Exhibit 10.3

SECOND AMENDMENT TO CREDIT AGREEMENT

THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated May 7, 2014,
but to be effective as of March 29, 2014 (the “Effective Date”), among PMFG,
INC., a Delaware corporation (“PMFG”), and PEERLESS MFG. CO., a Texas
corporation (“Peerless”, and PMFG and Peerless, individually and collectively
shall be referred to herein as, the “Borrower”); each of the Lenders party
hereto; and CITIBANK, N.A., a national banking association (in its individual
capacity, “Citibank”), as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the “Administrative
Agent”).

BACKGROUND

A. The Borrower, the Lenders and the Administrative Agent are parties to that
certain Credit Agreement, dated as of September 7, 2012 (said Credit Agreement,
as amended, the “Credit Agreement”; the terms defined in the Credit Agreement
and not otherwise defined herein shall be used herein as defined in the Credit
Agreement).

B. The Borrower, the Lenders and the Administrative Agent desire to amend the
Credit Agreement, subject to the terms and conditions contained herein.

NOW, THEREFORE, in consideration of the covenants, conditions and agreements
hereafter set forth, and for other good and valuable consideration, the receipt
and adequacy of which are all hereby acknowledged, the parties hereto covenant
and agree as follows:

1. AMENDMENTS.

(a) The definition of “Borrowing Base” set forth in Section 1.02 of the Credit
Agreement is hereby amended in its entirety to read as follows:

“Borrowing Base” means, as of any date:

(a) during a DSCR Compliance Period, an amount equal to (i) the sum of
(A) eighty percent (80%) of the aggregate amount of Eligible Accounts on such
date plus (B) fifty percent (50%) of the aggregate amount of Eligible Inventory
on such date plus (C) one hundred percent (100%) of the cash held in the LC Cash
Account as of such date of determination, minus (ii) the Foreign Currency Letter
of Credit Contingency Amount; and

(b) during a DSCR Non-Compliance Period, an amount equal to (i) one hundred
percent (100%) of the Amended Borrowing Base Cash Collateral held by the
Administrative Agent pursuant to Section 2.13 at such time, less (ii) the Cash
Buy Down Amount at such time.

(b) The definition of “Borrowing Base Certificate” set forth in Section 1.02 of
the Credit Agreement is hereby amended by adding the following sentence at the
end thereof: “For the avoidance of doubt, for so long as the Amended Borrowing
Base is in effect, the calculations set forth on the Borrowing Base Certificate
most recently delivered shall be used for informational purposes only.”

(c) The definition of “LC Cash Account” set forth in Section 1.02 of the Credit
Agreement is hereby amended by adding the following sentence at the end thereof:
“For the avoidance of doubt, the LC Cash Account shall include any one or more
such deposit accounts and shall include the LC Collection Account and the
Amended Borrowing Base Cash Collateral Account (as defined in Section 2.13).”

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(d) Section 1.02 of the Credit Agreement is hereby amended by adding the
following definitions thereto in appropriate alphabetical order:

“Amended Borrowing Base” shall mean the Borrowing Base as determined in
accordance with clause (b) of the definition of “Borrowing Base”.

“Amended Borrowing Base Cash Collateral” has the meaning set forth in Section
2.13.

“Cash Buy Down Amount” means, as of any date of determination, an amount equal
to (a) $3,000,000, minus (b) the sum of the payments made on the Term Loans
pursuant to Sections 3.01 and 3.04 of the Credit Agreement from and after the
Second Amendment Effective Date through such date of determination.

“DSCR Compliance Period” means any period (a) commencing upon the delivery of
the Borrower’s financial statements pursuant to Sections 8.01(a) and 8.01(b), as
applicable, which show that the Debt Service Coverage Ratio as of the last day
of the most recently ended fiscal quarter was equal to or greater than
1.50:1.00, and (b) ending upon the commencement of a DSCR Non-Compliance Period;
provided, however, that if the Borrower fails to timely deliver the financial
statements required by Sections 8.01(a) and 8.01(b), as applicable, the Borrower
shall be deemed to be in a DSCR Non-Compliance Period until the required
financial statements are delivered which show that the Borrower is in a DSCR
Compliance Period.

“DSCR Non-Compliance Period” means any period (a) commencing upon the delivery
of the Borrower’s financial statements pursuant to Sections 8.01(a) and 8.01(b),
as applicable, which show that the Debt Service Coverage Ratio as of the last
day of the most recently ended fiscal quarter was less than 1.50:1.00, and
(b) ending upon the commencement of a DSCR Compliance Period; provided, however,
that if the Borrower fails to timely deliver the financial statements required
by Sections 8.01(a) and 8.01(b), as applicable, the Borrower shall be deemed to
be in a DSCR Non-Compliance Period until the required financial statements are
delivered which show that the Borrower is in a DSCR Compliance Period.

“Second Amendment Effective Date” means March 29, 2014.

(e) A new Section 2.13 shall be added to the Credit Agreement which shall read
in its entirety as follows:

Section 2.13 Cash Collateral – Amended Borrowing Base. At any time, Borrower may
pledge and deposit with or deliver to the Administrative Agent cash collateral
for purposes of determining the Amended Borrowing Base (the “Amended Borrowing
Base Cash Collateral”), provided that, notwithstanding anything to the contrary
in the Credit Agreement, Borrower shall not, as of any date of determination, be
required to maintain Amended Borrowing Base Cash Collateral in the Amended
Borrowing Base Cash Collateral Account in excess of an aggregate amount (the
“Minimum Amended Borrowing Base Cash Collateral Amount”) equal to the greater of
(a) $10,000,000, or (b) an aggregate amount equal to (i) 100% of the Risk
Adjusted Revolving Credit Exposure as of any such date, plus (ii) the Cash Buy
Down Amount as of such date. The Amended Borrowing Base Cash Collateral shall be
deposited in a money market account of the Borrower established with the
Administrative Agent (the “Amended Borrowing Base Cash Collateral Account”),
subject to the provisions set forth in the following clauses (a) and (b) below.

 

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(a) Grant of Security Interest. The Borrower hereby grants to the Administrative
Agent, for the benefit of the Secured Parties, an exclusive first priority and
continuing perfected security interest in and Lien on the Amended Borrowing Base
Cash Collateral Account and all cash, checks, drafts, certificates and
instruments, if any, from time to time deposited or held in the Amended
Borrowing Base Cash Collateral Account, all deposits or wire transfers made
thereto, any and all investments purchased with funds deposited in such account,
all interest, dividends, cash, instruments, financial assets and other Property
from time to time received, receivable or otherwise payable in respect of, or in
exchange for, any or all of the foregoing, and all proceeds, products,
accessions, rents, profits, income and benefits therefrom, and any substitutions
and replacements therefor. The Amended Borrowing Base Cash Collateral, to the
fullest extent permitted by applicable Law, shall not be subject to any defense
or be affected by a right of set-off, counterclaim or recoupment which the
Borrower or any of its Subsidiaries may now or hereafter have against the
Administrative Agent, the Lenders or any other Person for any reason whatsoever.
Such deposit shall be held as collateral securing the payment and performance of
the Obligations. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over the Amended Borrowing
Base Cash Collateral Account. Interest or profits, if any, on such Amended
Borrowing Base Cash Collateral shall accumulate in the Amended Borrowing Base
Cash Collateral Account.

(b) Release.

(i) Upon the Borrower’s request at any time while the Amended Borrowing Base is
in effect, the Administrative Agent shall return to the Borrower all amounts
being held in the Amended Borrowing Base Cash Collateral Account in excess of
the Minimum Amended Borrowing Base Cash Collateral Amount, provided that no
Default has occurred and is continuing and no Borrowing Base Deficiency then
exists or would result therefrom.

(ii) Upon the Borrower’s request, provided that the Amended Borrowing Base is
not then in effect, the Administrative Agent shall return to the Borrower all
amounts being held in the Amended Borrowing Base Cash Collateral Account,
provided that no Default has occurred and is continuing and no Borrowing Base
Deficiency then exists or would result therefrom.

(f) Section 9.01(b) of the Credit Agreement is hereby amended by adding the
following proviso to the end of the sentence set forth therein: “; provided,
however, that for so long as the Amended Borrowing Base is in effect, the
Borrower shall not be required to comply with this Section 9.01(b).”

2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution
and delivery hereof, the Borrower represents and warrants that, as of the date
hereof and after giving effect to the amendments set forth in the foregoing
Section 1 of this Amendment:

(a) the representations and warranties contained in the Credit Agreement and the
other Loan Documents are true and correct on and as of the date hereof as made
on and as of such date, except to the extent that such representations and
warranties specifically refer to an earlier date, in which case they are true
and correct as of such earlier date;

 

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(b) no event has occurred and is continuing which constitutes a Default or an
Event of Default;

(c) (i) the Borrower has full power and authority to execute and deliver this
Amendment, (ii) this Amendment has been duly executed and delivered by Borrower,
and (iii) this Amendment and the Credit Agreement, as amended hereby, constitute
the legal, valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms, except as enforceability
may be limited by applicable Debtor Relief Laws and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law) and except as rights to indemnity may be limited by federal or state
securities laws; and

(d) no authorization, approval, consent, or other action by, notice to, or
filing with, any Governmental Authority or other Person (not previously
obtained), is required for (i) the execution, delivery or performance by the
Borrower of this Amendment, or (ii) the acknowledgment by each Guarantor of this
Amendment.

3. CONDITIONS TO EFFECTIVENESS. All provisions of this Amendment shall be
effective as of the Effective Date upon satisfaction or completion of the
following:

(a) Administrative Agent shall have received counterparts of this Amendment
executed by the Required Lenders;

(b) Administrative Agent shall have received counterparts of this Amendment
executed by the Borrower and acknowledged by each Guarantor;

(c) Administrative Agent shall have received cash collateral of at least
$10,000,000 to be maintained in accordance with Section 2.13 of the Credit
Agreement (as amended hereby);

(d) Administrative Agent shall have received for the account of each Lender
party hereto payment of an amendment fee in an amount equal to 10 basis points
of the sum of such Lender’s (i) Revolving Credit Exposures, (ii) outstanding
Term Loans and (iii) unused Commitments, in each case as of the date of this
Amendment;

(e) Administrative Agent shall have received reimbursement or payment of all
reasonable out-of-pocket expenses required to be reimbursed or paid by the
Borrower under the Credit Agreement, including without limitation, the
reasonable fees and expenses of Winstead PC, counsel to the Administrative
Agent; and

(f) The Administrative Agent shall have received, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall require.

4. GUARANTORS’ ACKNOWLEDGMENT. By signing below, each Guarantor
(i) acknowledges, consents and agrees to the execution, delivery and performance
by the Borrower of this Amendment, (ii) acknowledges and agrees that the
obligations of such Guarantor in respect of the Guaranty Agreement are not
released, diminished, waived, modified, impaired or affected in any manner by
this Amendment, or any of the provisions contemplated herein, (iii) ratifies and
confirms the obligations of such Guarantor under the Guaranty Agreement and
(iv) acknowledges and agrees that such Guarantor has no claim or offsets
against, or defenses or counterclaims to, the guaranty under the Guaranty
Agreement.

 

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5. REFERENCE TO THE CREDIT AGREEMENT.

(a) Upon and during the effectiveness of this Amendment, each reference in the
Credit Agreement to “this Agreement”, “hereunder”, or words of like import shall
mean and be a reference to the Credit Agreement, as affected by this Amendment.

(b) Except as expressly set forth herein, this Amendment shall not by
implication or otherwise limit, impair, constitute a waiver of, or otherwise
affect the rights or remedies of Administrative Agent or Lenders under the
Credit Agreement or any of the other Loan Documents, and shall not alter,
modify, amend, or in any way affect the terms, conditions, obligations,
covenants, or agreements contained in the Credit Agreement and the other Loan
Documents, all of which are hereby ratified and affirmed in all respects. The
Credit Agreement, as amended by the amendments referred to above, shall remain
in full force and effect.

6. COSTS AND EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent on demand for all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, reproduction, execution
and delivery of this Amendment and the other instruments and documents to be
delivered hereunder (including the reasonable fees and out-of-pocket expenses of
counsel for the Administrative Agent with respect thereto).

7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which when taken together shall constitute but one and the same instrument.
For purposes of this Amendment, a counterpart hereof (or signature page thereto)
signed and transmitted by any Person party hereto to the Administrative Agent
(or its counsel) by facsimile machine, telecopier or electronic mail is to be
treated as an original. The signature of such Person thereon, for purposes
hereof, is to be considered as an original signature, and the counterpart (or
signature page thereto) so transmitted is to be considered to have the same
binding effect as an original signature on an original document.

8. GOVERNING LAW; BINDING EFFECT. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed entirely within such state (provided that
each party shall retain all rights arising under federal law), and shall be
binding upon the parties hereto and their respective successors and assigns.

9. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO
THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

 

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first above written.

 

BORROWER:

 

PMFG, INC.,

a Delaware corporation

By:  

/s/ Ronald L. McCrummen

 

Ronald L. McCrummen

Chief Financial Officer, Assistant

Secretary and Treasurer

 

PEERLESS MFG. CO.,

a Texas corporation

By:  

/s/ Ronald L. McCrummen

 

Ronald L. McCrummen

Treasurer

 

Signature Page to Second Amendment

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CITIBANK, N.A.,

as Administrative Agent and a Lender

By:   /s/ John Torres Name:   John Torres Title:   Senior Vice President

 

Signature Page to Second Amendment

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HSBC BANK USA, N.A.,

as Lender

By:   /s/ Robert Clouse Name:   Robert Clouse Title:   Senior Vice President

 

Signature Page to Second Amendment

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ACKNOWLEDGED AND AGREED: NITRAM ENERGY, INC., a New York corporation By:   /s/
Ronald L. McCrummen Ronald L. McCrummen Vice President, Treasurer and Secretary

 

PMC ACQUISITION, INC., a Texas corporation By:   /s/ Ronald L. McCrummen Ronald
L. McCrummen Vice President, Treasurer and Secretary

 

BURGESS-MANNING, INC., a Texas corporation By:   /s/ Ronald L. McCrummen Ronald
L. McCrummen Vice President, Treasurer and Secretary

 

BURMAN MANAGEMENT, INC., a Texas corporation By:   /s/ Ronald L. McCrummen
Ronald L. McCrummen Vice President, Treasurer and Secretary

 

BOS-HATTEN, INC., a New York corporation By:   /s/ Ronald L. McCrummen Ronald L.
McCrummen Vice President, Treasurer and Secretary

 

Signature Page to Second Amendment