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