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                                                                   EXHIBIT 10(h)


                               PEERLESS MFG. CO.
                               1995 STOCK OPTION
                           AND RESTRICTED STOCK PLAN


         1.      Purpose of the Plan.  This Plan shall be known as the Peerless
Mfg. Co. 1995 Stock Option and Restricted Stock Plan.  The purpose of the Plan
is to attract and retain the best available personnel for positions of
substantial responsibility and to provide incentives to such personnel to
promote the success of the business of Peerless Mfg. Co. and its subsidiaries.

         Certain options granted under this Plan are intended to qualify as
"incentive stock options" pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended from time to time, while certain other options granted
under the Plan will constitute nonqualified options.

         2.      Definitions.  As used herein, the following definitions shall
apply:

                 (a)      "Board" shall mean the Board of Directors of the
Corporation.

                 (b)      "Common Stock" shall mean the Common Stock, $1.00 par
value per share, of the Corporation.  Except as otherwise provided herein, all
Common Stock issued pursuant to the Plan shall have the same rights as all
other issued and outstanding shares of Common Stock, including but not limited
to voting rights, the right to dividends, if declared and paid, and the right
to pro rata distributions of the Corporation's assets in the event of
liquidation.

                 (c)      "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.

                 (d)      "Committee" shall mean the committee described in
Section 20 that administers the Plan.

                 (e)      "Corporation" shall mean Peerless Mfg. Co., a Texas
corporation.

                 (f)      "Date of Grant" shall mean the date on which an
Option is granted pursuant to this Plan or, if the Committee so determines, the
date specified by the Committee as the date the award is to be effective.

                 (g)      "Disinterested Director" shall mean a director who is
not, during the one year prior to service as an administrator of the Plan, or
during such service, granted or awarded an Option or Restricted Stock pursuant
to the Plan or any other plan of the Corporation or any of its affiliates
(except as provided in Section 20(c) of this Plan and as may be permitted by
Rule 16b-3 promulgated under the Exchange Act).
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                 (h)      "Employee" shall mean any officer or other key
employee of the Corporation or one of its Subsidiaries (including any director
who is also an officer or key employee of the Corporation or one of its
Subsidiaries).

                 (i)      "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.

                 (j)      "Fair Market Value" shall mean the closing sale price
(or average of the quoted closing bid and asked prices if there is no closing
sale price reported) of the Common Stock on the date specified as reported by
NASDAQ/NMS or by the principal national stock exchange on which the Common
Stock is then listed.  If there is no reported price information for the Common
Stock, the Fair Market Value will be determined by the Committee, in its sole
discretion.  In making such determination, the Committee may, but shall not be
obligated to, commission and rely upon an independent appraisal of the Common
Stock.

                 (k)      "Nonqualified Option" shall mean any Option that is
not a Qualified Option.

                 (l)      "Option" shall mean a stock option granted pursuant
to Section 6 of this Plan.

                 (m)      "Optionee" shall mean any Employee or director who
receives an Option.

                 (n)      "Participant" shall mean an Employee or director who
receives an Option or Restricted Stock pursuant to this Plan.

                 (o)      "Plan" shall mean the Peerless Mfg. Co. 1995 Stock
Option and Restricted Stock Plan, as amended from time to time.

                 (p)      "Qualified Option" shall mean any Option that is
intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Code.

                 (q)      "Restricted Stock" shall mean Common Stock awarded to
an Employee or director pursuant to Section 7 of this Plan.

                 (r)      "Rule 16b-3" shall mean Rule 16b-3 of the rules and
regulations under the Exchange Act as Rule 16b-3 may be amended from time to
time and any successor provisions to Rule 16b-3 under the Exchange Act.

                 (s)      "Selection Procedure" shall mean the procedure set
forth in Section 8 hereof that the Committee is required to follow in granting
Options and Restricted Stock awards.

                 (t)      "Subsidiary" shall mean any now existing or
hereinafter organized or acquired company of which more than fifty percent
(50%) of the issued and outstanding voting





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stock is owned or controlled directly or indirectly by the Corporation or
through one or more Subsidiaries of the Corporation.

         3.      Term of Plan.  The Plan has been adopted by the Board and
shall become effective on the date it is approved by the shareholders of the
Corporation by the affirmative votes of the holders of a majority of the shares
of Common Stock then issued and outstanding, and shall continue in effect until
terminated pursuant to Section 20(a).

         4.      Shares Subject to the Plan.  Except as otherwise provided in
Section 19 hereof, the aggregate number of shares of Common Stock issuable upon
the exercise of Options or upon the grant of Restricted Stock pursuant to this
Plan shall be 100,000 shares.  Such shares may either be authorized but
unissued shares or treasury shares.  The Corporation shall, during the term of
this Plan, reserve and keep available a number of shares  of Common Stock
sufficient to satisfy the requirements of the Plan.  If an Option should expire
or become unexercisable for any reason without having been exercised in full,
or Restricted Stock should fail to vest and be forfeited in whole or in part
for any reason, then the shares that were subject thereto shall, unless the
Plan shall have terminated, be available for the grant of additional Options or
Restricted Stock under this Plan, subject to the limitations set forth above.

         5.      Eligibility.  Qualified Options may be granted under Section 6
of the Plan to such Employees of the Corporation or its Subsidiaries as shall
be determined by the Committee pursuant to Selection Procedure.  Nonqualified
Options may be granted under Section 6 of the Plan to such Employees and
directors of the Corporation or its Subsidiaries as shall be determined by the
Committee pursuant to the Selection Procedure.  Restricted Stock may be granted
under Section 7 of the Plan to such Employees and directors of the Corporation
or its Subsidiaries as shall be determined by the Committee pursuant to the
Selection Procedure. Subject to the limitations and qualifications set forth in
this Plan (including Section 8), the Committee shall also determine the number
of Options or shares of Restricted Stock to be granted, the number of shares
subject to each Option or Restricted Stock grant, the exercise price or prices
of each Option, the vesting and exercise period of each Option and the vesting
and/or forfeiture provisions relating to Restricted Stock, whether an Option
may be exercised as to less than all of the Common Stock subject thereto, and
such other terms and conditions of each Option or grant of Restricted Stock, if
any, as are consistent with the provisions of this Plan.  In connection with
the granting of Qualified Options, the aggregate Fair Market Value (determined
at the Date of Grant of a Qualified Option) of the shares with respect to which
Qualified Options are exercisable for the first time by an Optionee during any
calendar year (under all such plans of the Optionee's employer corporation and
its parent and subsidiary corporations as defined in Section 424(e) and (f) of
the Code, or a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies (collectively, such corporations described in this
sentence are hereinafter referred to as "Related Corporations")) shall not
exceed $100,000 or such other amount as from time to time provided in Section
422(d) of the Code or any successor provision.

         6.      Grant of Options.  Except as provided in Section 20(c), the
Committee shall determine the number of shares of Common Stock to be offered
from time to time pursuant to





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Options granted hereunder and shall grant Options under the Plan.  The grant of
Options shall be evidenced by Option agreements containing such terms and
provisions as are approved by the Committee and executed on behalf of the
Corporation by an appropriate officer.

         7.      Restricted Stock.  The Committee shall determine the number of
shares of Common Stock to be granted as Restricted Stock from time to time
under the Plan.  The grant of Restricted Stock shall be evidenced by Restricted
Stock agreements containing such terms and provisions as are approved by the
Committee and executed on behalf of the Corporation by an appropriate officer.

         8.      Selection Procedure.  From time to time, the Chief Executive
Officer of the Corporation (the "CEO") shall recommend to the Committee (a)
individuals he or she believes should receive Options and/or Restricted Stock
grants, (b) the amount of shares of Common Stock he or she believes should be
subject to each recommended Option and Restricted Stock award, and (c) with
respect to any recommended Option, whether the Option should be a Qualified
Option or a Nonqualified Option (the recommendations set forth in (a), (b) and
(c) above are hereinafter referred to as the "Grant Recommendations").  In
addition, the Committee may, at any time, request the CEO to make Grant
Recommendations.  The Committee shall consider any Grant Recommendation;
provided, however, the Committee shall not be required to follow a Grant
Recommendation.  In addition, the Committee may, at any time, grant Options and
Restricted Stock awards to any eligible individual irrespective of whether the
CEO has made a Grant Recommendation with respect to the individual.

         9.      Time of Grant.  The date of grant of an Option under the Plan
shall be the date on which the Committee awards the Option or Restricted Stock
or, if the Committee so determines, the date specified by the Committee as the
date the award is to be effective.  Notice of the grant shall be given to each
Participant to whom an Option or Restricted Stock is granted promptly after the
date of such grant.

         10.     Price.  The Option price for each share of Common Stock
subject to an Option (the "Exercise Price") granted pursuant to Section 6 of
the Plan shall be determined by the Committee at the Date of Grant; provided,
however, that (a) the Exercise Price for any Option shall not be less than 100%
of the Fair Market Value of the Common Stock at the Date of Grant, and (b) if
the Optionee owns on the Date of Grant more than 10 percent of the total
combined voting power of all classes of stock of the Corporation or its parent
or any of its subsidiaries, as more fully described in Section 422(b)(6) of the
Code or any successor provision (such shareholder is referred to herein as a
"10-Percent Stockholder"), the Exercise Price for any Qualified Option granted
to such Optionee shall not be less than 110% of the Fair Market Value of the
Common Stock at the Date of Grant.  The Committee in its discretion may award
shares of Restricted Stock under Section 7 of the Plan to Participants without
requiring the payment of cash consideration for such shares.

         11.     Vesting.  Subject to Section 13 of this Plan, each Option and
Restricted Stock award under the Plan shall vest in accordance with the vesting
provisions set forth in the applicable Option agreement or Restricted Stock
agreement.  The Committee may, but shall not





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be required to, permit acceleration of vesting upon any sale of the Corporation
or similar transaction.  A Participant's Option agreement or Restricted Stock
agreement may contain such additional provisions with respect to vesting as the
Committee shall specify.

         12.     Exercise.  A Participant may pay the Exercise Price of the
shares of Common Stock as to which an Option is being exercised by the delivery
of cash, check or, at the Corporation's option, by the delivery of shares of
Common Stock having a Fair Market Value on the date immediately preceding the
exercise date equal to the Exercise Price.

         If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, as amended, any Option granted
under the Plan may be exercised by a broker-dealer acting on behalf of an
Optionee if (a) the broker-dealer has received from the Optionee or the
Corporation a fully- and duly-endorsed agreement evidencing such Option,
together with instructions signed by the Optionee requesting the Corporation to
deliver the shares of Common Stock subject to such Option to the broker-dealer
on behalf of the Optionee and specifying the account into which such shares
should be deposited, (b) adequate provision has been made with respect to the
payment of any withholding taxes due upon such exercise, and (c) the
broker-dealer and the Optionee have otherwise complied with Section 220.3(e)(4)
of Regulation T, 12 CFR Part 220, or any successor provision.

         13.     When Qualified Options May be Exercised.  No Qualified Option
shall be exercisable at any time after the expiration of ten (10) years from
the Date of Grant; provided, however, that if the Optionee with respect to a
Qualified Option is a 10-Percent Stockholder on the Date of Grant of such
Qualified Option, then such Option shall not be exercisable after the
expiration of five (5) years from its Date of Grant.  In addition, if an
Optionee of a Qualified Option ceases to be an employee of the Corporation or
any Related Corporation for any reason, such Optionee's vested Qualified
Options shall not be exercisable after (a) 90 days following the date such
Optionee ceases to be an employee of the Corporation or any Related
Corporation, if such cessation of service is not due to the death or permanent
and total  disability (within the meaning of Section 22(e)(3) of the Code) of
the Optionee, or (b) twelve months following the date such Optionee ceases to
be an employee of the Corporation or any Related Corporation, if such cessation
of service is due to the death or permanent and total disability (as defined
above) of the Optionee.  Upon the death of an Optionee, any vested Qualified
Option exercisable on the date of death may be exercised by the Optionee's
estate or by a person who acquires the right to exercise such Qualified Option
by bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both the remaining option term of the
Qualified Option and twelve months after the date of the Optionee's death.
This Section 13 only provides the outer limits of allowable exercise dates with
respect to Qualified Options; the Committee may determine that the exercise
period for a Qualified Option shall have a shorter duration than as specified
above.

         14.     Option Financing.  Upon the exercise of any Option granted
under the Plan, the Corporation may, but shall not be required to, make
financing available to the Participant for the purchase of shares of Common
Stock pursuant to such Option on such terms as the Committee shall specify.





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         15.     Withholding of Taxes.  The Committee shall make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Corporation is required by any law or
regulation of any governmental authority to withhold in connection with any
Option or Restricted Stock including, but not limited to, withholding the
issuance of all or any portion of the shares of Common Stock subject to such
Option or Restricted Stock until the Participant reimburses the Corporation for
the amount it is required to withhold with respect to such taxes, canceling any
portion of such issuance in an amount sufficient to reimburse the Corporation
for the amount it is required to withhold or taking any other action reasonably
required to satisfy the Corporation's withholding obligation.

         16.     Conditions Upon Issuance of Shares.  The Corporation shall not
be obligated to sell or issue any shares upon the exercise of any Option
granted under the Plan or to deliver Restricted Stock unless the issuance and
delivery of shares shall comply with all provisions of applicable federal and
state securities laws and the requirements of any stock exchange upon which
shares of the Common Stock may then be listed.

                 As a condition to the exercise of an Option or the grant of
Restricted Stock, the Corporation may require the person exercising the Option
or receiving the grant of Restricted Stock to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of applicable federal and state securities laws.

                 The Corporation shall not be liable for refusing to sell or
issue any shares covered by any Option or for refusing to issue Restricted
Stock if the Corporation cannot obtain authority from the appropriate
regulatory bodies deemed by the Corporation to be necessary to lawfully sell or
issue such shares.  In addition, the Corporation shall have no obligation to
any Participant, express or implied, to list, register or otherwise qualify the
shares of Common Stock covered by any Option or Restricted Stock.

                 No Participant will be, or will be deemed to be, a holder of
any Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject shares
of Common Stock.  Each Option under this Plan shall be transferable only by
will or the laws of descent and distribution and shall be exercisable during
the Participant's lifetime only by such Participant.

                 Any Common Stock issued pursuant to the exercise of an Option
or pursuant to the grant of Restricted Stock to a person who would be deemed an
officer or director of the Corporation under Rule 16b-3 shall not be
transferred until at least six months have elapsed from the Date of Grant to
the date of disposition of the Common Stock.

         17.     Restrictions on Shares.  Shares of Common Stock issued
pursuant to the Plan shall be subject to restrictions on transfer under
applicable federal and state securities laws.  The Board may impose such
additional restrictions on the ownership and transfer of shares of Common Stock
issued pursuant to the Plan as it deems desirable; any such restrictions shall
be set forth in any Option agreement or Restricted Stock agreement entered into
hereunder.





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         18.     Modification of Options.  Except as provided in Section 20(c)
of this Plan, at any time and from time to time, the Committee may execute an
instrument providing for modification, extension or renewal of any outstanding
Option, provided that no such modification, extension or renewal shall impair
the Option without the consent of the holder of the Option or conflict with the
provisions of Rule 16b-3.  Notwithstanding the foregoing, in the event of such
a modification, substitution, extension or renewal of a Qualified Option, the
Committee may increase the exercise price of such Option if necessary to retain
the qualified status of such Option.

         19.     Effect of Change in Stock Subject to the Plan.  In the event
that each of the outstanding shares of Common Stock (other than shares held by
dissenting stockholders) shall be changed into or exchanged for a different
number or kind of shares of stock of the Corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise), or in the
event a stock split or stock dividend shall have occurred, then there shall be
substituted for each share of Common Stock then subject to Options or
Restricted Stock awards or available for Options or Restricted Stock awards the
number and kind of shares of stock into which each outstanding share of Common
Stock (other than shares held by dissenting stockholders) shall be so changed
or exchanged, or the number of shares of Common Stock as is equitably required
in the event of a stock split or stock dividend, together with an appropriate
adjustment of the Exercise Price.  The Board may, but shall not be required to,
provide additional anti-dilution protection to a Participant under the terms of
the Participant's Option agreement or Restricted Stock agreement.

         20.     Administration.

                 (a)      Notwithstanding anything to the contrary herein, to
comply with the requirements of Rule 16b-3, the Plan shall be administered by
the Board, if each member is a Disinterested Director, or by a committee of two
or more Disinterested Directors appointed by the Board (the group responsible
for administering the Plan is referred to herein as the "Committee").  Options
and Restricted Stock may be granted under Sections 6 and 7, respectively, and
only by majority agreement of the members of the Committee.  Option agreements
and Restricted Stock agreements, in the forms as approved by the Committee, and
containing such terms and conditions consistent with the provisions of this
Plan as shall have been determined by the Committee, may be executed on behalf
of the Corporation by the Chairman of the Board, the President or any Vice
President of the Corporation.  Except with respect to Sections 20(b) and (c) of
this Plan, the Committee shall have complete authority to construe, interpret
and administer the provisions of this Plan and the provisions of the Option
agreements and Restricted Stock agreements granted hereunder; to prescribe,
amend and rescind rules and regulations pertaining to this Plan; to suspend or
discontinue this Plan (subject to Section 20(e)); and to make all other
determinations necessary or deemed advisable in the administration of the Plan.
The determinations, interpretations and constructions made by the Committee
shall be final and conclusive.  No member of the Committee shall be liable for
any action taken, or failed to be taken, made in good faith relating to the
Plan or any award thereunder, and the members of the Committee shall be
entitled to indemnification and





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reimbursement by the Corporation in respect of any claim, loss, damage or
expense (including attorneys' fees) arising therefrom to the fullest extent
permitted by law.

                 (b)      Members of the Committee shall be specified by the
Board, and shall consist solely of Disinterested Directors.  Disinterested
Directors shall not be eligible to receive options to purchase Common Stock
pursuant to Section 6 of the Plan, except as specifically provided under
Section 20(c), or grants of Restricted Stock pursuant to Section 7 of the Plan.

                 (c)      Each director (including any Disinterested Director
who so qualifies) who is not an employee or officer of the Corporation or any
Subsidiary on the date this Plan is approved by the shareholders of the
Corporation, and on the date of the annual shareholders' meeting of each year
thereafter that the director serves on the Board, shall automatically be
granted Nonqualified Options to purchase five hundred (500) shares of Common
Stock. The purchase price or prices for Common Stock subject to an option
granted under this Section 20(c), shall be 100% of the Fair Market Value of the
Common Stock as of the trading date immediately preceding the Date of Grant.
Such Options shall be exercisable on and after the Date of Grant until the
earlier of (i) ten years after the Date of Grant, or (ii) the date such
director is no longer a director of the Corporation or an officer or employee
of the Corporation or a Related Corporation.  This Section 20(c) shall not be
amended more than once every six months, other than to comport with changes in
the Code or in the Employee Retirement Income Security Act of 1974, as amended,
or changes in the rules promulgated thereunder, or other applicable law.

                 (d)      Notwithstanding Sections 20(a) and (c), to comply
with Rule 16b-3, no amendment may be made without the approval of the
shareholders of the Corporation by the affirmative votes of the holders of a
majority of the shares of Common Stock then issued and outstanding, which
amendment would materially (i) increase the benefits accruing to Participants,
(ii) increase the number of securities which may be issued under the Plan,
other than in accordance with Section 20 hereof, or (iii) modify the
requirements as to eligibility for participation in the Plan.

                 (e)      Although the Committee may suspend or discontinue the
Plan at any time, all Qualified Options must be granted within ten (10) years
from the effective date of the Plan or the date the Plan is approved by the
shareholders of the Corporation, whichever is earlier.

         21.     Continued Employment Not Presumed.  Nothing in this Plan or
any document describing it nor the grant of any Option or Restricted Stock
shall give any Participant the right to continue in the employment of the
Corporation or affect the right of the Corporation to terminate the employment
of any such person with or without cause.

         22.     Liability of the Corporation.  Neither the Corporation, its
directors, officers or employees or the Committee, nor any Subsidiary which is
in existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Qualified Option
granted hereunder does not qualify for tax treatment as an incentive stock
option under Section 422 of the Code.





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         23.     GOVERNING LAW.  THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF TEXAS AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.

         24.     Severability of Provisions.  If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.





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