<PAGE>
LOAN AGREEMENT

This  Loan  Agreement (the "Agreement") dated as of March 7,
1997,  by and  between  TEXAS  COMMERCE  BANK NATIONAL
ASSOCIATION  a  national banking association ("Bank") and the
Borrower described below.  In  consideration of the Loan or Loans
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.  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.
D.   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.
E.   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.
F.  Lien.  Lien shall mean any mortgage, pledge,  charge,
encumbrance, security interest, collateral assignment or other
lien or restriction of any kind, whether based on common law,
constitutional  provision,  statute or contract.
G.  Loan.  Any  loan described  in  Section 2 hereof and any
subsequent loan  which  states that  it is subject to this Loan
Agreement.
H.  Loan Documents.  Loan Documents  means this Loan Agreement
and any and all promissory  notes executed  by  Borrower  in
favor of Bank  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.
I.  NationsBank Loan Documents means the Fifth Amended and
Restated Loan Agreement dated as of February 3, 1997, between
Borrower and  NationsBank  of  Texas,  N.A.("NationsBank")   and
any  and  all promissory  notes executed by Borrower in favor of
NationsBank 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 to NationsBank.
J.  Net Income.  Net Income means  net profit after taxes of the
Borrower and its Subsidiaries, on a  consolidated  basis,
determined in accordance with GAAP.
K.   Net Loss.   Net  Loss means net loss after taxes of the
Borrower  and  its Subsidiaries,  on a consolidated basis,
determined in accordance  with GAAP.
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L.  Obligations means all principal, interest and other
amountswhich  are or become owing to Bank under this Note, any
Application or any  other  Loan  Document.
M.    Obligor  means  Borrower  and  any guarantor,  surety,
co-signer, general partner or other person who may now  or
hereafter  be  obligated  to  pay all  or  any  part  of  the
Obligations.
N.   Person means any individual,  Corporation, trust,
unincorporated  organization, Governmental Authority or any other
form of  entity.
O.  Proper Form means in form and substance  satisfactory to  the
Bank.
P.  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.
Q.  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.H.  hereof.

2.  LOANS.

A.   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 A, 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, Bank's standard form Application for  the Issuance  of
an  Irrevocable  Standby Letter of Credit  in  form  and
substance  acceptable  to  Bank  and  its  legal  counsel  (each
such application  an  "Application" and collectively,
"Applications")  duly executed  and  delivered by Borrower or
Borrower and a Subsidiary,  if applicable  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.

B.   Loan.  Bank hereby agrees to make (or has made) one or more
Loans to Borrower in the aggregate principal face amount of TWO
MILLION FIVE HUNDRED   THOUSAND   AND  NO/100THS   DOLLARS
($2,500,000.00)   (the "Commitment").   The Commitment shall be
reduced by an amount equal to the sum of:  (a) the face amount of
all outstanding Letters of Credit; and (b) the amount of any
unreimbursed drawings or other amounts owing to  the  Bank  under
<PAGE>
or  in  respect  of  any  Letter  of  Credit  or Application;
(items (a) and (b) are hereinafter collectively referred to  as
the "L/C Obligations") such that, on any date, the sum of  (1.)
all  Loans  outstanding on such date and (2.) all L/C
Obligations  on such  date, does not exceed the Commitment..  The
obligation to  repay the  Loans  is evidenced by a promissory
note or notes dated March  7, 1997 (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.

i.   Revolving Credit Feature.  The Loan provides for a revolving
line of  credit  (the "Line") under which Borrower may from time
to  time, borrow, repay and re-borrow funds.

ii.   Usage  Fee.  Borrower will pay hereafter on May 15, 1997
and  on the  same  day of each quarter for the period from and
including  the date  the  Line was established to and including
the maturity date  of the Line, a usage fee at a rate per annum
of .25% of the average daily unused  portion  of the Line during
such period.  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
12,  1997, issue  letters of credit for the account of Borrower
(each, a  "Letter of Credit" and collectively, "Letters of
Credit");  provided, however, that  Bank  shall  have  received
an  application  ("Application"  or "Applications")
substantially  in  the form of  the  Bank's  standard application
therefor  duly completed and executed by the Borrower  in Proper
Form not less than two (2) Business Day(s) prior to the date on
which the Letter of Credit is to be issued;  and provided further
that the  aggregate  undrawn  amount of all outstanding Letters
of  Credit shall not at any time exceed $2,500,000.00.  No Letter
of Credit shall have  an expiration date subsequent to December
12, 1998, unless  100% secured  by  a Bank CD.  The undrawn
amount of all Letters  of  Credit plus  any  and  all amounts
paid by Bank in connection  with  drawings under  any Letter of
Credit for which the Bank has not been reimbursed shall  be
reserved under the Commitment and shall not be available for
advances thereunder.  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 Borrower's  deposit  account
with Bank for the amount of  such  draft. Letters  of Credit
shall be priced at a rate of 1.00% per annum of the face amount
<PAGE>
of the Letter of Credit.

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

A.   Good Standing.  Borrower and each of Borrower's Subsidiaries
is a corporation,  duly  organized, validly existing and in  good
standing under  the  laws  of  Texas, or in the jurisdiction  in
which  it  is organized,  and has the power and authority to own
its property and to carry  on  its  business  in each
jurisdiction in  which  Borrower  or Subsidiary does business.

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
action  of  the  appropriate governing  body  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 is in compliance 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
pending or, to  the  knowledge  of  Borrower,   threatened
before  any  court  or governmental  authority,  agency or
arbitration authority,  except  as disclosed  to  Bank in writing
and acknowledged by Bank prior  to  the date of this Agreement.

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
and no provision of  any existing  agreement,  mortgage,
indenture  or  contract  binding   on Borrower  or  affecting its
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 has good title to its assets,
and its  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.  Taxes.  All taxes and assessments due and payable by Borrower
have been  paid  or  are  being  contested in  good  faith  by
appropriate proceedings  and  the Borrower has filed all tax
returns which  it  is required to file.

H.   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 December  31,  1996.   All factual  information
<PAGE>
furnished by Borrower to Bank in connection  with this  Agreement
and the other Loan Documents 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 not
misleading.

I.   Place of Business.  Borrower's chief executive office is
located at 2819 Walnut Hill Lane, Dallas, Texas 75229.

J.   Environmental.  The conduct of Borrower's business
operations and the condition of Borrower'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.

K.    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.

L.   Business  Purposes.   All  Loans are  for  business,
commercial, investment  or  other similar purpose and not
primarily for  personal, family,  household  or  agricultural
use, as such terms  are  used  in Chapter  One of the Texas
Credit Code and shall be for the purpose  of financing accounts
receivable.

M.   No  Margin  Stock.   No Loan shall be used for  the
purchase  or carrying  of any "margin stock" as that term is
defined in  Regulation "U" of the Board of Governors of the
Federal Reserve System.

4.   AFFIRMATIVE COVENANTS.  Until full 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 Condition.  Maintain Borrower's financial
condition  as follows,  determined  in accordance with GAAP
applied on a  consistent basis  throughout the period involved
except to the extent modified by the following definitions:

i.   Maintain  a Current Ratio (defined as Current Assets
divided  by Current  Liabilities  plus  Letters of Credit
outstanding  under  the Letter  of  Credit  Subfeature of not
less than 1.0 to  1.0  for  each calendar quarter.

ii.   * Net income shall be greater than $0 for  the  nine
months ending  on  March  31,  1997.      Net income shall  be
greater  than $500,000  for the twelve months ending on June 30,
1997.  * Net loss shall  not  be  greater  than $300,000 for  the
three  months  ending September 30, 1997.

B.   Financial Statements and Other Information.  Maintain a
<PAGE>
system of accounting 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  acceptable  to  Bank  and  by
independent  certified  public accountants acceptable to Bank.

In addition, Borrower will:

i.    Furnish  to  Bank   consolidated  and  consolidating
financial statements  of  Borrower for each fiscal year of
Borrower,  within  90 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  REPORTING  REQUIREMENTS,  COVENANTS
AND COMPLIANCE   CERTIFICATE   for   (and   executed  by   an
authorized representative  of)  Borrower  as  attached   hereto
as  Exhibit   B, 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  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  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,  respectively,  from  time
to  time,  as  Bank  may reasonably request.

C.    Insurance.   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, specifically to
include fire and extended coverage insurance  covering  all
assets, all to be with such companies and  in such amounts as are
satisfactory to Bank and providing for at least 30 days  prior
notice to Bank of any cancellation thereof.   Satisfactory
evidence  of such insurance will be supplied to Bank prior to
funding under the Loan(s) and 30 days prior to each policy
renewal.

D.   Existence and Compliance.  Maintain its existence, good
standing and  qualification to do business, where required and
<PAGE>
comply 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.

E.   Adverse Conditions or Events.  Promptly advise Bank in
writing of (i)  any  condition,  event or act which comes to its
attention  that would  or  might  materially  adversely  affect
Borrower's  financial condition  or  operations or Bank's rights
under the  Loan  Documents, (ii) any litigation filed by or
against Borrower, (iii) any event that has  occurred that would
constitute an event of default under any Loan Documents  and (iv)
any uninsured or partially uninsured loss  through fire, theft,
liability or property damage.

F.   Taxes  and Other Obligations.  Pay all of its taxes,
assessments and  other 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.

G.   Maintenance.   Maintain  all  of its tangible  property  in
good condition  and repair and make all necessary replacements
thereof, and preserve  and maintain all licenses, trademarks,
privileges,  permits, franchises,  certificates and the like
necessary for the operation  of its business.

H.   Environmental.  Immediately advise Bank in writing of (i)
any and all  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  business operations;  and (ii)
all claims made or threatened by any third party against
Borrower  relating to damages, contribution,  cost  recovery,
compensation,  loss or injury resulting from any Hazardous
Materials. Borrower shall immediately notify Bank of any remedial
action taken by Borrower  with  respect to Borrower's business
operations.   Borrower will  not use or permit any other party to
use any Hazardous Materials at any of Borrower's places of
business or at any other property owned by  Borrower  except
such materials as are incidental  to  Borrower's normal  course
of  business, maintenance and repairs  and  which  are handled
in  compliance  with   all  applicable  environmental  laws.
Borrower  agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's places of
business or any other property 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 is  complying
with this covenant and Borrower shall reimburse Bank  on demand
for  the  costs of any such  environmental  investigation  and
audit.    Borrower  shall  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  Borrowers business operations within
five (5) days of the request therefore.
<PAGE>
I.   Collateral.   This  Loan  Agreement   and  all  Applications
are presently  unsecured.   Borrower  agrees to provide  Bank  a
security interest  in any collateral which is hereafter pledged
by Borrower  to secure  other indebtedness for borrowed money,
such security  interest to be pari passu with the security
interest granted to another lender; provided  however,  that with
respect to letters of credit  issued  by NationsBank  or  other
lender which are cash secured,  this  provision shall  mean that
letters of credit issued by Bank on similar terms and conditions
(i.e.   letter  of credit expiry date extends  beyond  the
maturity  date of a line of credit) shall also be cash secured
and not that  Bank shall share in the cash collateral securing
such letters of credit.

5.   Negative  Covenants.  Until full payment and performance  of
all obligations  of Borrower under the Loan Documents, Borrower
will  not, without  the  prior written consent of Bank (and
without limiting  any requirement of any other Loan Documents):

Until  full  payment  and performance of all obligations  of
Borrower under the Loan Documents, Borrower will not, without the
prior written consent  of  Bank (and without limiting any
requirement of  any  other Loan Documents):

A.   Make  an  investment in, or loan or advance, to  any
Subsidiary, including  but  not limited to Peerless International
N.V.,  Peerless Europe  B.V., and Peerless Europe Ltd., that
would cause the aggregate amount  of  investments, loans or
advances in subsidiaries  to  exceed $2,000,000 at any time.

B.    Extend  loans  or  advances   to  any  individual,
partnership corporation  or  other entity not considered in the
normal  course  of Borrower's business.

C.   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, or transfer control or
ownership of Borrower or form or acquire any subsidiary.

D.   Fail  to  promptly pay when due all lawful  claims,  whether
for labor, materials or otherwise.

E.   Create,  incur,  assume or become liable in any  matter  for
any indebtedness (for borrowed money, deferred payment for the
purchase of assets,  lease  payments,  as  surety or guarantor
for  the  debt  of another,  or otherwise) except for normal
trade debts incurred in  the ordinary  course  of  Borrower's
business, and  except  for  existing indebtedness  disclosed  to
Bank in writing prior to the date of  this agreement.

F.   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.

G.   Amend,  modify or restate the NationsBank Loan Documents as
they exist on March 7, 1997.

6.   DEFAULT.   Borrower shall be in default under this Agreement
and under  each  of  the other Loan Documents if it shall default
<PAGE>
in  the payment  of any amounts due and owing under the Loan or
should it fail to  timely  and properly observe, keep or perform
any term,  covenant, agreement  or  condition  in any Loan
Document or 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 Borrower to Bank  or
any affiliate or subsidiary of Texas Commerce Bank National
Association.

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 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.
Attention:  Sherrill Stone
2819 Walnut Hill Lane, Dallas, Texas 75229

Bank:   Texas Commerce Bank National Association
Attention:  David  L. Howard
2200 Ross Avenue
P.O.  Box 660197
Dallas, TX 75266-0197

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 immediately  upon  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  byapplicable  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
<PAGE>
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 future notice or  demand  in similar or other
circumstances.

B.    Applicable  Law.   This  Loan   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  Loan 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  Loan  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 Loan Agreement.

D.   Documents.  All documents, certificates and other items
required under  this  Loan  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 enforceability or  invalidity  of
any provision  of this Loan 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  business operations, any other property
owned by  Borrower or  in  the surface or ground water arising
from  Borrower's  business operations,  or  gaseous  emissions
arising from  Borrower's  business operations  or any other
condition existing or arising from Borrower's business
operations resulting from the use or existence of  Hazardous
<PAGE>
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
the Borrower, regardless of whether the  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 the Borrower, the Bank, and of any third
parties. The  Borrower's  obligations  under this paragraph shall
survive  the repayment  of  the  Loan  and  any deed  in  lieu
of  foreclosure  or foreclosure  of  any  Deed  to Secure Debt,
Deed  of  Trust,  Security Agreement or Mortgage securing the
Loan.

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

12.   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
<PAGE>
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.

13.   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.

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:  PEERLESS MFG.  CO.


By: /s/ Kent J. Van Houten (Seal)
Name:   Kent J. Van Houten
Title:  Chief Financial Officer
          [Corporate Seal]


BANK:  TEXAS COMMERCE BANK NATIONAL ASSOCIATION


By: /s/ David L. Howard (Seal)
Name:   David L. Howard
Title:  Vice President


If  the Borrower is a corporation, the signature should be
attested by the  Secretary  or  Assistant  Secretary of the
corporation  and  the corporate seal affixed.


Attest: /s/ Kent J. Van Houten (Seal)
Name:       Kent J. Van Houten
Title:      Secretary/Treasurer