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