Exhibit 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
     THIS FIRST AMENDMENT TO CREDIT AGREEMENT (herein called this “Amendment”)
made as of September 30, 2006 by and between PEERLESS MFG. CO., a Texas
corporation (“Borrower”), and COMERICA BANK, a Michigan banking corporation
(“Bank”).
WITNESSETH:
     WHEREAS, Borrower and Bank have entered into that certain Credit Agreement
dated as of October 30, 2003 (the “Original Credit Agreement”), for the purposes
and consideration therein expressed, pursuant to which Bank became obligated to
make loans to Borrower as therein provided; and
     WHEREAS, Borrower and Bank desire to amend the Original Credit Agreement as
provided herein;
     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Credit Agreement, in
consideration of the loans which may hereafter be made by Bank to Borrower, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
     § 1.1 Terms Defined in the Original Credit Agreement. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Credit Agreement shall have the same meanings whenever
used in this Amendment.
     § 1.2 Other Defined Terms. Unless the context otherwise requires, the
following terms when used in this Amendment shall have the meanings assigned to
them in this § 1.2.
          “Amendment” means this First Amendment to Credit Agreement.
          “Amendment Documents” means, collectively, this Amendment and the
confirmation by Guarantor with respect to this Amendment and any other document
required to be delivered by Borrower pursuant to Article III hereof.
          “Credit Agreement” means the Original Credit Agreement as amended
hereby.
          “Renewal Note” means a promissory note in the form attached hereto as
Exhibit A.

 

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ARTICLE II.
Amendments to Original Credit Agreement
     § 2.1 Definitions.
     (a) The following definitions in the Defined Terms Addendum to the Original
Agreement are hereby amended in their entirety to read as follows:
          “‘Applicable Calendar Month’ means every calendar month.”
          “‘Revolving Credit Maturity Date’ shall mean September 30, 2008 or
such earlier date on which the entire unpaid principal amount of al Revolving
Loans becomes due and payable whether by the lapse of time, demand for payment,
acceleration or otherwise; provided, however, if any such date is not a Business
Day, then the Revolving Credit Maturity Date shall be the next succeeding
Business Day.”
          “‘Revolving Credit Maximum Amount’ shall mean the lesser of (i) NINE
MILLION DOLLARS ($9,000,000), or (ii) the Borrowing Base Limitation.”
     (b) The following definitions are hereby added to the Defined Terms
Addendum of the Original Agreement in alphabetical order:
          “Capital Expenditure” shall mean any expenditure by a Person for
(a) an asset which will be used in a year or years subsequent to the year in
which the expenditure is made and which asset is properly classified in relevant
financial statements of such Person as equipment, real property, a fixed asset
or a similar type of capitalized asset in accordance with GAAP or (b) an asset
relating to or acquired in connection with an acquired business, and any and all
acquisition costs related to (a) or (b) above.
          “Letter of Credit Sublimit” means $8,000,000.
          “Net Income” shall mean the net income (or loss) of a Person for any
applicable period of determination, determined in accordance with GAAP, but
excluding, in any event:
(a) any gains or losses on the sale or other disposition, not in the ordinary
course of business, of investments or fixed or capital assets, post-employment
benefits for retired executive officer incurred in the fourth fiscal quarter
ending June 30, 2006 in the pre-tax amount of $412,000, any other non-recurring
costs and expenses approved by Bank in its discretion; and any taxes on the
excluded gains and any tax deductions or credits on account of any excluded
losses or non-recurring costs and expenses approved by Bank in its discretion;
and
(b) in the case of Borrower, net earnings of any Person in which Borrower has an
ownership interest, unless such net earnings shall have actually been received
by Borrower in the form of cash distributions.

 

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          “Walnut Hill Property Sale” shall mean the sale of Borrower’s real
property and improvements thereon located at 2819 Walnut Hill Lane, Dallas,
Texas.”
     § 2.2 Reporting Covenants. Subsection (d) of Section 4.3 of the Original
Credit Agreement is hereby deleted.
     § 2.3 Negative Covenants.
          (a) Sections 5.14 and 5.15 of the Original Credit Agreement are hereby
amended in their entirety to read as follows:
          “5.14 Sale of Assets. Except for the Walnut Hill Property Sale, sales
of inventory in the ordinary course of business and sales and dispositions of
obsolete assets that are material individually or in the aggregate, Borrower
shall not sell, or otherwise dispose of any of its assets in an aggregate amount
that exceeds $250,000 in any fiscal year.”
          “5.15 Contributions to Foreign Subsidiaries. Make any direct or
indirect payment or contribution to any Subsidiary that is not organized under
the Laws of the United States or any political subdivision thereof in an
aggregate amount that exceeds $500,000 outstanding at any time other than
(i) delivery of cash collateral in the amount of $2,500,000 to secure credit
facilities of Peerless Europe Ltd. and (ii) intercompany trade and royalty
balances between Borrower and Peerless Europe Ltd.”
     § 2.4 Financial Covenants.
          (a) The Financial Covenants Addendum of the Original Credit Agreement
is hereby amended in its entirety to read as follows:
          “1.1 Tangible Net Worth. Maintain a Tangible Net Worth of not less
than (a) $22,500,000 for the fiscal year ending June 30, 2006 and (b) during
each fiscal year thereafter, the sum of (i) the minimum Tangible Net Worth
required pursuant to this Section 1.1 for the immediately preceding fiscal year,
plus (ii) fifty percent (50%) multiplied by the positive Net Income of Borrower
for the immediately preceding fiscal year, in each case as calculated from the
Financial Statements of Borrower delivered pursuant to Section 4.3(b) of the
Credit Agreement, but in no event determined later than 90 days after the
applicable fiscal year end.
          1.2 Current Ratio. Maintain in a Current Ratio at all times of not
less than 1.40 to 1.
          1.3 Net Income. Maintain a minimum positive Net Income of at least
$1.00 (i) for the aggregate period of three consecutive fiscal quarters of
Borrower ending September 30, 2006 and (ii) for the aggregate period of four
fiscal quarters ending on the last day of each fiscal quarter of Borrower
thereafter.
          1.4 Capital Expenditures. At no time permit the aggregate amount of
all Capital Expenditures made during any fiscal year of Borrower to exceed
$1,000,000 (in

 

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this section called the “Cap Ex Limit”); provided, however, the following shall
be excluded from and not considered in such calculation; (i) Capital
Expenditures related to an information technology upgrade occurring during 2006
and 2007 fiscal years of Borrower, which shall not exceed $500,000 in the
aggregate, (ii) Capital Expenditures funded with up to $2,500,000 of the cash
proceeds received from the Walnut Hill Property Sale, and (iii) Capital
Expenditures funded with the balance of the cash proceeds of the Walnut Hill
Property Sale that are in excess of $2,500,000 and for which Borrower has
provided notice of to Bank. If Capital Expenditures of Borrower for any fiscal
year are less than the Cap Ex Limit, the amount by which the Cap Ex Limit
exceeds the actual Capital Expenditures of Borrower for such fiscal year shall
be added to the Cap Ex Limit for the next succeeding fiscal year.”
     § 2.5 Unused Commitment Fee. Section 1.8 of the Loan Terms Conditions and
Procedures Addendum to the Original Credit Agreement is hereby amended in its
entirety to read as follows:
          “1.8 Unused Commitment Fee. Borrower shall pay to Bank an unused
commitment fee, calculated at a per annum rate, in an amount equal to the
product of (a) 0.25% multiplied by (b) the amount by which $9,000,000 exceeds
the sum of (i) the aggregate outstanding principal balance of all Revolving
Loans plus (ii) the Letter of Credit Liabilities. Such fee shall be computed on
a daily basis and shall be payable quarterly in arrears as of the end of each of
Borrower’s fiscal quarters. Bank shall invoice Borrower for such fees, which
invoice shall be due and payable within fifteen (15) days after receipt.”
     § 2.6 Letters of Credit. Sections 1.9 i. and ii. of the Loan Terms
Conditions and Procedures Addendum to the Original Credit Agreement are hereby
amended in their entirety to read as follows:
          “i. Letters of Credit. Subject to the terms and conditions of this
Agreement and the other Loan Documents, the Bank shall, upon request from
Borrower from time to time prior to the Revolving Credit Maturity Date, issue
one or more Letters of Credit under this Agreement for which the Letter of
Credit Liabilities shall not exceed the Letter of Credit Sublimit. The sum of
(i) the outstanding principal balance of all Revolving Loans plus (ii) the
Letter of Credit Liabilities for Letters of Credit shall not exceed the
Revolving Credit Maximum Amount. No such Letter of Credit shall have a stated
expiration date later than twenty-four (24) months after the date of issuance
thereof, and in no event shall such stated expiration date be later than
eighteen (18) months after the Revolving Credit Maturity Date.
          ii. Additional Provisions. The following additional provisions shall
apply to each Letter of Credit:

  (1)   Borrower shall give the Bank written notice requesting each issuance of
a Letter of Credit hereunder not less than three (3) Business Days prior to the
requested issuance date and shall furnish such additional information regarding
such transaction as

 

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      Bank may request. The issuance by Bank of each Letter of Credit shall, in
addition to the conditions precedent set forth elsewhere in this Agreement, be
subject to the conditions precedent that (A) such Letter of Credit shall be in
form and substance satisfactory to Bank, (B) Borrower shall have executed and
delivered such applications and other instruments and agreements relating to
such Letter of Credit as Bank shall have requested and are not inconsistent with
the terms of this Agreement, (C) each of the statements in Section 1.3(d)(i),
(ii), (iv), (v) and (vi) of this Loan Terms, Conditions and Procedures Addendum
are true as of the date of issuance of such Letter of Credit with respect to
issuance of such Letter of Credit (as opposed to making a Revolving Loan), and
the submission of an application for issuance of a Letter of Credit shall
constitute a representation, warranty and certification of Borrower to that
effect, and (D) no Letter of Credit (other than the Peerless Europe Letter of
Credit) may be issued if after giving effect thereto, the sum of the aggregate
outstanding principal balance of all Revolving Loans plus the Letter of Credit
Liabilities would exceed the Revolving Credit Maximum Amount. With respect to
the renewal of each Letter of Credit, Borrower shall pay to Bank such letter of
credit fees and other expenses customarily charged by Bank in connection with
the renewals of letters of credit.

  (2)   Borrower shall be irrevocably and unconditionally obligated forthwith to
reimburse Bank for any amount paid by Bank upon any drawing under any Letter of
Credit, including without limitation the Peerless Europe Letter of Credit,
without presentment, demand, protest or other formalities of any kind, all of
which are hereby waived. Unless Borrower shall elect to otherwise satisfy such
Reimbursement Obligation, such reimbursement shall, subject to satisfaction of
any conditions provided herein for the making of Revolving Loans and, except for
the Peerless Europe Letter of Credit, to the Revolving Credit Maximum Amount,
automatically be made by advancing to Borrower a Revolving Loan in the amount of
such Reimbursement Obligation.     (3)   Borrower shall pay to Bank a fee,
calculated at a per annum rate, for the issuance of each Letter of Credit (the
“Letter of Credit Fee”), which fee shall be determined in accordance with the
following schedule based on Borrower’s Debt to Tangible Net Worth Ratio:

 

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          Letter of     Credit Fee Debt to Tangible Net Worth Ratio   Per Annum
Equal to or greater than 1.5:1
  1.50%
Less than 1.5:1 and greater than 1:1
  1.375%
Less than or equal to 1:1
  1.25%

The Debt to Tangible Net Worth Ratio applicable to any Letter of Credit for the
purposes of calculating the Letter of Credit Fee shall be the Debt to Tangible
Net Worth Ratio demonstrated on the most recent Compliance Certificate or
Financial Statements received by Bank, or in the event the Bank does not timely
receive a Compliance Certificate and all Financial Statements as required by
Section 4.3 of this Agreement or any other Loan Document, the Letter of Credit
Fee shall be 1.50%. The Letter of Credit fee shall be due and payable quarterly
in arrears as of the end of each of Borrower’s fiscal quarters. Notwithstanding
any of the foregoing, for any Letter of Credit having a face amount of less than
$25,000, the Letter of Credit Fee shall be $150 per annum and shall be due and
payable in advance on the date of the issuance of such Letter of Credit and on
each annual anniversary thereof.
ARTICLE III.
Conditions of Effectiveness
     § 3.1 Effective Date. This Amendment shall become effective as of the date
first above written when and only when Bank shall have received, at Bank’s
office,
     (a) a duly executed counterpart of this Amendment,
     (b) the Renewal Note,
     (c) a duly executed Consent and Agreement from Guarantor in the form of
Exhibit B hereto,
     (d) a duly executed certificate of the president — chief executive officer
and secretary of Borrower certifying that (i) resolutions of its board of
directors authorizing the execution, delivery, and performance of this Amendment
and identifying the officers authorized to sign such instrument are in full
force and effect and (ii) the specimen signatures of the officers so authorized
are true and correct, and
     (e) an upfront fee in the amount of $9,000.

 

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ARTICLE IV.
Representations and Warranties
     § 4.1 Representations and Warranties of Borrower. In order to induce Bank
to enter into this Amendment, Borrower represents and warrants to Bank that:
     (a) This Amendment is a “Loan Document” for all purposes under the Credit
Agreement and the other Loan Documents;
     (b) The representations and warranties contained in Section 3 of the
Original Credit Agreement are true and correct at and as of the time of the
effectiveness hereof;
     (c) Borrower is duly authorized to execute and deliver this Amendment and
the other Amendment Documents to which it is a party and is and will continue to
be duly authorized to borrow and to perform its obligations under the Credit
Agreement. Borrower has duly taken all corporate action necessary to authorize
the execution and delivery of this Amendment and the other Amendment Documents
to which it is a party and to authorize the performance of the obligations of
Borrower hereunder and thereunder; and
     (d) When duly executed and delivered, each of this Amendment and the other
Amendment Documents to which it is a party will be a legal and binding
instrument and agreement of Borrower, enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency and similar laws applying to
creditors’ rights generally and by principles of equity applying to creditors’
rights generally.
ARTICLE V.
Miscellaneous
     § 5.1 Ratification of Agreement. The Original Credit Agreement as hereby
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to refer to this Amendment
also. Any reference to the Note in any other Loan Document shall be deemed to be
a reference to the Renewal Note issued and delivered pursuant to this Amendment.
The execution, delivery and effectiveness of this Amendment and the other
Amendment Documents shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Bank under the Credit Agreement or any
other Loan Document nor constitute a waiver of any provision of the Credit
Agreement or any other Loan Document.
     § 5.2 Survival of Agreements. All representations, warranties, covenants
and agreements of Borrower herein shall survive the execution and delivery of
this Amendment and the performance hereof, and shall further survive until all
of the Obligations are paid in full. All statements and agreements contained in
any certificate or instrument delivered by Borrower hereunder or under the
Credit Agreement to Bank shall be deemed to constitute representations and
warranties by, or agreements and covenants of, Borrower under this Amendment and
under the Credit Agreement.

 

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     § 5.3 Loan Documents. This Amendment and the other Amendment Documents are
each a Loan Document, and all provisions in the Credit Agreement pertaining to
Loan Documents apply hereto and thereto.
     § 5.4 Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas and any applicable laws of the
United States of America in all respects, including construction, validity and
performance.
     § 5.5 Counterparts; Fax. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment. This Amendment may be duly executed by facsimile or other electronic
transmission.
     THIS AMENDMENT 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

 

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     IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.

            PEERLESS MFG. CO.
      By:   /s/ Henry G. Schopfer, III         Henry G. Schopfer, III       
Chief Financial Officer        COMERICA BANK
      By:   /s/ Donald P. Hellman         Donald P. Hellman        Senior Vice
President