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NationsBank of Texas, N.A.

FIFTH AMENDED AND RESTATED LOAN AGREEMENT


This Loan Agreement ("Agreement") dated as of February 3, 1997,
by and between  NationsBank  of Texas, N.A., a national  banking
association ("Bank") and the Borrower described below.

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.   Collateral  Policy.   Collateral   Policy  means  each
effective insurance  policy insuring the life of Don Sillars in
which Bank has a perfected,  first  priority  Lien  in the cash
value  and  all  death benefits,  together with such other
assurances as Bank may require  to evidence its interest in such
policy.

E.  Compliance Certificate.  Compliance Certificate mean a
certificate in the form of Exhibit B.

F.   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.

G.   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 the amount equal  to  the
difference  (but  not  less than zero) of (i)  the  aggregate
undrawn amount  of  all  Letters  of Credit, minus (ii) the  sum
of  (a)  the aggregate  amount  in each Collateral Account, plus
(b) the  aggregate cash value of each Collateral Policy.

H.   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.
<PAGE>
I.    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.

J.   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, any lease in the nature  thereof, and the
filing of or agreement to give any  financing statement or other
similar form of public notice under the laws of any jurisdiction.

K.   Loan.  Any loan described in Section 2 hereof and any
subsequent loan which states that it is subject to this
Agreement.

L.   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.

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

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

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

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.  TCB Agreement.  TCB Agreement means the Loan Agreement dated
as of March  7,  1997,  between Borrower and Texas  Commerce
<PAGE>
Bank  National Association.

R.   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.   Loan.  Bank hereby agrees to make (or has made) one or more
loans to  Borrower in the aggregate principal face amount of
$5,000,000  (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   dated  February  3,  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 (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.

ii.   Usage Fee.  Borrower will pay hereafter on February 3, 1997
and on  the last 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
11,  1998, issue  letters of credit for the account of Borrower
(each, 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.   No
Letter  of Credit shall have an expiry subsequent to December 11,
1998 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,  1998 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 sum  of  (a)  the amount  of  each
Collateral Account plus (b) 95% of the cash value  of each
Collateral Policy.  The undrawn amount of all Letters of  Credit
<PAGE>
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 Line 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  any Collateral  Account or
Borrower's deposit accounts with Bank or obtain all  or any of
the cash value of any Collateral Policy for the  amount of  such
draft.  If at any time prior to December 12, 1997 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, 1997 the aggregate undrawn amount of all Extended Expiry LCs
exceeds the sum of (a) the amount of each  Collateral  Account,
plus  (b) 95% of the cash  value  of  each Collateral  Policy,
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 1.5% per annum of
the  face  amount of the Letter of Credit, which fee  is  due
and payable  on  issuance  of the Letters of Credit.  Bank shall
send  to Borrower  notice of Bank's election to pursue any remedy
with  respect to the Collateral Policy three days prior to
enforcing such remedy.

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 to
carry on its  business in each jurisdiction in which Borrower
does business.  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 to carry on its business in each jurisdiction
in which it 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  Board  of Directors 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
with  all laws and regulatory requirements to which it  is
<PAGE>
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
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 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, 1996.  All  factual information
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.

J.   Place of Business.  Borrower's chief executive office is
located at:
<PAGE>
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.    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 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 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 are true and correct  and that the Borrower is not in
default under the terms of this Agreement, and  (b)  computations
<PAGE>
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  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, specifically to
include fire and extended coverage insurance covering  all
assets,  and liability insurance, 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) or issuance of the first Letter of Credit and 30 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 and 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.

D.   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  or  any  of Borrower's  Subsidiary's  financial
condition or operations or  Bank's rights  under  the  Loan
Documents, (ii) any litigation  filed  by  or against  Borrower
or any Subsidiary of 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.

E.   Taxes  and Other Obligations.  Pay, and cause each
Subsidiary  of Borrower  to 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.

F.   Maintenance.  Maintain, and cause each Subsidiary of
Borrower  to 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.

G.   Environmental.  Immediately advise Bank in writing of (i)
any and all  enforcement, cleanup, remedial, removal, or other
<PAGE>
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 shall immediately notify Bank of
any remedial action taken by Borrower  or any Subsidiary of
Borrower with respect to Borrower's  or any of Borrower's
Subsidiary's business operations.  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 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  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 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 $0 for  the  nine
months ending  on March 31, 1997.  b) Net Income to be less than
or equal  to $500,000  for the twelve months ending on June 30,
1997.  c) Net  Loss to  be less than $0 by more than $300,000 for
the three months  ending September 30, 1997.
<PAGE>
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 existing Investments in  such  Subsidiaries (as
disclosed on Schedule 1), plus  all  future Investments  in  such
Subsidiaries,  does  not  exceed  at  any  time $2,000,000.

C.   Extensions  of Credit.  Make any loan or advance to  any
Person; provided Borrower may make loans and/or advances to
Subsidiaries under the terms specified in Section "B.
Investments" above.

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.

E.   Liens.  Grant, suffer or permit any contractual or
noncontractual Lien on any of its assets, or fail to promptly pay
when due all lawful claims,  whether for labor, materials or
otherwise;  or agree with any Person to not grant any Lien on any
of its assets.

F.   Borrowings.  Create, incur, assume or become liable in any
manner for  any  indebtedness (for borrowed money, deferred
payment  for  the purchase  of  assets, lease payments, 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  the TCB Agreement.

G.  TCB Agreement.  Amend, modify or restate the TCB Agreement,
or any related agreement, as they exist on March 7, 1997.

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 principal, interest, fees or
other amounts payable under any Loan Document on the date due;

B.  Any representation or warranty made or deemed made by
Borrower (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 Subsidiary of Borrower shall fail to
perform  or observe any term or covenant contained in any Loan
Document;
<PAGE>
D.   Any Loan Document or provision thereof shall, for any
reason, not be  valid and binding on Borrower 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  Borrower; or  Borrower  shall  deny  that
it has any  or  further  liability  or obligation under any Loan
Document;

E.   The  occurrence of any event described in Section 9(e) or
(f)  of the Note with respect to Borrower or any Subsidiary of
Borrower;

F.   Borrower or any Subsidiary of Borrower 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  Borrower  or any Subsidiary of Borrower
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, and  such
failure can result in acceleration of the maturity of  such debt;

G.   Borrower  or  any  Subsidiary of Borrower 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.  Borrower or any Subsidiary of Borrower 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, Borrower  or
any Subsidiary of Borrower 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  Borrower  or  any Subsidiary
of  Borrower  to Bank or any affiliate  or  subsidiary  of
NationsBank Corporation.

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: Kent Van Houten
<PAGE>
Bank:

NationsBank  of  Texas,  N.A.  901 Main Street, 7th  Floor  P.O.
Box 831000 Dallas, Texas 75283-1000 Attn:  Brian Gordon, Vice
President

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  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
<PAGE>
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 of  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
<PAGE>
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
<PAGE>
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:                           BANK:

PEERLESS MFG.  CO.                  NATIONSBANK OF TEXAS, N.A.


By: /s/ Kent J. Van Houten          By: /s/ Brian Gordon
Name:   Kent J. Van Houten          Name:   Brian Gordon
Title:  Chief Financial Officer     Title:  Vice President
        Secretary/Treasurer