real or personal property of Borrower or any Subsidiary
of Borrower, Bank, and of any third parties. Borrower's obligations
under this paragraph shall survive the repayment of the obligations of
Borrower under the Loan Documents and any deed in lieu of foreclosure
or foreclosure of any Deed to Secure Debt, Deed of Trust, Security
Agreement or Mortgage securing the obligations of Borrower under the
Loan Documents.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive
the making of the Loan and the issuance of each Letter of Credit and
shall continue in full force and effect so long as the Loan or any
Letter of Credit is outstanding or the obligation of Bank to make any
advances under the Line or issue any Letter of Credit or honor any
draft under any Letter of Credit shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY,
THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A)
TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
(B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS
(BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT
OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE
MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal by their duly authorized representatives
as of the date first above written.
BORROWER: BANK:
PEERLESS MFG. CO. NATIONSBANK OF TEXAS, N.A.
By: /s/ Kent J. Van Houten By: /s/ Frank Izzo
----------------------- ----------------------------
Name: Kent J. Van Houten Name: Frank Izzo
Title: Chief Financial Officer Title: Senior Vice President
Secretary/Treasurer
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
This Amended and Restated Loan Agreement ( Agreement ) dated as of
January 12, 1998, by and between Texas Commerce Bank National
Association, which will change its name after January 20, 1998 to
Chase Bank of Texas, N.A. ( Bank ) and the Borrower described below.
This Agreement amends and restates in its entirety the Loan Agreement
dated as of March 7, 1997, between Bank and Borrower (the Prior
Agreement ).
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. Compliance Certificate. Compliance Certificate means a
certificate substantially in the form of Exhibit B.
E. 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.
F. 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, without duplication, the
amount equal to the aggregate undrawn amount of all letters of credit
issued for the account of Borrower or any of its Subsidiaries.
G. 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.
H. 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.
I. 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, and the filing of
or agreement to give any financing statement or other similar form of
public notice under the laws of any jurisdiction.
J. Loan. Any loan described in Section 2 hereof (including any
unreimbursed draw under Letters of Credit) and any subsequent loan
which states that it is subject to this Agreement.
K. 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.
L. Material Adverse Effect. Any material adverse effect on (a) the
property, business operations or financial prospects of Borrower and
its Subsidiaries, taken as a whole, (b) the validity or enforceability
of any Loan Document or (c) the timely payment, after giving effect to
any applicable cure periods, of the principal of or interest on any
Loans hereunder or any other amounts payable in connection herewith.
M. NationsBank Agreement. NationsBank Agreement means the Loan
Agreement of even date herewith between Borrower and NationsBank of
Texas, N.A.
N. Net Income. Net Income means net profit after taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
O. Net Loss. Net Loss means net loss after taxes of the Borrower and
its Subsidiaries, on a consolidated basis, determined in accordance
with GAAP.
P. Obligor. Obligor means Borrower, any Subsidiary of Borrower, any
indorser or guarantor of any obligation under any Loan Document and
any other Person liable for or the property of which secures any
obligation under any Loan Document.
Q. Person. Person means an individual, partnership, joint venture,
corporation, trust, tribunal, unincorporated organization, and
government, or any department, agency, or political subdivision
thereof.
R. 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.
S. Accounting Terms. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to
such terms under generally accepted accounting principles ( GAAP ), as
in effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 3.I hereof.
2. LOANS.
A. Loan. Until December 12, 1998, Bank hereby agrees to make (or has
made) one or more loans to Borrower in the aggregate principal face
amount of $2,500,000 (as such amount may be reduced, the Line ),
provided, the aggregate unpaid principal of all loans shall not at any
time exceed the difference between (i) the Line, minus (ii) the
undrawn amount of all outstanding Letters of Credit. The obligation
to repay the loans is evidenced by the promissory note of even date
herewith (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 until December 12, 1998.
ii. Usage Fee. Borrower will pay a usage fee for the period from and
including the date the Line was established to and including the
maturity date of the Line at a rate per annum of .25% of the average
daily unused portion of the Line (calculated on the basis of a year of
365 or 366 days as the case may be), with the accrued and unpaid usage
fee being payable on the last day of each calendar quarter (beginning
March 31, 1998) and on December 12, 1998. 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, 1999,
issue letters of credit for the account of Borrower (each such letter
of credit and each letter of credit issued by the Bank for the account
of Borrower or one of its Subsidiaries under the Prior Agreement which
is outstanding on the date hereof, a Letter of Credit and
collectively, Letters of Credit ); provided, however, that the form
and substance of each Letter of Credit shall be subject to approval by
Bank in its sole discretion; and provided further that the aggregate
undrawn amount of all outstanding Letters of Credit shall not at any
time exceed the difference between (a) the Line, minus (b) the
aggregate unpaid principal amount of all Loans, minus (c) the amount
of all drawings under any Letter of Credit for which Bank has not been
reimbursed. No Letter of Credit shall have an expiry subsequent to
December 11, 1999 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, 1999 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 aggregate
amount on deposit in the Collateral Accounts. Each draft paid by Bank
under a Letter of Credit shall be deemed an advance under the Line and
shall be repaid in accordance with the terms of the Line; provided,
however, that if the Line is not available for any reason whatsoever,
at the time any draft is paid by Bank, or if advances are not
available under the Line in such amount due to any limitation of
borrowing set forth herein, then the full amount of such drafts shall
be immediately due and payable, together with interest thereon, from
the date such amount is paid by Bank to the date such amount is fully
repaid by Borrower, at that rate of interest applicable to advances
under the Line. In such event, Borrower agrees that Bank, at Bank s
sole discretion may debit any Collateral Account or Borrower s deposit
accounts with Bank for the amount of such draft. If at any time prior
to December 12, 1998 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, 1998
the aggregate undrawn amount of all Extended Expiry LCs exceeds the
aggregate amount on deposit in the Collateral Accounts, 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 1.00% per annum of the face amount of the Letter
of Credit, which fee is due and payable on issuance of the Letters of
Credit.
B. 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 C, 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, Banks standard form Application for the
Issuance of an Irrevocable Standby Letter of Credit in form and
substance acceptable to Bank and its legal counsel, duly executed and
delivered by Borrower 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.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of Texas and has the
power and authority to own its property and is qualified to conduct
its business in each jurisdiction in which Borrower does business,
except to the extent the failure to obtain such qualifications would
not result in a Material Adverse Effect. Each Subsidiary of Borrower
is a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized
(as indicated on Schedule 1) and has the power and authority to own
its property and is qualified to conduct its business in each
jurisdiction in which it does business, except to the extent the
failure to obtain such qualifications would not result in a Material
Adverse Effect.
B. Authority and Compliance. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly
authorized by all proper and necessary corporate action of Borrower.
No consent or approval of any public authority or other third party is
required as a condition to the validity of any Loan Document, and
Borrower and each Subsidiary of Borrower is in compliance in all
material respects with all laws and regulatory requirements to which
it is subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving Borrower or any
Subsidiary of Borrower pending or, to the knowledge of Borrower,
threatened before any court or governmental authority, agency or
arbitration authority, except as (i) disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement or (ii) would
not result in a Material Adverse Effect if adversely determined.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or any Subsidiary of
Borrower and no provision of any existing agreement, mortgage,
indenture or contract binding on Borrower or any Subsidiary of
Borrower or affecting its respective property, which would conflict
with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the other Loan Documents.
F. Ownership of Assets. Borrower and each Subsidiary of Borrower has
good title to its respective assets, and its respective assets are
free and clear of Liens, except those granted to Bank and as disclosed
to Bank in writing prior to the date of this Agreement.
G. Investments. Neither Borrower nor any Subsidiary of Borrower has
any Investments except as described on Schedule 1. Schedule 1 is a
complete and correct description of the name and jurisdiction of
organization of each Subsidiary of Borrower.
H. Taxes. All taxes and assessments due and payable by Borrower and
each Subsidiary of Borrower have been paid or are being contested in
good faith by appropriate proceedings and Borrower and each Subsidiary
of Borrower have filed all tax returns which it is required to file.
I. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved and
fairly present Borrower s financial condition as of the date or dates
thereof, and there has been no material adverse change in Borrower s
financial condition or operations since June 30, 1997. All factual
information furnished by Borrower to Bank in connection with this
Agreement and the other Loan Documents, when taken as a whole, is and
will be accurate and complete on the date as of which such information
is delivered to Bank and is not and will not be incomplete by the
omission of any material fact necessary to make such information, in
light of the circumstances under which they were made, not misleading.
J. Place of Business. Borrower s chief executive office is located
at:
2819 Walnut Hill Lane
Dallas, Texas 75229
K. Environmental. The conduct of Borrower s and each of Borrower s
Subsidiary s business operations and the condition of Borrower s and
each of Borrower s Subsidiary s property does not and will not violate
any federal laws, rules or ordinances for environmental protection,
regulations of the Environmental Protection Agency, any applicable
local or state law, rule, regulation or rule of common law or any
judicial interpretation thereof relating primarily to the environment
or Hazardous Materials.
L. NationsBank Agreement. Borrower has delivered to Bank a complete
and correct copy of the NationsBank Agreement and all related
documents.
M. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and at and as of the
date of any advance under any Loan and the issuance of any Letter of
Credit.
4. AFFIRMATIVE COVENANTS. Until full and final payment and
performance of all obligations of Borrower under the Loan Documents,
Borrower will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):
A. Financial Statements and Other Information. Maintain a system of
accounting reasonably satisfactory to Bank and in accordance with GAAP
applied on a consistent basis throughout the period involved, permit
Bank s officers or authorized representatives to visit and inspect
Borrower s books of account and other records at such reasonable times
and as often as Bank may desire, and pay the reasonable fees and
disbursements of any accountants or other agents of Bank selected by
Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower s books and records will be
located at Borrower s chief executive office set forth above. All
financial statements called for below shall be prepared in form and
content reasonably acceptable to Bank and by independent certified
public accountants acceptable to Bank; provided, however, Bank hereby
(i) acknowledges the adequacy of the form and content of Borrower s
financial statements delivered prior to the date hereof and (ii)
unless the Bank provides the Borrower written notice otherwise, the
Borrower s current independent certified public accountants are
acceptable to the Bank.
In addition, Borrower will:
i. Furnish to Bank consolidated and consolidating financial
statements of Borrower for each fiscal year of Borrower, within 120
days after the close of each such fiscal year.
ii. Furnish to Bank consolidated and consolidating financial
statements (including a balance sheet and profit and loss statement)
of Borrower for each quarter of each fiscal year of Borrower, within
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 therewith are true and
correct and that the Borrower is not in default under the terms of
this Agreement, and (b) computations and conclusions, in such
reasonable 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. Satisfactory evidence of such insurance will be supplied to
Bank prior to funding under the Loan(s) or issuance of the first
Letter of Credit and 15 days prior to each policy renewal.
C. Existence and Compliance. Maintain, and cause each Subsidiary of
Borrower to maintain, its existence, good standing and qualification
to do business, where required, except in the case of good standing
and qualification, where the failure of Borrower or such Subsidiary to
be so qualified or in good standing would not result in a Material
Adverse Effect, and comply in all material respects 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 reasonably be expected to result in a Material Adverse Effect,
(ii) any litigation filed by or against Borrower or any Subsidiary of
Borrower, which would reasonably be expected to result in a Material
Adverse Effect, if adversely determined, (iii) any event that has
occurred that would constitute an event of default under any Loan
Documents, and (iv) any actual or potential contingent liability which
singly or in the aggregate with all other actual or potential
contingent liabilities could equal or exceed $500,000.
E. Taxes and Other Obligations. Pay, and cause each Subsidiary of
Borrower to pay, all of its taxes, assessments and other material
obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good
faith by appropriate proceedings in a diligent manner.
F. Environmental. Immediately advise Bank in writing of (i) any
material enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened
pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting Borrower
s or any of Borrower s Subsidiary s business operations; and (ii) all
claims made or threatened by any third party against Borrower or any
Subsidiary of Borrower relating to damages, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous
Materials. Borrower will not use or permit, and will cause each
Subsidiary of Borrower to not use or permit, any other party to use
any Hazardous Materials at any of Borrower s or any of Borrower s
Subsidiary s places of business or at any other property owned by
Borrower or any Subsidiary of Borrower except such materials as are
incidental to Borrower s or any of Borrower s Subsidiary s normal
course of business, maintenance and repairs and which are handled in
material compliance with all applicable environmental laws. Borrower
agrees to permit Bank, its agents, contractors and employees to enter
and inspect any of Borrower s or any of Borrower s Subsidiary s places
of business or any other property of Borrower and each Subsidiary of
Borrower at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit
(including taking physical samples) to insure that Borrower and each
Subsidiary of Borrower are complying with this covenant and Borrower
shall reimburse Bank on demand for the reasonable costs of any such
environmental investigation and audit. Borrower shall provide, and
shall cause each Subsidiary of Borrower to provide, Bank, its agents,
contractors, employees and representatives with access to and copies
of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or disposed
of by Borrower s and each Subsidiary s of Borrower business operations
within five (5) days of the written 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 $100,000 for the six months
ending on December 31, 1997.
(b) Net Income to be less than or equal to $500,000 for the nine
months ending on March 31, 1998.
(c) Net Income to be less than or equal to $750,000 for the twelve
months ending on June 30, 1998.
(d) Net Income to be less than or equal to $1 for the three months
ending September 30, 1998.
B. Investments. Make an Investment in or to any Person; provided,
Borrower may make investments in the existing Subsidiaries of Borrower
identified on Schedule 1 if the aggregate of all Investments in such
Subsidiaries (as disclosed on Schedule 1) does not exceed at any time
$2,000,000.
C. Extensions of Credit. Make any loan or advance to any Person;
provided Borrower may (i) make loans and/or advances to Subsidiaries
under the terms specified in Section "B. Investments" above and (ii)
advances (not to exceed $50,000 in the aggregate) to employees for
moving and travel expenses, drawing accounts, and similar expenditures
in the ordinary course of Borrower's or its Subsidiary's business.
D. Transfer of Assets or Control. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its
business, or enter into any merger or consolidation; provided,
however, any Subsidiary of Borrower may dissolve or merge or
consolidate with or into any other Subsidiary of Borrower.
E. Liens. Grant, suffer or permit any contractual Lien on any of its
assets (other than Liens granted under the NationsBank Agreement or
related agreements to assure performance of obligations related to
letters of credit issued for the account of Borrower or any of its
Subsidiaries) except Liens granted under the terms of this Agreement
and the NationsBank Agreement. Fail to promptly pay when due all
lawful claims, whether for labor, materials or otherwise, except to
the extent the failure to pay such claims would not result in a
Material Adverse Effect. Agree with any Person to not grant any Lien
on any of its assets, except as set forth in the NationsBank
Agreement.
F. Borrowings. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the
purchase of assets, as surety or guarantor for the debt for another,
or otherwise) other than to Bank, except for normal trade debts
incurred in the ordinary course of Borrower's and each of Borrower's
Subsidiary's business, and except for (i) existing indebtedness
disclosed to Bank in writing and acknowledged by Bank prior to the
date of this Agreement and (ii) indebtedness under or evidenced by the
NationsBank Agreement and any related promissory notes.
G. NationsBank Agreement. Amend, modify or restate the NationsBank
Agreement, or any related agreement and any related promissory notes
as they exist the date hereof.
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 interest, fees or other amounts
payable under any Loan Document within three days after date due or
Borrower shall fail to pay any principal under any Loan Document when
due;
B. Any representation or warranty made or deemed made by any Obligor
(or any of its officers or representatives) under or in connection
with any Loan Document shall prove to have been incorrect or
misleading in any material respect when made or deemed made;
C. Borrower or any other Obligor shall fail to perform or observe any
term or covenant contained in any Loan Document;
D. Any Loan Document or provision thereof shall, for any reason, not
be valid and binding on any Obligor or not be in full force and
effect, or shall be declared to be null and void; the validity or
enforceability of any Loan Document shall be contested by any Obligor,
or any Obligor shall deny that it has any or further liability or
obligation under any Loan Document;
E. The occurrence of any event described in Section 8(b) or (c) of
the Note with respect to Borrower or any Subsidiary of Borrower;
F. Any Obligor shall fail to pay any debt (other than debt under the
Loan Documents) or obligations in respect of capital leases in an
aggregate amount of $50,000 or more when due; or any Obligor shall
fail to perform or observe any term or covenant contained in any
agreement or instrument relating to any such debt when required to be
performed or observed, including, without limitation, any term or
covenant contained in the NationsBank Loan Agreement;
G. Any Obligor shall have any final judgment(s) outstanding against
it for the payment of $50,000 or more, and such judgment(s) shall
remain unstayed, in effect, and unpaid for the period of time after
which the judgment holder may and may cause the creation of Liens
against or seizure of any of its property;
H. Any Obligor shall be required under any environmental law (i) to
implement any remedial, neutralization, or stabilization process or
program, the cost of which exceeds $50,000, or (ii) to pay any
penalty, fine, or damages in an aggregate amount of $50,000 or more;
I. Other than with respect to any Loan Document, any Obligor shall
fail to timely and properly observe, keep or perform any term,
covenant, agreement or condition in any other loan agreement,
promissory note, security agreement, deed of trust, deed to secure
debt, mortgage, assignment or other contract securing or evidencing
payment of any indebtedness of any Obligor to Bank or any affiliate or
subsidiary of the Bank;
J. The withdrawal of any material owner of Borrower, as determined by
Bank in its sole discretion;
K. The commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination
or dissolution of any Obligor or the merger or consolidation of any
Obligor with or into another entity (except as permitted by Section
5.D);
L. The insolvency of, the business failure of, the appointment of a
custodian, trustee, liquidator or receiver for or for any of the
property of, the assignment for the benefit of creditors by, or the
filing of a petition under bankruptcy, insolvency or debtor's relief
law or the filing of a petition for any adjustment of indebtedness,
composition or extension by or against any Obligor;
M. The failure of any Obligor to timely deliver such financial
statements, including tax returns, other statements of condition or
other information, as Bank shall request from time to time;
N. The entry of a judgment against any Obligor which Bank deems to be
of a material nature, in Bank's sole discretion;
O. The seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment, or any turnover order for any
material property of any Obligor; or
P. The determination by Bank that a material adverse change has
occurred in the financial condition of any Obligor.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank
shall have all rights, powers and remedies available under each of the
Loan Documents (including Section 11) as well as all rights and
remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to the other party at
the following address:
Borrower:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Ken Van Houten
Bank:
Texas Commerce Bank National Association
12875 Josey Lane
Dallas, Texas 75234-6398
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
on demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel if permitted by applicable
law), incurred by Bank in connection with (a) negotiation and
preparation of this Agreement and each of the Loan Documents, and (b)
all other costs and attorneys' fees incurred by Bank for which
Borrower is obligated to reimburse Bank in accordance with the terms
of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and
all other rights of Bank, and no delay in exercising any right shall
operate as a waiver thereof, nor shall any single or partial exercise
by Bank of any right preclude any other or future exercise thereof or
the exercise of any other right. Borrower expressly waives any
presentment, demand, protest or other notice of any kind, including
but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall,
of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. Applicable Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted in
accordance with the laws of Texas and applicable United States federal
law.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This
Agreement is binding upon Borrower, its successors and assigns, and
inures to the benefit of Bank, its successors and assigns; however,
no assignment or other transfer of Borrower's rights or obligations
hereunder shall be made or be effective without Bank's prior written
consent, nor shall it relieve Borrower of any obligations hereunder.
There is no third party beneficiary of this Agreement.
D. Documents. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Bank shall be
in form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person
or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
F. Indemnification. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN SECTION 10(G), BORROWER SHALL INDEMNIFY, DEFEND AND HOLD
BANK AND ITS SUCCESSORS AND ASSIGNS HARMLESS FROM AND AGAINST ANY AND
ALL CLAIMS, DEMANDS, SUITS, LOSSES, DAMAGES, ASSESSMENTS, FINES,
PENALTIES, COSTS OR OTHER EXPENSES (INCLUDING REASONABLE ATTORNEYS'
FEES AND COURT COSTS) ARISING FROM OR IN ANY WAY RELATED TO ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO ACTUAL
OR THREATENED DAMAGE TO THE ENVIRONMENT, AGENCY COSTS OF
INVESTIGATION, PERSONAL INJURY OR DEATH, OR PROPERTY DAMAGE, DUE TO A
RELEASE OR ALLEGED RELEASE OF HAZARDOUS MATERIALS, ARISING FROM
BORROWER'S OR ANY OF BORROWER'S SUBSIDIARY'S BUSINESS OPERATIONS, ANY
OTHER PROPERTY OWNED BY BORROWER OR ANY SUBSIDIARY OF BORROWER OR IN
THE SURFACE OR GROUND WATER ARISING FROM BORROWER'S OR ANY OF
BORROWER'S SUBSIDIARY'S BUSINESS OPERATIONS, OR GASEOUS EMISSIONS
ARISING FROM BORROWER'S OR ANY OF BORROWER'S SUBSIDIARY'S BUSINESS
OPERATIONS OR ANY OTHER CONDITION EXISTING OR ARISING FROM BORROWER'S
OR ANY OF BORROWER'S SUBSIDIARY'S BUSINESS OPERATIONS RESULTING FROM
THE USE OR EXISTENCE OF HAZARDOUS MATERIALS, WHETHER SUCH CLAIM PROVES
TO BE TRUE OR FALSE. BORROWER FURTHER AGREES THAT ITS INDEMNITY
OBLIGATIONS SHALL INCLUDE, BUT ARE NOT LIMITED TO, LIABILITY FOR
DAMAGES RESULTING FROM THE PERSONAL INJURY OR DEATH OF AN EMPLOYEE OF
BORROWER OR ANY SUBSIDIARY OF BORROWER, REGARDLESS OF WHETHER BORROWER
OR SUCH SUBSIDIARY OF BORROWER HAS PAID THE EMPLOYEE UNDER THE
WORKMEN'S COMPENSATION LAWS OF ANY STATE OR OTHER SIMILAR FEDERAL OR
STATE LEGISLATION FOR THE PROTECTION OF EMPLOYEES. THE TERM "PROPERTY
DAMAGE" AS USED IN THIS PARAGRAPH INCLUDES, BUT IS NOT LIMITED TO,
DAMAGE TO ANY REAL OR PERSONAL PROPERTY OF BORROWER OR ANY SUBSIDIARY
OF BORROWER, BANK, AND OF ANY THIRD PARTIES. BORROWER'S OBLIGATIONS
UNDER THIS PARAGRAPH SHALL SURVIVE THE REPAYMENT OF THE OBLIGATIONS OF
BORROWER UNDER THE LOAN DOCUMENTS AND ANY DEED IN LIEU OF FORECLOSURE
OR FORECLOSURE OF ANY DEED TO SECURE DEBT, DEED OF TRUST, SECURITY
AGREEMENT OR MORTGAGE SECURING THE OBLIGATIONS OF BORROWER UNDER THE
LOAN DOCUMENTS.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive
the making of the Loan and the issuance of each Letter of Credit and
shall continue in full force and effect so long as the Loan or any
Letter of Credit is outstanding or the obligation of Bank to make any
advances under the Line or issue any Letter of Credit or honor any
draft under any Letter of Credit shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./
ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE
SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY
BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A)
TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
(B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS
(BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT
OR DOCUMENT, NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE
MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.
13. TEXAS FINANCE CODE. Chapter 346 of the Texas Finance Code is
specifically declared by the parties hereto not to be applicable to
any Loan Documents or the transactions contemplated thereby.
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. TEXAS COMMERCE BANK NATIONAL
NATIONAL ASSOCIATION
By: /s/ Kent J. Van Houten By: /s/ David L. Howard
----------------------- ----------------------------
Name: Kent J. Van Houten Name: David L. Howard
Title: Chief Financial Officer Title: Vice President
Secretary/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,990,064
<SECURITIES> 260,594
<RECEIVABLES> 9,064,236
<ALLOWANCES> 351,867
<INVENTORY> 3,862,770
<CURRENT-ASSETS> 15,737,125
<PP&E> 8,179,988
<DEPRECIATION> 5,744,942
<TOTAL-ASSETS> 18,818,223
<CURRENT-LIABILITIES> 6,809,600
<BONDS> 0
0
0
<COMMON> 1,451,992
<OTHER-SE> 10,456,669
<TOTAL-LIABILITY-AND-EQUITY> 18,818,223
<SALES> 18,247,561
<TOTAL-REVENUES> 18,247,561
<CGS> 11,893,871
<TOTAL-COSTS> 11,893,871
<OTHER-EXPENSES> 4,203,610
<LOSS-PROVISION> 21,719
<INTEREST-EXPENSE> 14,586
<INCOME-PRETAX> 934,684
<INCOME-TAX> 298,355
<INCOME-CONTINUING> 636,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636,329
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0
</TABLE>
