<PAGE>
NationsBank of Texas, N.A.

SIXTH AMENDED AND RESTATED LOAN AGREEMENT


This Loan Agreement ("Agreement") dated as of January 12, 1998, by and
between  NationsBank  of Texas, N.A., a national  banking  association
("Bank")  and the Borrower described below.  This Agreement amends and
restates in its entirety the Fifth Amended and Restated Loan Agreement
dated as of February 7, 1997, between Bank and Borrower.

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
substantially 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.

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.   Material  Adverse  Effect.   Material Adverse  Effect  means  any
circumstance  or  event that is or would reasonably be expected to  be
material  and adverse to the financial condition, business operations,
prospects  or properties of Borrower and its Subsidiaries, taken as  a
whole.

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.  TCB Agreement.  TCB Agreement means the Loan Agreement dated as of
January  12,  1998, between Borrower and Texas Commerce Bank  National
Association.

T.   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.  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, minus (iii) the amount of all drawings
under  any  Letter of Credit for which Bank has not  been  reimbursed.
The  obligation to repay the loans is evidenced by the promissory note
dated January 11, 1998 (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 the last day of  each
calendar  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,  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 sum of (a) the amount of each Collateral Account plus (b)
95%  of the cash value of each Collateral Policy.  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, 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
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 is qualified to  conduct
its  business  in each jurisdiction in which Borrower  does  business,
except  to the extent the failure to obtain such qualifications or  to
remain in good standing 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 or to remain in good
standing 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  with  all
laws and regulatory requirements to which it is subject, except to the
extent the failure to comply with such laws or regulatory requirements
would not result in a Material Adverse Effect.

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.   TCB  Agreement.   Borrower has delivered to Bank a  complete  and
correct copy of the TCB 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.  Bank acknowledges that  Grant
Thornton,  L.P., independent certified accountants of Borrower on  the
date hereof, is acceptable to Bank as of the date hereof.

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  detail
as  Bank may reasonably 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  15  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 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 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, except in each case, where  the
failure  of  such Subsidiary to comply with the requirements  of  this
section would not result in a Material Adverse Effect.

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,  (iv)  any  uninsured or partially uninsured  loss  through
fire,  theft,  liability  or property damage, and (v)  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.   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)  all
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  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  material  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
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 request written 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 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 Borrower or any other Subsidiary of Borrower.

E.   Liens.  Grant, suffer or permit any contractual or noncontractual
Lien  on  any  of its assets (other than liens granted under  the  TCB
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),  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, except  (i)  with
respect  to  any failure to pay a claim, to the extent the failure  to
pay  such  claims would not result in a Material Adverse  Effect,  and
(ii) as provided in the TCB 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, 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  or
evidenced by the TCB Agreement and any related promissory notes.

G.  TCB Agreement.  Amend, modify or restate the TCB Agreement, or any
related agreement, as they exist on January 12, 1998.

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 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.   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;

F.   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;

G.   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;

H.   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 NationsBank Corporation.

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

J.   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.);

K.   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;

L.   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;

M.  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: Kent Van Houten


Bank:

NationsBank  of  Texas,  N.A.
901 Main Street, 7th  Floor
P.O.   Box  831000
Dallas,  Texas  75283-1000
Attn:   Frank  Izzo,  Senior  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
not  later  than 5 days after 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
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 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  UNWRITTEN
ORAL AGREEMENTS BETWEEN 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/ Frank Izzo
       -----------------------       ----------------------------
Name:  Kent J.  Van Houten           Name:  Frank  Izzo
Title: Chief Financial Officer       Title: Senior Vice President
       Secretary/Treasurer