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AMENDED AND RESTATED LOAN AGREEMENT

This  Amended  and Restated Loan Agreement ( Agreement ) dated  as  of
January  12,  1998,  by  and  between  Texas  Commerce  Bank  National
Association,  which  will  change its name after January 20,  1998  to
Chase  Bank of Texas, N.A.  ( Bank ) and the Borrower described below.
This  Agreement amends and restates in its entirety the Loan Agreement
dated  as  of  March  7, 1997, between Bank and  Borrower  (the  Prior
Agreement ).

In  consideration of the Loan or Loans and Letters of Credit described
below  and  the mutual covenants and agreements contained herein,  and
intending  to  be  legally bound hereby, Bank and  Borrower  agree  as
follows:

1.   DEFINITIONS AND REFERENCE TERMS.  In addition to any other  terms
defined  herein, the following terms shall have the meaning set  forth
with respect thereto:

A.  Borrower:  Peerless Mfg.  Co., a Texas corporation.

B.  Borrower s Address:  2819 Walnut Hill Lane Dallas, Texas 75229

C.  Collateral Account.  Collateral Account means each deposit account
in which Bank has a perfected, first priority Lien, not subject to any
claim of any other Person.

D.    Compliance   Certificate.   Compliance   Certificate   means   a
certificate substantially in the form of Exhibit B.

E.   Current Assets.  Current Assets means the aggregate amount of all
the  assets  of the Borrower and its Subsidiaries, on  a  consolidated
basis,  assets  which  would,  in accordance with  GAAP,  properly  be
defined as current assets.

F.   Current  Liabilities.   Current Liabilities means  the  aggregate
amount   of   all  current  liabilities  of  the  Borrower   and   its
Subsidiaries,  on  a consolidated basis, as determined  in  accordance
with GAAP, but in any event shall include all liabilities except those
having a maturity date which is more than one year from the date as of
which  such computation is being made, plus, without duplication,  the
amount  equal to the aggregate undrawn amount of all letters of credit
issued for the account of Borrower or any of its Subsidiaries.

G.   Hazardous  Materials.  Hazardous Materials include all  materials
defined as hazardous materials or substances under any local, state or
federal  environmental  laws,  rules or  regulations,  and  petroleum,
petroleum products, oil and asbestos.

H.    Investment.   Investment  means  any   acquisition  of  all   or
substantially  all  assets  of any Person, or any direct  or  indirect
purchase or other acquisition of, or a beneficial interest in, capital
stock  or  other  securities  of any other Person, or  any  direct  or
indirect  loan,  advance (other than advances to employees for  moving
and travel expenses, drawing accounts, and similar expenditures in the
ordinary course of business), or capital contribution to or investment
in  any  other Person, including without limitation the incurrence  or
sufferance of debt or accounts receivable of any other Person that are
not  current assets or do not arise from sales to that other Person in
the ordinary course of business.

I.   Lien.   Lien  means  any  mortgage,  pledge,  security  interest,
encumbrance, lien, or charge of any kind, including without limitation
any  agreement  to  give  or not to give any  of  the  foregoing,  any
conditional sale or other title retention agreement, and the filing of
or  agreement to give any financing statement or other similar form of
public notice under the laws of any jurisdiction.

J.   Loan.   Any  loan described in Section 2  hereof  (including  any
unreimbursed  draw  under Letters of Credit) and any  subsequent  loan
which states that it is subject to this Agreement.

K.   Loan Documents.  Loan Documents means this Agreement and any  and
all  promissory  notes  executed by Borrower in favor  of  Bank,  each
application  for  issuance  of  a  Letter  of  Credit  and  all  other
documents,   instruments,  guarantees,   certificates  and  agreements
executed and/or delivered by Borrower, any guarantor or third party in
connection with any Loan or Letter of Credit.

L.   Material Adverse Effect.  Any material adverse effect on (a)  the
property,  business operations or financial prospects of Borrower  and
its Subsidiaries, taken as a whole, (b) the validity or enforceability
of any Loan Document or (c) the timely payment, after giving effect to
any  applicable  cure periods, of the principal of or interest on  any
Loans hereunder or any other amounts payable in connection herewith.

M.   NationsBank  Agreement.   NationsBank Agreement  means  the  Loan
Agreement  of  even date herewith between Borrower and NationsBank  of
Texas, N.A.

N.   Net  Income.   Net  Income means net profit after  taxes  of  the
Borrower  and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.

O.  Net Loss.  Net Loss means net loss after taxes of the Borrower and
its  Subsidiaries,  on a consolidated basis, determined in  accordance
with GAAP.

P.   Obligor.  Obligor means Borrower, any Subsidiary of Borrower, any
indorser  or  guarantor of any obligation under any Loan Document  and
any  other  Person  liable for or the property of  which  secures  any
obligation under any Loan Document.

Q.   Person.  Person means an individual, partnership, joint  venture,
corporation,   trust,  tribunal,   unincorporated  organization,   and
government,  or  any  department,  agency,  or  political  subdivision
thereof.

R.   Subsidiary.   Subsidiary means as to any Person,  a  corporation,
partnership  or  other  entity  of  which shares  of  stock  or  other
ownership  interests  having  ordinary voting power (other  than  such
stock  or  such  other ownership interests having such power  only  by
reason  of the happening of a contingency) to elect a majority of  the
board of directors or other managers of such corporation, partnership,
or  other entity are at the time owned, or the management of which  is
otherwise  controlled,  directly  or indirectly, through one  or  more
intermediaries, or both by such Person.

S.   Accounting Terms.  All accounting terms not specifically  defined
or  specified  herein shall have the meanings generally attributed  to
such terms under generally accepted accounting principles ( GAAP ), as
in effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 3.I hereof.

2.  LOANS.

A.  Loan.  Until December 12, 1998, Bank hereby agrees to make (or has
made)  one  or more loans to Borrower in the aggregate principal  face
amount  of  $2,500,000  (as such amount may be reduced,  the  Line  ),
provided, the aggregate unpaid principal of all loans shall not at any
time  exceed  the  difference  between (i) the Line,  minus  (ii)  the
undrawn  amount of all outstanding Letters of Credit.  The  obligation
to  repay  the loans is evidenced by the promissory note of even  date
herewith  (the  promissory  note or notes together with  any  and  all
renewals,  extensions  or  rearrangements   thereof  being   hereafter
collectively  referred  to  as  the Note )  having  a  maturity  date,
repayment  terms and interest rate as set forth in the Note (a copy of
which is attached as Exhibit A).


i.   Revolving Credit Feature.  The Note provides for a revolving line
of  credit  under which Borrower may from time to time, borrow,  repay
and re-borrow funds until December 12, 1998.

ii.  Usage Fee.  Borrower will pay a usage fee for the period from and
including  the  date  the Line was established to  and  including  the
maturity  date of the Line at a rate per annum of .25% of the  average
daily unused portion of the Line (calculated on the basis of a year of
365 or 366 days as the case may be), with the accrued and unpaid usage
fee  being payable on the last day of each calendar quarter (beginning
March  31,  1998) and on December 12, 1998.  The Borrower may  at  any
time  upon written notice to the Bank permanently reduce the amount of
the  Line at which time the obligation of the Borrower to pay a  usage
fee shall thereupon correspondingly be reduced.

iii.   Letter  of Credit Subfeature.  As a subfeature under the  Line,
Bank  may  from  time to time up to and including December  11,  1999,
issue  letters of credit for the account of Borrower (each such letter
of credit and each letter of credit issued by the 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,  1999  or  366 or more days  after  the  issuance  date;
provided Borrower may request that Bank issue Letters of Credit having
an  expiry after December 11, 1999 or an expiry 366 or more days after
the  issuance  date ( Extended Expiry LC ), if the undrawn  amount  of
such Extended Expiry LC plus the aggregate undrawn amount of all other
Extended  Expiry LCs does not exceed an amount equal to the  aggregate
amount on deposit in the Collateral Accounts.  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  December 12, 1998 the sum of (a) the aggregate unpaid principal of
the  Loans,  plus (b) the aggregate undrawn amount of all  outstanding
Letters  of Credit exceeds the Line, Borrower shall immediately pay to
Bank the amount of such excess, together with accrued, unpaid interest
on  the amount of such excess.  If at any time after December 12, 1998
the  aggregate  undrawn amount of all Extended Expiry LCs exceeds  the
aggregate amount on deposit in the Collateral Accounts, Borrower shall
immediately deliver to Bank, for deposit into a Collateral Account, an
amount  in  cash  equal to such excess.  Letters of  Credit  shall  be
priced  at a rate of 1.00% per annum of the face amount of the  Letter
of  Credit, which fee is due and payable on issuance of the Letters of
Credit.

B.   Before  making any Loan or issuing any Letter of Credit Bank  may
require  satisfaction of the following conditions precedent:  (1) Bank
has  received the following, each duly executed and in form acceptable
to  Bank:  (a) if requested by Bank, a Request for Loan, substantially
in  the form of Exhibit C, not later than one (1) Business Day  before
the  date  (which shall also be a Business Day) of the proposed  Loan;
(b)  such other documents as Bank reasonably requires;  and (c) in the
case  of  Letters of Credit, Banks standard form Application  for  the
Issuance  of  an  Irrevocable  Standby Letter of Credit  in  form  and
substance  acceptable to Bank and its legal counsel, duly executed and
delivered  by  Borrower  two (2) Business Days, prior to the  date  on
which  the  Letter  of Credit is to be issued;  and (2)  no  Event  of
Default  has  occurred and is continuing;  and (3) making the Loan  or
the  issuance of a Letter of Credit is not prohibited by, and will not
subject  Bank  to  any penalty or onerous condition  under  any  legal
requirement as determined by Bank.

3.   REPRESENTATIONS  AND WARRANTIES.  Borrower hereby represents  and
warrants to Bank as follows:

A.  Good Standing.  Borrower is a corporation, duly organized, validly
existing  and  in  good standing under the laws of Texas and  has  the
power  and  authority to own its property and is qualified to  conduct
its  business  in each jurisdiction in which Borrower  does  business,
except  to the extent the failure to obtain such qualifications  would
not  result in a Material Adverse Effect.  Each Subsidiary of Borrower
is  a  corporation,  duly  organized, validly  existing  and  in  good
standing  under the laws of the jurisdiction in which it is  organized
(as  indicated  on Schedule 1) and has the power and authority to  own
its  property  and  is  qualified  to conduct  its  business  in  each
jurisdiction  in  which  it does business, except to  the  extent  the
failure  to obtain such qualifications would not result in a  Material
Adverse Effect.

B.   Authority and Compliance.  Borrower has full power and  authority
to execute and deliver the Loan Documents and to incur and perform the
obligations  provided  for  therein,  all  of  which  have  been  duly
authorized  by all proper and necessary corporate action of  Borrower.
No consent or approval of any public authority or other third party is
required  as  a  condition to the validity of any Loan  Document,  and
Borrower  and  each  Subsidiary of Borrower is in  compliance  in  all
material  respects with all laws and regulatory requirements to  which
it is subject.

C.   Binding  Agreement.  This Agreement and the other Loan  Documents
executed  by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms.

D.   Litigation.   There  is no proceeding involving Borrower  or  any
Subsidiary  of  Borrower  pending or, to the  knowledge  of  Borrower,
threatened  before  any  court or governmental  authority,  agency  or
arbitration  authority, except as (i) disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement or (ii) would
not result in a Material Adverse Effect if adversely determined.

E.   No  Conflicting  Agreements.  There is no charter,  bylaw,  stock
provision,  partnership agreement or other document pertaining to  the
organization,  power  or  authority of Borrower or any  Subsidiary  of
Borrower  and  no  provision  of  any  existing  agreement,  mortgage,
indenture  or  contract  binding  on Borrower  or  any  Subsidiary  of
Borrower  or  affecting its respective property, which would  conflict
with  or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the other Loan Documents.

F.  Ownership of Assets.  Borrower and each Subsidiary of Borrower has
good  title  to its respective assets, and its respective  assets  are
free and clear of Liens, except those granted to Bank and as disclosed
to Bank in writing prior to the date of this Agreement.

G.   Investments.  Neither Borrower nor any Subsidiary of Borrower has
any  Investments  except as described on Schedule 1.  Schedule 1 is  a
complete  and  correct  description of the name  and  jurisdiction  of
organization of each Subsidiary of Borrower.

H.   Taxes.  All taxes and assessments due and payable by Borrower and
each  Subsidiary of Borrower have been paid or are being contested  in
good faith by appropriate proceedings and Borrower and each Subsidiary
of Borrower have filed all tax returns which it is required to file.

I.   Financial  Statements.   The  financial  statements  of  Borrower
heretofore  delivered  to Bank have been prepared in  accordance  with
GAAP  applied on a consistent basis throughout the period involved and
fairly  present Borrower s financial condition as of the date or dates
thereof,  and there has been no material adverse change in Borrower  s
financial  condition  or operations since June 30, 1997.  All  factual
information  furnished  by  Borrower to Bank in connection  with  this
Agreement  and the other Loan Documents, when taken as a whole, is and
will be accurate and complete on the date as of which such information
is  delivered  to  Bank and is not and will not be incomplete  by  the
omission  of any material fact necessary to make such information,  in
light of the circumstances under which they were made, not misleading.

J.   Place of Business.  Borrower s chief executive office is  located
at:

2819 Walnut Hill Lane
Dallas, Texas 75229

K.   Environmental.  The conduct of Borrower s and each of Borrower  s
Subsidiary  s business operations and the condition of Borrower s  and
each of Borrower s Subsidiary s property does not and will not violate
any  federal  laws, rules or ordinances for environmental  protection,
regulations  of  the Environmental Protection Agency,  any  applicable
local  or  state  law, rule, regulation or rule of common law  or  any
judicial  interpretation thereof relating primarily to the environment
or Hazardous Materials.

L.   NationsBank Agreement.  Borrower has delivered to Bank a complete
and  correct  copy  of  the  NationsBank  Agreement  and  all  related
documents.

M.    Continuation   of    Representations    and   Warranties.    All
representations  and  warranties  made under this Agreement  shall  be
deemed  to  be made at and as of the date hereof and at and as of  the
date  of any advance under any Loan and the issuance of any Letter  of
Credit.

4.   AFFIRMATIVE  COVENANTS.   Until  full   and  final  payment   and
performance  of all obligations of Borrower under the Loan  Documents,
Borrower  will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):

A.   Financial Statements and Other Information.  Maintain a system of
accounting reasonably satisfactory to Bank and in accordance with GAAP
applied  on a consistent basis throughout the period involved,  permit
Bank  s  officers or authorized representatives to visit  and  inspect
Borrower s books of account and other records at such reasonable times
and  as  often  as Bank may desire, and pay the  reasonable  fees  and
disbursements  of any accountants or other agents of Bank selected  by
Bank  for  the foregoing purposes.  Unless written notice  of  another
location  is  given  to  Bank, Borrower s books and  records  will  be
located  at  Borrower s chief executive office set forth  above.   All
financial  statements  called for below shall be prepared in form  and
content  reasonably  acceptable to Bank and by  independent  certified
public accountants acceptable to Bank;  provided, however, Bank hereby
(i)  acknowledges  the adequacy of the form and content of Borrower  s
financial  statements  delivered  prior to the date  hereof  and  (ii)
unless  the  Bank provides the Borrower written notice otherwise,  the
Borrower  s  current  independent  certified  public  accountants  are
acceptable to the Bank.

In addition, Borrower will:

i.    Furnish  to  Bank   consolidated  and  consolidating   financial
statements  of  Borrower for each fiscal year of Borrower, within  120
days after the close of each such fiscal year.

ii.    Furnish  to  Bank   consolidated  and  consolidating  financial
statements  (including a balance sheet and profit and loss  statement)
of  Borrower for each quarter of each fiscal year of Borrower,  within
45 days after the close of each such period.

iii.  Furnish to Bank a Compliance Certificate for (and executed by an
authorized  representative of) Borrower concurrently with and dated as
of  the  date  of  delivery of each of  the  financial  statements  as
required  in paragraphs i and ii above, containing (a) a certification
that  the  financial  statements of even date therewith are  true  and
correct  and  that the Borrower is not in default under the  terms  of
this  Agreement,  and  (b)  computations   and  conclusions,  in  such
reasonable detail as Bank may request, with respect to compliance with
this  Agreement, and the other Loan Documents, including  computations
of all quantitative covenants.

iv.  Furnish to Bank promptly such additional information, reports and
statements  respecting the business operations and financial condition
of  Borrower  and  its Subsidiaries, from time to time,  as  Bank  may
reasonably request.

B.   Insurance.   Maintain, and cause each Subsidiary of  Borrower  to
maintain,  insurance  with responsible insurance companies on such  of
its  properties,  in  such  amounts  and  against  such  risks  as  is
customarily  maintained  by similar businesses operating in  the  same
vicinity.  Satisfactory evidence of such insurance will be supplied to
Bank  prior  to  funding under the Loan(s) or issuance  of  the  first
Letter of Credit and 15 days prior to each policy renewal.

C.   Existence and Compliance.  Maintain, and cause each Subsidiary of
Borrower  to maintain, its existence, good standing and  qualification
to  do  business, where required, except in the case of good  standing
and qualification, where the failure of Borrower or such Subsidiary to
be  so  qualified or in good standing would not result in  a  Material
Adverse  Effect,  and comply in all material respects with  all  laws,
regulations   and   governmental   requirements   including,   without
limitation,  environmental  laws  applicable to it or to  any  of  its
property, business operations and transactions.

D.   Adverse Conditions or Events.  Promptly advise Bank in writing of
(i)  any  condition,  event or act which comes to its  attention  that
would  reasonably be expected to result in a Material Adverse  Effect,
(ii)  any litigation filed by or against Borrower or any Subsidiary of
Borrower,  which would reasonably be expected to result in a  Material
Adverse  Effect,  if  adversely determined, (iii) any event  that  has
occurred  that  would  constitute an event of default under  any  Loan
Documents, and (iv) any actual or potential contingent liability which
singly  or  in  the  aggregate  with all  other  actual  or  potential
contingent liabilities could equal or exceed $500,000.

E.   Taxes  and Other Obligations.  Pay, and cause each Subsidiary  of
Borrower  to  pay,  all of its taxes, assessments and  other  material
obligations,  including,  but  not limited to taxes,  costs  or  other
expenses  arising out of this transaction, as the same become due  and
payable,  except  to the extent the same are being contested  in  good
faith by appropriate proceedings in a diligent manner.

F.   Environmental.   Immediately  advise Bank in writing of  (i)  any
material   enforcement,   cleanup,  remedial,    removal,   or   other
governmental or regulatory actions instituted, completed or threatened
pursuant  to any applicable federal, state, or local laws,  ordinances
or  regulations relating to any Hazardous Materials affecting Borrower
s or any of Borrower s Subsidiary s business operations;  and (ii) all
claims  made or threatened by any third party against Borrower or  any
Subsidiary  of  Borrower  relating  to  damages,  contribution,   cost
recovery,  compensation,  loss or injury resulting from any  Hazardous
Materials.   Borrower  will  not use or permit, and  will  cause  each
Subsidiary  of  Borrower to not use or permit, any other party to  use
any  Hazardous  Materials  at any of Borrower s or any of  Borrower  s
Subsidiary  s  places  of business or at any other property  owned  by
Borrower  or  any Subsidiary of Borrower except such materials as  are
incidental  to  Borrower  s or any of Borrower s Subsidiary  s  normal
course  of business, maintenance and repairs and which are handled  in
material  compliance with all applicable environmental laws.  Borrower
agrees  to permit Bank, its agents, contractors and employees to enter
and inspect any of Borrower s or any of Borrower s Subsidiary s places
of  business or any other property of Borrower and each Subsidiary  of
Borrower  at any reasonable times upon three (3) days prior notice for
the  purposes  of conducting an environmental investigation and  audit
(including  taking physical samples) to insure that Borrower and  each
Subsidiary  of Borrower are complying with this covenant and  Borrower
shall  reimburse  Bank on demand for the reasonable costs of any  such
environmental  investigation  and audit.  Borrower shall provide,  and
shall  cause each Subsidiary of Borrower to provide, Bank, its agents,
contractors,  employees and representatives with access to and  copies
of  any  and  all data and documents relating to or dealing  with  any
Hazardous  Materials used, generated, manufactured, stored or disposed
of by Borrower s and each Subsidiary s of Borrower business operations
within five (5) days of the written request therefore.

5.   NEGATIVE COVENANTS.  Until full and final payment and performance
of all obligations of Borrower under the Loan Documents, Borrower will
not,  and  will not permit any Subsidiary of Borrower to, without  the
prior written consent of Bank (and without limiting any requirement of
any other Loan Documents):

A.  Financial Condition.

i.   Borrower shall not permit the ratio of (a) Current Assets divided
by  (b) Current Liabilities to be less than 1.0 to 1.0 as at the  last
day of each calendar quarter.

ii.  Borrower shall not permit

(a) Net Income to be less than or equal to $100,000 for the six months
ending on December 31, 1997.

(b)  Net  Income  to be less than or equal to $500,000  for  the  nine
months ending on March 31, 1998.

(c)  Net  Income to be less than or equal to $750,000 for  the  twelve
months ending on June 30, 1998.

(d)  Net  Income to be less than or equal to $1 for the  three  months
ending September 30, 1998.

B.   Investments.  Make an Investment in or to any Person;   provided,
Borrower may make investments in the existing Subsidiaries of Borrower
identified  on Schedule 1 if the aggregate of all Investments in  such
Subsidiaries  (as disclosed on Schedule 1) does not exceed at any time
$2,000,000.

C.   Extensions  of Credit.  Make any loan or advance to  any  Person;
provided  Borrower may (i) make loans and/or advances to  Subsidiaries
under  the terms specified in Section "B.  Investments" above and (ii)
advances  (not  to exceed $50,000 in the aggregate) to  employees  for
moving and travel expenses, drawing accounts, and similar expenditures
in the ordinary course of Borrower's or its Subsidiary's business.

D.   Transfer of Assets or Control.  Sell, lease, assign or  otherwise
dispose  of or transfer any assets, except in the normal course of its
business,  or  enter  into  any merger  or  consolidation;   provided,
however,  any  Subsidiary  of  Borrower   may  dissolve  or  merge  or
consolidate with or into any other Subsidiary of Borrower.

E.  Liens.  Grant, suffer or permit any contractual Lien on any of its
assets  (other  than Liens granted under the NationsBank Agreement  or
related  agreements  to assure performance of obligations  related  to
letters  of  credit issued for the account of Borrower or any  of  its
Subsidiaries)  except Liens granted under the terms of this  Agreement
and  the  NationsBank  Agreement.  Fail to promptly pay when  due  all
lawful  claims,  whether for labor, materials or otherwise, except  to
the  extent  the  failure  to pay such claims would not  result  in  a
Material  Adverse Effect.  Agree with any Person to not grant any Lien
on  any  of  its  assets,  except as  set  forth  in  the  NationsBank
Agreement.

F.   Borrowings.  Create, incur, assume or become liable in any manner
for  any  indebtedness (for borrowed money, deferred payment  for  the
purchase  of assets, as surety or guarantor for the debt for  another,
or  otherwise)  other  than  to Bank, except for  normal  trade  debts
incurred  in the ordinary course of Borrower's and each of  Borrower's
Subsidiary's  business,  and  except  for  (i)  existing  indebtedness
disclosed  to  Bank in writing and acknowledged by Bank prior  to  the
date of this Agreement and (ii) indebtedness under or evidenced by the
NationsBank Agreement and any related promissory notes.

G.   NationsBank Agreement.  Amend, modify or restate the  NationsBank
Agreement,  or any related agreement and any related promissory  notes
as they exist the date hereof.

H.   Character of Business.  Change the general character of  business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.

6.   DEFAULT.   Borrower shall be in default under this Agreement  and
under  each  of  the other Loan Documents if any one or  more  of  the
following  shall occur for any reason whatsoever, whether voluntary or
involuntary, by operation of law, or otherwise:

A.   Borrower  shall fail to pay any interest, fees or  other  amounts
payable  under  any Loan Document within three days after date due  or
Borrower  shall fail to pay any principal under any Loan Document when
due;

B.   Any representation or warranty made or deemed made by any Obligor
(or  any  of its officers or representatives) under or  in  connection
with  any  Loan  Document  shall  prove  to  have  been  incorrect  or
misleading in any material respect when made or deemed made;

C.  Borrower or any other Obligor shall fail to perform or observe any
term or covenant contained in any Loan Document;

D.   Any Loan Document or provision thereof shall, for any reason, not
be  valid  and  binding  on any Obligor or not be in  full  force  and
effect,  or  shall be declared to be null and void;  the  validity  or
enforceability of any Loan Document shall be contested by any Obligor,
or  any  Obligor  shall deny that it has any or further  liability  or
obligation under any Loan Document;

E.   The  occurrence of any event described in Section 8(b) or (c)  of
the Note with respect to Borrower or any Subsidiary of Borrower;

F.   Any Obligor shall fail to pay any debt (other than debt under the
Loan  Documents)  or  obligations in respect of capital leases  in  an
aggregate  amount  of $50,000 or more when due;  or any Obligor  shall
fail  to  perform  or observe any term or covenant  contained  in  any
agreement  or instrument relating to any such debt when required to be
performed  or  observed,  including, without limitation, any  term  or
covenant contained in the NationsBank Loan Agreement;

G.   Any Obligor shall have any final judgment(s) outstanding  against
it  for  the  payment of $50,000 or more, and such  judgment(s)  shall
remain  unstayed,  in effect, and unpaid for the period of time  after
which  the  judgment  holder may and may cause the creation  of  Liens
against or seizure of any of its property;

H.   Any Obligor shall be required under any environmental law (i)  to
implement  any  remedial, neutralization, or stabilization process  or
program,  the  cost  of  which exceeds $50,000, or  (ii)  to  pay  any
penalty, fine, or damages in an aggregate amount of $50,000 or more;

I.   Other  than with respect to any Loan Document, any Obligor  shall
fail  to  timely  and  properly observe, keep  or  perform  any  term,
covenant,  agreement  or  condition  in   any  other  loan  agreement,
promissory  note,  security agreement, deed of trust, deed  to  secure
debt,  mortgage,  assignment or other contract securing or  evidencing
payment of any indebtedness of any Obligor to Bank or any affiliate or
subsidiary of the Bank;

J.  The withdrawal of any material owner of Borrower, as determined by
Bank in its sole discretion;

K.   The  commencement  of  a   proceeding  against  any  Obligor  for
dissolution  or liquidation, the voluntary or involuntary  termination
or  dissolution  of any Obligor or the merger or consolidation of  any
Obligor  with  or into another entity (except as permitted by  Section
5.D);

L.   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;

M.   The  failure  of  any Obligor to timely  deliver  such  financial
statements,  including  tax returns, other statements of condition  or
other information, as Bank shall request from time to time;

N.  The entry of a judgment against any Obligor which Bank deems to be
of a material nature, in Bank's sole discretion;

O.   The  seizure  or forfeiture of, or the issuance of  any  writ  of
possession,  garnishment or attachment, or any turnover order for  any
material property of any Obligor;  or

P.   The  determination  by Bank that a material  adverse  change  has
occurred in the financial condition of any Obligor.


7.   REMEDIES UPON DEFAULT.  If an event of default shall occur,  Bank
shall have all rights, powers and remedies available under each of the
Loan  Documents  (including  Section  11) as well as  all  rights  and
remedies available at law or in equity.

8.   NOTICES.   All  notices, requests or demands which any  party  is
required  or may desire to give to any other party under any provision
of  this Agreement must be in writing delivered to the other party  at
the following address:

Borrower:

Peerless  Mfg.   Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Ken Van Houten

Bank:

Texas  Commerce  Bank  National Association
12875 Josey  Lane
Dallas, Texas 75234-6398

or  to such other address as any party may designate by written notice
to  the  other party.  Each such notice, request and demand  shall  be
deemed given or made as follows:

A.   If sent by mail, upon the earlier of the date of receipt or  five
(5) days after deposit in the U.S.  Mail, first class postage prepaid;

B.  If sent by any other means, upon delivery.

9.   COSTS, EXPENSES AND ATTORNEYS' FEES.  Borrower shall pay to  Bank
on  demand  the  full  amount of all  costs  and  expenses,  including
reasonable  attorneys'  fees (to include outside counsel fees and  all
allocated  costs of Bank's in-house counsel if permitted by applicable
law),  incurred  by  Bank  in  connection  with  (a)  negotiation  and
preparation  of this Agreement and each of the Loan Documents, and (b)
all  other  costs  and  attorneys' fees incurred  by  Bank  for  which
Borrower  is obligated to reimburse Bank in accordance with the  terms
of the Loan Documents.

10.   MISCELLANEOUS.  Borrower and Bank further covenant and agree  as
follows, without limiting any requirement of any other Loan Document:

A.   Cumulative Rights and No Waiver.  Each and every right granted to
Bank  under any Loan Document, or allowed it by law or equity shall be
cumulative  of each other and may be exercised in addition to any  and
all  other rights of Bank, and no delay in exercising any right  shall
operate  as a waiver thereof, nor shall any single or partial exercise
by  Bank of any right preclude any other or future exercise thereof or
the  exercise  of  any  other right.  Borrower  expressly  waives  any
presentment,  demand,  protest or other notice of any kind,  including
but  not  limited  to  notice of intent to accelerate  and  notice  of
acceleration.   No notice to or demand on Borrower in any case  shall,
of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.

B.   Applicable Law.  This Agreement and the rights and obligations of
the  parties  hereunder  shall  be  governed  by  and  interpreted  in
accordance with the laws of Texas and applicable United States federal
law.

C.   Amendment.  No modification, consent, amendment or waiver of  any
provision  of this Agreement, nor consent to any departure by Borrower
therefrom,  shall be effective unless the same shall be in writing and
signed  by an officer of Bank, and then shall be effective only in the
specified  instance  and  for  the  purpose  for  which  given.   This
Agreement  is  binding upon Borrower, its successors and assigns,  and
inures  to the benefit of Bank, its successors and assigns;   however,
no  assignment  or other transfer of Borrower's rights or  obligations
hereunder  shall be made or be effective without Bank's prior  written
consent,  nor shall it relieve Borrower of any obligations  hereunder.
There is no third party beneficiary of this Agreement.

D.   Documents.  All documents, certificates and other items  required
under  this Agreement to be executed and/or delivered to Bank shall be
in form and content satisfactory to Bank and its counsel.

E.   Partial  Invalidity.  The unenforceability or invalidity  of  any
provision  of  this Agreement shall not affect the  enforceability  or
validity  of  any  other  provision   herein  and  the  invalidity  or
unenforceability  of any provision of any Loan Document to any  person
or  circumstance  shall not affect the enforceability or  validity  of
such provision as it may apply to other persons or circumstances.

F.   Indemnification.   NOTWITHSTANDING  ANYTHING   TO  THE   CONTRARY
CONTAINED  IN SECTION 10(G), BORROWER SHALL INDEMNIFY, DEFEND AND HOLD
BANK  AND ITS SUCCESSORS AND ASSIGNS HARMLESS FROM AND AGAINST ANY AND
ALL  CLAIMS,  DEMANDS,  SUITS, LOSSES,  DAMAGES,  ASSESSMENTS,  FINES,
PENALTIES,  COSTS  OR OTHER EXPENSES (INCLUDING REASONABLE  ATTORNEYS'
FEES AND COURT COSTS) ARISING FROM OR IN ANY WAY RELATED TO ANY OF THE
TRANSACTIONS  CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO ACTUAL
OR   THREATENED   DAMAGE  TO  THE   ENVIRONMENT,   AGENCY   COSTS   OF
INVESTIGATION,  PERSONAL INJURY OR DEATH, OR PROPERTY DAMAGE, DUE TO A
RELEASE  OR  ALLEGED  RELEASE  OF HAZARDOUS  MATERIALS,  ARISING  FROM
BORROWER'S  OR ANY OF BORROWER'S SUBSIDIARY'S BUSINESS OPERATIONS, ANY
OTHER  PROPERTY OWNED BY BORROWER OR ANY SUBSIDIARY OF BORROWER OR  IN
THE  SURFACE  OR  GROUND  WATER  ARISING FROM  BORROWER'S  OR  ANY  OF
BORROWER'S  SUBSIDIARY'S  BUSINESS  OPERATIONS, OR  GASEOUS  EMISSIONS
ARISING  FROM  BORROWER'S OR ANY OF BORROWER'S  SUBSIDIARY'S  BUSINESS
OPERATIONS  OR ANY OTHER CONDITION EXISTING OR ARISING FROM BORROWER'S
OR  ANY OF BORROWER'S SUBSIDIARY'S BUSINESS OPERATIONS RESULTING  FROM
THE USE OR EXISTENCE OF HAZARDOUS MATERIALS, WHETHER SUCH CLAIM PROVES
TO  BE  TRUE  OR FALSE.  BORROWER FURTHER AGREES  THAT  ITS  INDEMNITY
OBLIGATIONS  SHALL  INCLUDE,  BUT ARE NOT LIMITED  TO,  LIABILITY  FOR
DAMAGES  RESULTING FROM THE PERSONAL INJURY OR DEATH OF AN EMPLOYEE OF
BORROWER OR ANY SUBSIDIARY OF BORROWER, REGARDLESS OF WHETHER BORROWER
OR  SUCH  SUBSIDIARY  OF  BORROWER HAS PAID  THE  EMPLOYEE  UNDER  THE
WORKMEN'S  COMPENSATION LAWS OF ANY STATE OR OTHER SIMILAR FEDERAL  OR
STATE LEGISLATION FOR THE PROTECTION OF EMPLOYEES.  THE TERM "PROPERTY
DAMAGE"  AS  USED IN THIS PARAGRAPH INCLUDES, BUT IS NOT  LIMITED  TO,
DAMAGE  TO ANY REAL OR PERSONAL PROPERTY OF BORROWER OR ANY SUBSIDIARY
OF  BORROWER, BANK, AND OF ANY THIRD PARTIES.  BORROWER'S  OBLIGATIONS
UNDER THIS PARAGRAPH SHALL SURVIVE THE REPAYMENT OF THE OBLIGATIONS OF
BORROWER  UNDER THE LOAN DOCUMENTS AND ANY DEED IN LIEU OF FORECLOSURE
OR  FORECLOSURE  OF ANY DEED TO SECURE DEBT, DEED OF  TRUST,  SECURITY
AGREEMENT  OR MORTGAGE SECURING THE OBLIGATIONS OF BORROWER UNDER  THE
LOAN DOCUMENTS.

G.   Survivability.   All covenants, agreements,  representations  and
warranties  made  herein or in the other Loan Documents shall  survive
the  making of the Loan and the issuance of each Letter of Credit  and
shall  continue  in full force and effect so long as the Loan  or  any
Letter  of Credit is outstanding or the obligation of Bank to make any
advances  under  the Line or issue any Letter of Credit or  honor  any
draft under any Letter of Credit shall not have expired.

11.   ARBITRATION.   ANY  CONTROVERSY OR CLAIM BETWEEN  OR  AMONG  THE
PARTIES  HERETO  INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF  OR
RELATING  TO  THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR  ANY  RELATED
INSTRUMENTS,  AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR
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
AGREEMENT  MAY  BRING  AN  ACTION, INCLUDING A  SUMMARY  OR  EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS  AGREEMENT  APPLIES  IN ANY COURT HAVING JURISDICTION  OVER  SUCH
ACTION.

A.   SPECIAL RULES.  THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE  BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS  INSTRUMENT,
AGREEMENT  OR DOCUMENT AND ADMINISTERED BY J.A.M.S.  WHO WILL  APPOINT
AN  ARBITRATOR;   IF  J.A.M.S.  IS UNABLE OR  LEGALLY  PRECLUDED  FROM
ADMINISTERING   THE  ARBITRATION,  THEN   THE   AMERICAN   ARBITRATION
ASSOCIATION  WILL  SERVE.  ALL ARBITRATION HEARINGS WILL BE  COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION;  FURTHER, THE ARBITRATOR
SHALL  ONLY,  UPON  A  SHOWING OF CAUSE, BE PERMITTED  TO  EXTEND  THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.

B.   RESERVATION  OF  RIGHTS.  NOTHING IN THIS  ARBITRATION  PROVISION
SHALL  BE  DEEMED  TO  (I) LIMIT THE APPLICABILITY  OF  ANY  OTHERWISE
APPLICABLE  STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS ARBITRATION PROVISION;  OR (II) BE A WAIVER BY THE BANK OF THE
PROTECTION  AFFORDED TO IT BY 12 U.S.C.  SEC.  91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW;  OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A)
TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
(B)  TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C)  TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH  AS
(BUT  NOT  LIMITED  TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION  OR  THE
APPOINTMENT  OF  A  RECEIVER.  THE BANK MAY EXERCISE  SUCH  SELF  HELP
RIGHTS,  FORECLOSE  UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL  OR
ANCILLARY  REMEDIES  BEFORE,  DURING  OR AFTER  THE  PENDENCY  OF  ANY
ARBITRATION  PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT
OR  DOCUMENT,  NEITHER  THIS EXERCISE OF SELF HELP  REMEDIES  NOR  THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR  ANCILLARY  REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF  ANY
PARTY,  INCLUDING  THE CLAIMANT IN ANY SUCH ACTION, TO  ARBITRATE  THE
MERITS  OF  THE  CONTROVERSY  OR  CLAIM  OCCASIONING  RESORT  TO  SUCH
REMEDIES.

12.   NO  ORAL AGREEMENT.  THIS WRITTEN LOAN AGREEMENT AND  THE  OTHER
LOAN  DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES  AND
MAY  NOT  BE  CONTRADICTED BY EVIDENCE OF  PRIOR,  CONTEMPORANEOUS  OR
SUBSEQUENT  ORAL  AGREEMENTS  OF  THE  PARTIES.   THERE  ARE  NO  ORAL
AGREEMENTS BETWEEN THE PARTIES.

13.   TEXAS  FINANCE CODE.  Chapter 346 of the Texas Finance  Code  is
specifically  declared  by the parties hereto not to be applicable  to
any Loan Documents or the transactions contemplated thereby.


IN  WITNESS WHEREOF, the parties hereto have caused this Agreement  to
be  duly executed under seal by their duly authorized  representatives
as of the date first above written.




BORROWER:                              BANK:

PEERLESS MFG. CO.                      TEXAS COMMERCE BANK NATIONAL
                                       NATIONAL ASSOCIATION

By:    /s/ Kent J. Van Houten          By: /s/ David L. Howard
       -----------------------         ----------------------------
Name:  Kent J. Van Houten              Name:  David L. Howard
Title: Chief Financial Officer         Title: Vice President
       Secretary/Treasurer