EXHIBIT 10.F
   NationsBank, N.A.

                 SEVENTH AMENDED AND RESTATED LOAN AGREEMENT


       This  Loan Agreement ("Agreement") dated as of December 12, 1998, by
  and  between  NationsBank,  N.A.  (successor  by merger of NationsBank of
  Texas,  N.A.  into  NationsBank,  N.A.),  a  national banking association
  ("Bank")  and  the  Borrower  described below.  This Agreement amends and
  restates  in  its  entirety the Sixth Amended and Restated Loan Agreement
  dated as of January 12, 1998, 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.   Chase  Agreement.    Chase  Agreement  means the Loan Agreement
  dated  as of December 12, 1998, between Borrower and Chase Bank of Texas,
  N.A.

       D.   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.

       E.   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.

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

       G.   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.
<PAGE>
       H.   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.

       I.   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.

       J.   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.

       K.   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.

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

       M.   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.

       N.   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.

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

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

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

       S.   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.

       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 $3,500,000
  (as  such  amount  may  be  reduced, the "Line"), provided, the aggregate
  unpaid principal of all loans shall not at any time exceed the difference
  between  (i)  the  Line, minus (ii) the undrawn amount of all outstanding
  Letters  of  Credit,  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 December 31,
  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.
<PAGE>
            iii. Letter  of  Credit  Subfeature.  As a subfeature under the
       Line,  Bank  may  from time to time up to and including December 12,
       1999,  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, 2000 or 364 or more
       days  after  the  issuance  date; provided Borrower may request that
       Bank  issue  Letters  of  Credit having an expiry after December 11,
       2000  or  an  expiry  364  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,  1999  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,  1999 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.
<PAGE>
  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.
<PAGE>
       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, 1998.  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.   Chase Agreement.  Borrower has delivered to Bank a complete and
  correct copy of the Chase 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):
<PAGE>
       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 60 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.
<PAGE>
       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.
<PAGE>
       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  Net  Income  to be less than
       $750,000  for the twelve months ending on the last day of any fiscal
       quarter of Borrower.

       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 $2,500,000.
<PAGE>
       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  Chase  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 Chase 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 Chase Agreement and any related promissory notes.

       G.   Chase Agreement.  Amend, modify or restate the Chase Agreement,
  or any related agreement, as they exist on December 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;
<PAGE>
       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;

       N.   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
<PAGE>
       O.   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: Paul Willey
       
            Bank:

            NationsBank of Texas, N.A.
            901 Main Street, 7th Floor
            P.O. Box 831000
            Dallas, Texas  75283-1000
            Attn:  Barry Bruce Conrad, II, 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.
<PAGE>
  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.
<PAGE>
       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.
<PAGE>
       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,  N.A.  (successor by
                                          merger  of  NationsBank of Texas,
                                          N.A. into NationsBank, N.A.)


  By:                                     By:                              
  Name:     Paul Willey                   Name:     Barry Bruce Conrad, II
  Title:    Chief Financial Officer       Title:    Vice President