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                                                                   EXHIBIT 10(c)

                     MASTER REVOLVING NOTE
[COMERICA BANK LOGO] Eurodollar Rate-Maturity Date-Committed (Business and
                     Commercial Loans Only)

<TABLE>
<CAPTION>
AMOUNT            NOTE DATE         MATURITY DATE     TAX IDENTIFICATION NUMBER
<S>               <C>               <C>               <C>
$12,500,000       October 30, 2003  November 1, 2006  17507244170
</TABLE>

ON THE MATURITY DATE, as stated above, for value received, the undersigned
promise(s) to pay to the order of Comerica Bank ("Bank"), at any office of the
Bank in the State of Texas, Twelve Million Five Hundred Thousand Dollars (U.S.)
(or that portion of it advanced by the Bank and not repaid as later provided)
with interest until maturity, whether by acceleration or otherwise, or until the
occurrence of an Event of Default (as defined in that certain Credit Agreement
of even date herewith between the undersigned and Bank (the "Credit Agreement")
and used with the same meaning herein), at a per annum rate equal to the lesser
of (a) the Maximum Rate, as later defined, or (b) the Stated Rate, as later
defined, and after that at a rate equal to the rate of interest otherwise
prevailing under this Note plus three percent (3%) per annum (but in no event in
excess of the Maximum Rate). If on any day the Stated Rate shall exceed the
Maximum Rate for that day, the rate of interest applicable to this Note shall be
fixed at the Maximum Rate on that day and on each day thereafter until the total
amount of interest accrued on the unpaid principal balance of this Note equals
the total amount of interest which would have accrued if there had been no
Maximum Rate. Interest rate changes will be effective for interest computation
purposes as and when the Maximum Rate or the Stated Rate, as applicable,
changes. Subject to the limitations hereinbelow set forth, interest shall be
calculated on the basis of a 360-day year for actual number of days the
principal is outstanding. Accrued interest on this Note shall be payable on the
first Eurodollar Business Day, as later defined, of each calendar month,
commencing with the first Eurodollar Business Day of the calendar month
following the date of this Note and with respect to interest accrued on any
Eurodollar Balance, as later defined, on the last day of the applicable
Eurodollar Interest Period, as later defined, until the Maturity Date (set forth
above) when all amounts outstanding under this Note shall be due and payable in
full. If the frequency of interest payments is not otherwise specified, accrued
interest on this Note shall be payable monthly on the first day of each month.
If any payment of principal or interest under this Note shall be payable on a
day other than a day on which the Bank is open for business, this payment shall
be extended to the next succeeding business day and interest shall be payable at
the rate specified in this Note during this extension. A late payment charge
equal to a reasonable amount not to exceed five percent (5%) of each late
payment may be charged on any payment not received by the Bank within ten (10)
calendar days after the payment due date, but acceptance of payment of this
charge shall not waive any Event of Default under this Note.

Subject to the provisions hereof, the undersigned shall have the option (an
"Interest Option") exercisable from time to time to designate a portion of the
unpaid principal balance of this Note to bear interest at the Prime Rate (such
portion being herein referred to as the "Prime Rate Balance") and to designate
one or more portions of the unpaid principal balance of this Note to bear
interest at a Eurodollar Rate (each such portion being herein referred to as a
"Eurodollar Balance").

The term "Maximum Rate" as used herein, shall mean at the particular time in
question the maximum nonusurious rate of interest which, under applicable law,
may then be charged on this Note. If such maximum rate of interest changes after
the date hereof, the Maximum Rate shall be automatically increased or decreased,
as the case may be, without notice to the undersigned from time to time as of
the effective date of each change in such maximum rate. For purposes of
determining the Maximum Rate under the law of the State of Texas, the applicable
interest rate ceiling shall be the "weekly ceiling" from time to time in effect
under Chapter 303 of the Texas Finance Code, as amended.

The term "Stated Rate," as used in this Note, shall mean (a) with respect to the
Prime Rate Balance outstanding from time to time, a fluctuating per annum rate
of interest equal to the Prime Rate minus the Applicable Margin and (b) with
respect to each Eurodollar Balance, a per annum rate of interest equal to the
Eurodollar Rate for the Eurodollar Interest Period then in effect with respect
to such Eurodollar Balance plus the Applicable Margin.

The term "Prime Rate," as used herein, shall mean that annual rate of interest
which is equal to the greater of the annual rate of interest designated by the
Bank as its Prime Rate which is changed by the Bank from time to time or a
variable per annum rate of interest determined from day to day which equals the
sum of 1% plus the average per annum rate of interest on overnight Federal funds
transactions with members of Federal Reserve System arranged by Federal funds
brokers ("Overnight Transactions") transacted on the immediately preceding
Business Day, as published by the Federal Reserve Bank of New York, or, if such
interest rate is not so published for any Business Day, the average of the per
annum interest rate quotations for Overnight Transactions received by the Bank
(or, at its option, the Reference Bank) for such Business Day from 3 Federal
funds brokers of recognized standing selected by the Bank. The Bank's Prime Rate
is a reference rate and does not necessarily represent the lowest or best rate
actually charged by the Bank (or, at its option, the Reference Bank) to any of
its customers. The Bank may make commercial loans at rates of interest at, above
or below its Prime Rate.

The term "Eurodollar Rate", as used herein, shall mean, with respect to the
applicable Eurodollar Interest Period and applicable Eurodollar Balance (as
later defined), the quotient of the following (rounded upwards, if necessary, to
the nearest 1/16 of 1%): (a) the interest rate determined by the Bank (which
determination shall be conclusive) to be the per annum interest rate at which
deposits in immediately available funds in U.S. dollars are offered to the Bank
(or, if elected by the Bank, by Bank's designated eurodollar lending office) at
such time as the Bank elects on the first day of such Eurodollar Interest
Period, to prime banks in the interbank eurodollar market selected by Bank (or,
if applicable, by Bank's designated eurodollar lending office) for delivery on
the first day of such Eurodollar Interest Period in an amount equal to the
principal amount of the corresponding Eurodollar Balance for a period equal to
the length of such Eurodollar Interest Period; divided by (b) a percentage
(expressed as a decimal) equal to 1.00 minus the maximum rate during such
interest period at which Bank (or, if applicable, Bank's designated eurodollar
lending office) is required to maintain reserves on "Eurocurrency Liabilities"
as defined in and pursuant to Regulation D of the Board of Governors of the
Federal Reserve System or, if such regulation or designation is modified, and as
long as Bank (or, if applicable, Bank's designated eurodollar lending office) is
required to maintain reserves against a category of liabilities which includes
eurodollar deposits or includes a category of assets which includes eurodollar
loans, the rate at which such reserves are required to be maintained on such
category.

The term "Eurodollar Interest Period", as used herein, shall mean, with respect
to the applicable Eurodollar Balance, a period commencing on the date (which
must be a Eurodollar Business Day) upon which, pursuant to an Interest Notice,
as later defined, the principal amount of such Eurodollar Balance begins to
accrue interest at the applicable Eurodollar Rate (or, in the case of a rollover
to a successive Eurodollar Interest Period, the last day of the immediately
preceding Eurodollar Interest Period) and ending 30, 60, 90 or 180 days after

                                       1

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the commencement date (as designated in the Interest Notice); provided, that:
(i) any Eurodollar Interest Period which would otherwise end on a day which is
not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day (unless such Eurodollar Business Day falls in another
calendar month, in which case, such Eurodollar Interest Period shall end on the
next preceding Eurodollar Business Day); and (ii) any Eurodollar Interest Period
which begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Eurodollar Interest Period shall end on the
last Eurodollar Business Day of such last calendar month; and (iii) no
Eurodollar Interest Period shall extend beyond the Maturity Date.

The term "Eurodollar Business Day," as used herein, shall mean a Business Day on
which dealings in U.S. dollars are carried out in the interbank eurodollar
market selected by Bank (or, if applicable, Bank's designated eurodollar lending
office).

The term "Applicable Margin," as used herein, shall be determined in accordance
with the following schedule based on the Debt to Tangible Net Worth Ratio of the
undersigned, determined in accordance with the Credit Agreement:

<TABLE>
<CAPTION>
DEBT TO TANGIBLE NET WORTH RATIO             PRIME RATE BALANCE        EURODOLLAR BALANCE
--------------------------------             ------------------        ------------------
<S>                                          <C>                       <C>
Equal to or greater than 1.5:1                      0.25%                     2.25%

Less than 1.5:1 and greater than 1:1                0.50%                     2.00%

Less than or equal to 1:1                           0.75%                     1.75%
</TABLE>

Any decrease in Stated Rate due to a change in the Applicable Margin shall take
effect five (5) Business Days after the undersigned has submitted a Compliance
Certificate and Financial Statements in accordance with Section 4.3 of the
Credit Agreement to Bank demonstrating a Debt to Worth Ratio which would cause
such decrease; provided, no reduction in the Applicable Margin shall take effect
until Borrower shall have maintained a certain Debt to Worth Ratio giving rise
to such reduction for a consecutive three-month period. Any increase in the
Stated Rate resulting from an increase in the Applicable Margin due to a change
in the Debt to Worth Ratio shall take effect immediately upon the Bank's receipt
of a Compliance Certificate or Financial Statements (as defined in the Credit
Agreement) demonstrating a Debt to Worth Ratio which would cause such increase,
or in the event the Bank does not timely receive a Compliance Certificate and
all Financial Statements as required by the Credit Agreement or any other Loan
Document, as defined in the Credit Agreement, then the Applicable Margin shall
become 0.25% for the Prime Rate Balance and 2.25% for all Eurodollar Balances on
the earliest date on which delivery the Compliance Certificate and/or any
Financial Statement was due.

The term "Business Day" as used herein, shall mean any day other than a
Saturday, Sunday or holiday, on which the Bank and the Reference Bank (and, if
applicable, the Reference Bank's designated eurodollar lending office) are open
to carry on all or substantially all of their normal commercial lending business
in Dallas, Texas.

The Interest Option shall be exercisable by the undersigned subject to the other
limitations in this Note on the undersigned's option to designate a portion of
the unpaid principal balance hereof as a Eurodollar Balance and only in the
manner provided below:

         (i)      Before 12:00 noon at least 3 Business Days prior to the date
the undersigned has requested the Bank to make an advance upon this Note, the
undersigned shall have given the Bank written notice (any such notice, an
"Interest Notice") in form and content satisfactory to Bank specifying the
initial Interest Option(s) and the respective initial amounts of the Prime Rate
Balance and Eurodollar Balance designated by the undersigned for each advance.
If the required Interest Notice shall not have been timely received by the Bank
or fails to designate all or any portion of the unpaid principal amount of the
advance as either a Prime Rate Balance or a Eurodollar Balance in accordance
with the terms and provisions of this Note, the undersigned shall be deemed
conclusively to have designated such amounts to be a Prime Rate Balance and to
have given the Bank notice of such designation.

         (ii)     At least three (3) Business Days prior to the termination of
any Eurodollar Interest Period for a Eurodollar Balance, the undersigned shall
give the Bank an Interest Notice specifying the Interest Option which is to be
applicable to such Eurodollar Balance upon the expiration of such Eurodollar
Interest Period. If the required Interest Notice shall not have been timely
received by the Bank the undersigned shall be deemed conclusively to have
designated such amount as a Prime Rate Balance immediately upon the expiration
of such Eurodollar Interest Period and to have given the Bank notice of such
designation.

         (iii)    The undersigned shall have the right, exercisable on any
Business Day subject to the terms of this Note, to convert an eligible portion
of the Prime Rate Balance to a Eurodollar Balance by giving the Bank an Interest
Notice of such designation at least three (3) Eurodollar Business Days prior to
the effective date of such exercise. Additionally, upon termination of any
Eurodollar Interest Period, the undersigned shall have the right, on any
Business Day, to convert all or a portion of such principal amount from the
Eurodollar Balance to a Prime Rate Balance by giving Bank an Interest Notice of
such selection at least three (3) Eurodollar Business Days prior to effective
date of such exercise.

         (iv)     There may be no more than five (5) Eurodollar Balances in
effect at any time.

         (v)      Each Eurodollar Balance must be, as of the first day of the
applicable Eurodollar Interest Period, at least $100,000.

         (vi)     No Event of Default, or condition or event which, with the
giving of notice or the lapse of time, or both, would constitute an Event of
Default, shall have occurred and be continuing or exist.

         (vii)    Each exercise of an Interest Option to designate a Eurodollar
Balance to bear interest at a Stated Rate which is based on the Eurodollar Rate
shall not be revocable.

                                       2

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Changes in the Stated Rate applicable to a Prime Rate Balance or a Eurodollar
Balance shall become effective without prior notice to the undersigned
automatically as of the opening of business on the date of each change in the
Prime Rate or the Eurodollar Rate, as the case may be.

If the Bank (or, if applicable, Bank's designated eurodollar lending office)
determines that deposits in U.S. dollars (in the applicable amounts) are not
being offered to prime banks in the interbank eurodollar market selected by the
Bank (or if applicable, Bank's designated eurodollar lending office for the
applicable Eurodollar Interest Period, or that the rate at which such dollar
deposits are being offered will not adequately and fairly reflect the cost to
the Bank (or, if applicable, Bank's designated eurodollar lending office) of
making or maintaining a Eurodollar Balance for the applicable Eurodollar
Interest Period, the Bank shall forthwith give notice thereof to the
undersigned, whereupon, until the Bank notifies the undersigned that such
circumstances no longer exist, the right of the undersigned to select an
Interest Option based upon the Eurodollar Rate shall be suspended, and the
undersigned may only select Interest Options based on the Prime Rate.

If the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or, if
applicable, Bank's designated eurodollar lending office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impractical for the
Bank (or, if applicable, Bank's designated eurodollar lending office) to make or
maintain a Eurodollar Balance, the Bank shall so notify the undersigned and any
then-existing Eurodollar Balance shall automatically convert to a Prime Rate
Balance either (i) on the last day of the then-current Eurodollar Interest
Period applicable to such Eurodollar Balance, if the Bank (and, if applicable,
its designated eurodollar lending office) may lawfully continue to maintain and
fund such Eurodollar Balance to such day, or (ii) immediately, if the Bank (or,
if applicable, its designated eurodollar lending office) may not lawfully
continue to maintain such Eurodollar Balance to such day. Further, until Bank
notices the undersigned that such conditions or circumstances no longer exist,
the right of the undersigned to select an Interest Option based on the
Eurodollar Rate shall be suspended, and the undersigned may only select Interest
Options based on the Prime Rate.

If either (i) the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or, if
applicable, its designated eurodollar lending office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall subject the Bank (or, if applicable, its
designated eurodollar lending office) to any tax (including without limitation
any United States interest equalization or similar tax, however named), duty or
other charge with respect to any Eurodollar Balance, this Note or the Bank's
(or, if applicable, its designated eurodollar lending office) obligation to
compute interest on the principal balance of this Note at a rate based upon the
Eurodollar Rate, or shall change the basis of taxation of payments to the Bank
(or, if applicable, its designated eurodollar lending office) of the principal
of or interest on any Eurodollar Balance or any other amounts due under this
Note in respect of any Eurodollar Balance or the Bank's (or, if applicable, its
designated eurodollar lending office) obligation to compute the interest on the
balance of this Note at a rate based upon the Eurodollar Rate, or (ii) any
governmental authority, central bank or other comparable authority shall at any
time impose, modify or deem applicable any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal Reserve
System), special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, the Bank (or, if applicable, its
designated eurodollar lending office), or shall impose on the Bank (or, if
applicable, its designated eurodollar lending office) or any relevant interbank
eurodollar market or exchange any other condition affecting any Eurodollar
Balance, this Note or the Bank's (or, if applicable, its designated eurodollar
lending office) obligation to compute the interest on the balance of this Note
at a rate based upon the Eurodollar Rate; and the result of any of the foregoing
is to increase the cost to the Bank (or, if applicable, its designated
eurodollar lending office) of maintaining any Eurodollar Balance, or to reduce
the amount of any sum received or receivable by the Bank (or, if applicable,
Bank's designated eurodollar lending office) under this Note by an amount deemed
by the Bank to be material, then upon demand by the Bank in writing, accompanied
by reasonable detail and explanation, the undersigned shall pay to the Bank such
additional amount or amounts as will compensate the Bank (or, if applicable,
Bank's designated eurodollar lending office) for such increased cost or
reduction. The Bank will promptly notify the undersigned of any event of which
it has knowledge, occurring after the date hereof, which will entitle the Bank
(or, if applicable, Bank's designated eurodollar lending office) to compensation
pursuant to this paragraph. A certificate of the Bank claiming compensation
under this paragraph and setting forth the additional amount or amounts to be
paid to the Bank hereunder shall be conclusive in the absence of manifest error.

If any applicable law, treaty, rule, or regulation (whether domestic or foreign)
now or hereafter in effect and whether presently applicable to the Bank (or, if
applicable, its designated eurodollar lending office) or any change therein or
any interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof or compliance
by the Bank (or, if applicable, its designated eurodollar lending office)
therewith or with any guidance, request or directive of any such governmental
authority, central bank or comparable agency (whether or not having the force of
law), including any risk-based capital guidelines, affects or would affect the
amount of capital required or expected to be maintained by the Bank (or any
corporation controlling the Bank), and the Bank determines that the amount of
such capital is increased by or based upon the existence of any obligations of
Bank hereunder or the maintaining of any Eurodollar Balance hereunder, and such
increase has the effect of reducing the rate of return on Bank's (or its
controlling corporation's) capital as a consequence of such obligations or the
maintaining of Eurodollar Balances hereunder to a level below that which the
Bank (or such controlling corporation) could have achieved but for such
circumstances (taking into consideration its policies with respect to capital
adequacy), then the undersigned shall pay to Bank, within fifteen (15) days of
receipt by the undersigned of written notice from the Bank demanding such
compensation and detailing the calculation thereof, such additional amounts as
are sufficient to compensate the Bank (and its controlling corporation) for any
increase in the amount of capital and reduced rate of return which the Bank
determines to be allocable to the existence of any obligations of the Bank (or
its controlling corporation) hereunder or maintenance of any Eurodollar Balances
hereunder. A certificate of Bank as to the amount of such compensation and the
calculation thereof, prepared in good faith and in reasonable detail by the
Bank, which is submitted by the Bank to the undersigned shall be conclusive and
binding for all purposes absent manifest error.

The undersigned may not repay any Eurodollar Balance or convert all or any
portion of a Eurodollar Balance to a Prime Rate Balance prior to the expiration
of the applicable Eurodollar Interest Period, unless (i) such repayment or
conversion is specifically required by the terms of this Note, (ii) the Bank
demands that such repayment or conversion be made, or (iii) the Bank, in its
sole discretion, consents to such repayment or conversion. If for any reason,
whether or not consent shall have been given or demand shall have been made by
the Bank, any Eurodollar

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Balance is repaid or converted prior to the expiration of the corresponding
Eurodollar Interest Period, or any Interest Option which designates a Eurodollar
Balance is revoked for any reason whatsoever prior to the commencement of the
applicable Eurodollar Interest Period or the undersigned fails for any reason to
borrow the full amount of any Eurodollar Balance for which the undersigned has
exercised an Interest Option, or if for any other reason whatsoever, the basis
for determining the Stated Rate shall be changed from a Eurodollar Rate to the
Prime Rate prior to the expiration of the applicable Eurodollar Interest Period,
or the undersigned shall fail to make any payment of principal or interest upon
this Note at any time that the Stated Rate if based on a Eurodollar Rate, then
the undersigned shall pay to the Bank on demand any amounts required to
compensate the Bank (and, if applicable, its designated eurodollar lending
office) for any losses, costs or expenses which it may incur as a result
thereof, including, without limitation, any loss, cost or expense incurred in
obtaining, liquidating, employing or redeploying deposits from third parties.
Amounts payable by the undersigned to the Bank pursuant to this paragraph may
include, without limitation, amounts equal to the excess, if any of (a) the
amounts of interest which would have accrued on any amounts so prepaid,
refunded, converted or not so borrowed, from the respective dates of prepayment,
refund, conversion or failure to borrow through the last day of the relevant
Eurodollar Interest Periods at the applicable rates of interest for the
applicable Eurodollar Balances, as provided under this Note, over (b) the
amounts of interest determined by the Bank (or, if applicable, its designated
eurodollar lending office) which would have accrued to the Bank or Reference
Bank (or, if applicable, its designated eurodollar lending office) on such
respective amounts by placing such amounts on deposit for comparable periods
with leading banks in the interbank eurodollar market selected by the Bank (or,
if applicable, its designated eurodollar lending office). The calculation of any
such amounts under this paragraph shall be made as if the Bank (or, if
applicable, its designated eurodollar lending office) actually funded or
committed to fund the relevant Eurodollar Balances hereunder through the
purchase of underlying deposits in amounts equal to the respective amounts of
the applicable Eurodollar Balances and having terms comparable to the applicable
Eurodollar Interest Periods; provided, however, that the Bank (or, if
applicable, its designated eurodollar lending office) may fund Eurodollar
Balances hereunder in any manner they may elect in their sole discretion, and
the foregoing assumptions shall be utilized only for the purposes of calculating
amounts payable under this paragraph. Upon written request by the undersigned,
the Bank shall deliver to the undersigned a certificate setting for the basis
for determining such losses, costs and expenses which certificate shall be
conclusive in the absence of manifest error.

For any Eurodollar Balance, if the Bank shall designate a eurodollar lending
office which maintains books separate from those of the Bank, the Bank shall
have the option of maintaining and carrying such Eurodollar Balance on the Books
of such eurodollar lending office.

The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, as provided in the
Credit Agreement less principal payments actually received by the Bank. The
books and records of the Bank shall be the best evidence of the principal amount
and the unpaid interest amount owing at any time under this Note and shall be
conclusive absent manifest error. No interest shall accrue under this Note until
the date of the first advance made by the Bank; after that interest on all
advances shall accrue and be computed on the principal balance outstanding from
time to time under this Note until the same is paid in full.

This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced and whether incurred
voluntarily or involuntarily, known or unknown, or originally payable to the
Bank or to a third party and subsequently acquired by Bank including, without
limitation, any late charges; loan fees or charges; overdraft indebtedness;
costs incurred by Bank in establishing, determining, continuing or defending the
validity or priority of any security interest, pledge or other lien or in
pursuing any of its rights or remedies under any loan document (or otherwise) or
in connection with any proceeding involving the Bank as a result of any
financial accommodation to the undersigned (or any of them); and reasonable
costs and expenses of attorneys and paralegals, whether inside or outside
counsel is used, and whether any suit or other action is instituted, and to
court costs if suit or action is instituted, and whether any such fees, costs or
expenses are incurred at the trial court level or on appeal, in bankruptcy, in
administrative proceedings, in probate proceedings or otherwise (collectively
"Indebtedness"), are secured by and the Bank is granted a security interest in
and lien upon all items deposited in any account of any of the undersigned with
the Bank and by all proceeds of these items (cash or otherwise), all account
balances of any of the undersigned from time to time with the Bank, by all
property of any of the undersigned from time to time in the possession of the
Bank and by any other collateral, rights and properties described in each and
every deed of trust, mortgage, security agreement, pledge, assignment and other
security or collateral agreement which has been, or will at any time(s) later
be, executed by any (or all) of the undersigned to or for the benefit of the
Bank (collectively "Collateral").

Upon the occurrence of an Event of Default, the Bank may, at its option and
without prior notice to the undersigned (or any of them), declare any or all of
the Indebtedness to be immediately due and payable (notwithstanding any
provisions contained in the evidence of it to the contrary), cease advancing
money or extending credit to or for the benefit of the undersigned under this
Note or any other agreement between the undersigned and Bank, terminate this
Note as to any future liability or obligation of Bank, but without affecting
Bank's rights and security interests in any Collateral or the Indebtedness, sell
or liquidate all or any portion of the Collateral, set off against the
Indebtedness any amounts owing by the Bank to the undersigned (or any of them),
charge interest at the default rate provided in the Credit Agreement and
exercise any one or more of the rights and remedies granted to the Bank by any
agreement with the undersigned (or any of them) or given to it under applicable
law. All payments under this Note shall be in immediately available United
States funds, without setoff or counterclaim.

This Note shall bind the undersigned and its personal representatives,
successors and assigns.

The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices, except as set forth in the Credit Agreement,
and agree(s) that no extension or indulgence to the undersigned (or any of them)
or release, substitution or nonenforcement of any security, or release or
substitution of any of the undersigned, any guarantor or any other party,
whether with or without notice, shall affect the obligations of any of the
undersigned. The undersigned waive(s) all defenses or right to discharge
available under Section 3.605 of the Texas Uniform Commercial Code and waive(s)
all other suretyship defenses or right to discharge. The undersigned agree(s)
that the Bank has the right to sell, assign, or grant participations or any
interest in, any or all of the Indebtedness, as provided in the Credit
Agreement, and that, in connection with this right, but without limiting its
ability to make other disclosures to the full extent allowable, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank
may provide

                                       4

<PAGE>

information relating to this Note or the Indebtedness or relating to the
undersigned to the Bank's parent, affiliates, subsidiaries and service
providers.

The undersigned agree(s) to reimburse the holder or owner of this Note upon
demand for any and all costs and expenses (including without limit, court costs,
legal expenses and reasonable attorneys' fees, whether inside or outside counsel
is used, and whether or not suit is instituted and, if suit is instituted,
whether at the trial court level, appellate level, in a bankruptcy or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to this
Note.

The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. Chapter 346 of the Texas Finance Code (and as the same may be
incorporated by reference in other Texas statutes) shall not apply to the
Indebtedness evidenced by this Note. THIS NOTE IS MADE IN THE STATE OF TEXAS AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF TEXAS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLE.

This Note and all other documents, instruments and agreements evidencing,
governing, securing, guaranteeing or otherwise relating to or executed pursuant
to or in connection with this Note or the Indebtedness evidenced hereby (whether
executed and delivered prior to, concurrently with or subsequent to this Note),
as such documents may have been or may hereafter be amended from time to time
(the "Loan Documents") are intended to be performed in accordance with, and only
to the extent permitted by, all applicable usury laws. If any provision hereof
or of any of the other Loan Documents or the application thereof to any person
or circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the application of such provision to any other person or
circumstance nor the remainder of the instrument in which such provision is
contained shall be affected thereby and shall be enforced to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of the
holder hereof to at all times comply with the usury and other applicable laws
now or hereafter governing the interest payable on the indebtedness evidenced by
this Note. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under this Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the indebtedness evidenced by this Note, or
if Bank's exercise of the option to accelerate the maturity of this Note, or if
any prepayment by the undersigned or prepayment agreement results (or would, if
complied with, result) in the undersigned having paid, contracted for or being
charged for any interest in excess of that permitted by law, then it is the
express intent of the undersigned and Bank that this Note and the other Loan
Documents shall be limited to the extent necessary to prevent such result and
all excess amounts theretofore collected by Bank shall be credited on the
principal balance of this Note or, if fully paid, upon such other Indebtedness
as shall then remaining outstanding (or, if this Note and all other Indebtedness
have been paid in full, refunded to the undersigned), and the provisions of this
Note and the other Loan Documents shall immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be paid, by the
undersigned for the use, forbearance, detention, taking, charging, receiving or
reserving of the indebtedness of the undersigned to Bank under this Note or
arising under or pursuant to the other Loan Documents shall, to the maximum
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
usury ceiling from time to time in effect and applicable to such indebtedness
for so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge or receive a greater amount of interest,
Bank will rely on federal law instead of the Texas Finance Code for the purpose
of determining the Maximum Rate. Additionally, to the maximum extent permitted
by applicable law now or hereafter in effect, Bank may, at its option and from
time to time, implement any other method of computing the Maximum Rate under the
Texas Finance Code or under other applicable law, by giving notice, if required,
to the undersigned as provided by applicable law now or hereafter in effect.
Notwithstanding anything to the contrary contained herein or in any of the other
Loan Documents, it is not the intention of Bank to accelerate the maturity of
any interest that has not accrued at the time of such acceleration or to collect
unearned interest at the time of such acceleration.

THE UNDERSIGNED AND THE BANK, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.

THIS WRITTEN LOAN AGREEMENT (AS DEFINED BY SECTION 26.02 OF THE TEXAS BUSINESS
AND COMMERCE CODE) REPRESENTS 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.

PEERLESS MFG. CO.                            By: /s/ Richard L. Travis, Jr.
                                                 -------------------------------
                                                 RICHARD L. TRAVIS, JR.
                                                 CHIEF FINANCIAL OFFICER

2819 Walnut Hill Lane,            Dallas             Texas              75229
--------------------------------------------------------------------------------
STREET ADDRESS                     CITY              STATE             ZIP CODE

                                       5

<PAGE>

               FOR BANK USE ONLY                        CCAR #
--------------------------------------------------------------------------------
LOAN OFFICER INITIALS   LOAN GROUP NAME   OBLIGOR NAME

--------------------------------------------------------------------------------
LOAN OFFICER ID. NO.    LOAN GROUP NO.    OBLIGOR NO.   NOTE NO.   AMOUNT

--------------------------------------------------------------------------------

                                       6<PAGE>

                                                                   EXHIBIT 10(d)

                     SECURITY AGREEMENT
[COMERICA BANK LOGO] (All Assets)

As of October 30, 2003, for value received, the undersigned ("Debtor") pledges,
assigns and grants to Comerica Bank ("Bank"), whose address is P. O. Box 650282,
Dallas, Texas 75265-0282, Attention: Deborah T. Purvin, Mail Code 6525, a
continuing security interest and lien (any pledge, assignment, security interest
or other lien arising hereunder is sometimes referred to herein as a "security
interest") in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Debtor. Indebtedness
includes without limit any and all obligations or liabilities of the Debtor to
the Bank, whether absolute or contingent, direct or indirect, voluntary or
involuntary, liquidated or unliquidated, joint or several, known or unknown,
originally payable to the Bank or to a third party and subsequently acquired by
the Bank including, without limitation, any late charges, loan fees or charges,
and overdraft indebtedness, any and all obligations or liabilities for which the
Debtor would otherwise be liable to the Bank were it not for the invalidity or
unenforceability of them by reason of any bankruptcy, insolvency or other law,
or for any other reason; any and all amendments, modifications, renewals and/or
extensions of any of the above; all reasonable costs incurred by Bank in
establishing, determining, continuing, or defending the validity or priority of
any security interest, or in pursuing its rights and remedies under this
Agreement or under any other agreement between Bank and Debtor or in connection
with any proceeding involving Bank as a result of any financial accommodation to
Debtor; and all other costs of collecting Indebtedness, including without limit
attorneys' fees. Debtor agrees to pay Bank all such costs incurred by the Bank,
immediately upon demand in writing, accompanied by reasonable detail and
explanation, and, following such written demand and reasonable explanation,
until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorneys' fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether inside or outside counsel is used,
whether or not a suit or action is instituted, and to court costs if a suit or
action is instituted, and whether attorneys' fees or court costs are incurred at
the trial court level, on appeal, in a bankruptcy, administrative or probate
proceeding or otherwise.

Debtor further covenanats, agrees, represents and warrants as follows:

1.       COLLATERAL shall mean all personal property of Debtor including,
         without limitation, all of the following property Debtor now or later
         owns or has an interest in, wherever located :

         (a)      all Accounts Receivable (for purposes of this Agreement,
                  "Accounts Receivable" consists of all accounts, general
                  intangibles, chattel paper (including without limit electronic
                  chattel paper and tangible chattel paper), contract rights,
                  deposit accounts, documents, instruments and rights to payment
                  evidenced by chattel paper, documents or instruments, health
                  care insurance receivables, commercial tort claims, letters of
                  credit, letter of credit rights, supporting obligations, and
                  rights to payment for money or funds advanced or sold),

         (b)      all Inventory,

         (c)      all Equipment and Fixtures,

         (d)      all Software (for purposes of this Agreement "Software"
                  consists of all (i) computer programs and supporting
                  information provided in connection with a transaction relating
                  to the program, and (ii) computer programs embedded in goods
                  and any supporting information provided in connection with a
                  transaction relating to the program whether or not the program
                  is associated with the goods in such a manner that it
                  customarily is considered part of the goods, and whether or
                  not, by becoming the owner of the goods, a person acquires a
                  right to use the program in connection with the goods, and
                  whether or not the program is embedded in goods that consist
                  solely of the medium in which the program is embedded),

         (e)      all investment property (including, without limitation,
                  securities, securities entitlements and financial assets);

         (f)      specific items listed below and/or on attached Schedule A, if
                  any, is/are also included in Collateral:

                  ______________________________________________________________

                  ______________________________________________________________

                  ______________________________________________________________

         (g)      all goods, instruments (including, without limit, promissory
                  notes), documents (including, without limit, negotiable
                  documents), policies and certificates of insurance, deposit
                  accounts, and money or other property (except real property
                  which is not a fixture) which are now or later in possession
                  or control of Bank, or as to which Bank now or later controls
                  possession by documents or otherwise, and

         (h)      all additions, attachments, accessions, parts, replacements,
                  substitutions, renewals, interest, dividends, distributions,
                  rights of any kind (including but not limited to stock splits,
                  stock rights, voting and preferential rights), products, and
                  proceeds of or pertaining to the above including, without
                  limit, cash or other property which were proceeds and are
                  recovered by a bankruptcy trustee or otherwise as a
                  preferential transfer by Debtor.

         In the definition of Collateral, a reference to a type of collateral
         shall not be limited by a separate reference to a more specific or
         narrower type of that collateral.

2.       WARRANTIES, COVENANTS AND AGREEMENTS. Debtor warrants, covenants and
         agrees as follows:

         2.1      Debtor shall furnish to Bank such information and reports as
                  are required to be delivered under that certain Credit
                  Agreement of even date herewith (the "Credit Agreement") by
                  and between Debtor and Bank, and shall allow Bank to examine,
                  inspect, and copy any of Debtor's books and records as
                  provided in the Credit Agreement. Debtor shall, at the request
                  of Bank, mark its records and the Collateral clearly to
                  indicate the security interest of Bank under this Agreement.

         2.2      At the time any Collateral becomes, or is represented to be,
                  subject to a security interest in favor of Bank, Debtor shall
                  be deemed to have warranted that (a) Debtor is the lawful
                  owner of the Collateral and has the right and authority to
                  subject it to a security interest granted to Bank; (b) none of
                  the Collateral is subject to any security interest, except for
                  a Permitted Encumbrance (as defined in the Credit Agreement),
                  other than that in favor of Bank; (c) there are no financing
                  statements on file, except with respect

                                       1

<PAGE>

                  to Permitted Encumbrances, other than in favor of Bank; (d) no
                  person, other than Bank, has possession or control (as defined
                  in the Uniform Commercial Code) of any Collateral, except with
                  respect to Permitted Encumbrances, of such nature that
                  perfection of a security interest may be accomplished by
                  control; and (e) Debtor acquired its rights in the Collateral
                  in the ordinary course of its business.

         2.3      Debtor will keep the Collateral free at all times from all
                  claims, liens, security interests and encumbrances other than
                  those in favor of Bank and Permitted Encumbrances. Debtor will
                  not, without the prior written consent of Bank, sell,
                  transfer, lease or grant control to any person other than Bank
                  over, or permit to be sold, transferred, leased or controlled
                  (by a person other than Bank), any or all of the Collateral,
                  except for Inventory in the ordinary course of its business
                  and will not return any Inventory to its supplier. Bank or its
                  representatives may inspect the Collateral as provided in the
                  Credit Agreement, and, in connection with such inspections,
                  may enter upon all premises where the Collateral is kept or
                  might be located.

         2.4      Debtor will do all acts and will execute or cause to be
                  executed all writings requested by Bank to establish, maintain
                  and continue an exclusive, perfected and first security
                  interest of Bank in the Collateral. Debtor agrees that Bank
                  has no obligation to acquire or perfect any lien on or
                  security interest in any asset(s), whether realty or
                  personalty, to secure payment of the Indebtedness, and Debtor
                  is not relying upon assets in which the Bank may have a lien
                  or security interest for payment of the Indebtedness.

         2.5      Debtor will pay within the time that they can be paid without
                  interest or penalty all taxes, assessments and similar charges
                  which at any time are or may become a lien, charge, or
                  encumbrance upon any Collateral, except to the extent
                  contested in good faith and bonded in a manner satisfactory to
                  Bank. If Debtor fails to pay any of these taxes, assessments,
                  or other charges in the time provided above, Bank has the
                  option (but not the obligation) to do so, and Debtor agrees to
                  repay all amounts so expended by Bank immediately upon demand
                  in writing, accompanied by reasonable detail and explanation,
                  together with interest at the highest lawful default rate
                  which could be charged by Bank on any Indebtedness.

         2.6      Debtor will keep the Collateral in operating condition, and
                  will protect it from loss, damage, or deterioration from any
                  cause. Debtor has and will maintain at all times (a) with
                  respect to the Collateral, insurance under an "all risk"
                  policy against fire and other risks customarily insured
                  against, and (b) public liability insurance and other
                  insurance as may be required by law or reasonably required by
                  Bank, all of which insurance shall be in amount, form and
                  content, and written by companies as may be satisfactory to
                  Bank, containing a lender's loss payable endorsement
                  acceptable to Bank. Debtor will deliver to Bank immediately
                  upon demand evidence satisfactory to Bank that the required
                  insurance has been procured. If Debtor fails to maintain
                  satisfactory insurance, Bank has the option (but not the
                  obligation) to do so and Debtor agrees to repay all amounts so
                  expended by Bank immediately upon demand in writing,
                  accompanied by reasonable detail and explanation, together
                  with interest at the Maximum Legal Rate (as defined in the
                  Credit Agreement).

         2.7      On each occasion on which Debtor evidences to Bank the account
                  balances on and the nature and extent of the Accounts
                  Receivable, Debtor shall be deemed to have warranted that
                  except as otherwise indicated (a) each of those Accounts
                  Receivable is valid and enforceable without performance by
                  Debtor of any act; (b) each of those account balances are in
                  fact owing, (c) there are no setoffs, recoupments, credits,
                  contra accounts, counterclaims or defenses against any of
                  those Accounts Receivable, (d) as to any Accounts Receivable
                  represented by a note, trade acceptance, draft or other
                  instrument or by any chattel paper or document, the same have
                  been endorsed and/or delivered by Debtor to Bank, (e) Debtor
                  has not received with respect to any Account Receivable, any
                  notice of the death of the related account debtor, or of the
                  dissolution, liquidation, termination of existence,
                  insolvency, business failure, appointment of a receiver for,
                  assignment for the benefit of creditors by, or filing of a
                  petition in bankruptcy by or against, the account debtor, and
                  (f) as to each Account Receivable, except as may be expressly
                  permitted by Bank to the contrary in another document, the
                  account debtor is not an affiliate of Debtor, the United
                  States of America or any department, agency or instrumentality
                  of it, or a citizen or resident of any jurisdiction outside of
                  the United States. Debtor will do all acts and will execute
                  all writings requested by Bank to perform, enforce performance
                  of, and collect all Accounts Receivable. Debtor shall neither
                  make nor permit any modification, compromise or substitution
                  for any Account Receivable without the prior written consent
                  of Bank. Debtor shall, at Bank's request, arrange for
                  verification of Accounts Receivable directly with account
                  debtors or by other methods acceptable to Bank.

         2.8      Debtor at all times shall be in material compliance with all
                  applicable laws, including without limit any laws, ordinances,
                  directives, orders, statutes, or regulations an object of
                  which is to regulate or improve health, safety, or the
                  environment ("Environmental Laws").

         2.9      If Bank, acting in its sole discretion, redelivers Collateral
                  to Debtor or Debtor's designee for the purpose of (a) the
                  ultimate sale or exchange thereof; or (b) presentation,
                  collection, renewal, or registration of transfer thereof; or
                  (c) loading, unloading, storing, shipping, transshipping,
                  manufacturing, processing or otherwise dealing with it
                  preliminary to sale or exchange; such redelivery shall be in
                  trust for the benefit of Bank and shall not constitute a
                  release of Bank's security interest in it or in the proceeds
                  or products of it unless Bank specifically so agrees in
                  writing. If Debtor requests any such redelivery, Debtor will
                  deliver with such request a duly executed financing statement
                  in form and substance satisfactory to Bank. Any proceeds of
                  Collateral coming into Debtor's possession as a result of any
                  such redelivery shall be held in trust for Bank and
                  immediately delivered to Bank for application on the
                  Indebtedness. Bank may (in its sole discretion) deliver any or
                  all of the Collateral to Debtor, and such delivery by Bank
                  shall discharge Bank from all liability or responsibility for
                  such Collateral. Bank, at its option, may require delivery of
                  any Collateral to Bank at any time with such endorsements or
                  assignments of the Collateral as Bank may request.

         2.10     At any time after the occurrence and during the continuance of
                  an Event of Default and without notice, except as required by
                  the Credit Agreement or under applicable law, Bank may (a)
                  cause any or all of the Collateral to be transferred to its
                  name or to the name of its nominees; (b) receive or collect by
                  legal proceedings or otherwise all dividends, interest,
                  principal payments and other sums and all other distributions
                  at any time payable or receivable on account of the
                  Collateral, and hold the same as Collateral, or apply the same
                  to the Indebtedness, the manner and distribution of the
                  application to be in the sole discretion of Bank; (c) enter
                  into any extension, subordination, reorganization, deposit,
                  merger or consolidation agreement or any other agreement
                  relating to or affecting the Collateral, and deposit or
                  surrender control of the Collateral, and accept other property
                  in exchange for the Collateral and hold or apply the property
                  or money so received pursuant to this Agreement; and (d) take
                  such actions in its own name or in Debtor's name as Bank, in
                  its sole discretion, deems necessary or appropriate to
                  establish exclusive control (as defined in the Uniform
                  Commercial Code) over any Collateral of such nature that
                  perfection of the Bank's security interest may be accomplished
                  by control.

         2.11     Bank may assign any of the Indebtedness and deliver any or all
                  of the Collateral to its assignee, as permitted under the
                  Credit Agreement, who then shall have with respect to
                  Collateral so delivered all the rights and powers of Bank
                  under this Agreement, and after that Bank shall be fully
                  discharged from all liability and responsibility with respect
                  to Collateral so delivered.

         2.12     [Intentionally Omitted.]

         2.13     Debtor shall defend, indemnify and hold harmless Bank, its
                  employees, agents, shareholders, affiliates, officers, and
                  directors from and against any and all claims, damages, fines,
                  expenses, liabilities or causes of action of whatever kind (as
                  used in this Section,

                                       2

<PAGE>

                  collectively, the "Indemnified Matters"), including without
                  limit consultant fees, legal expenses, and attorneys' fees,
                  suffered by any of them as a direct or indirect result of any
                  actual or asserted violation of any law, including, without
                  limit, Environmental Laws, or of any remediation relating to
                  any property required by any law, including without limit
                  Environmental Laws, INCLUDING ANY CLAIMS, DAMAGES, FINES,
                  EXPENSES, LIABILITIES OR CAUSES OF ACTION OF WHATEVER KIND
                  RESULTING FROM BANK'S OWN NEGLIGENCE, except and to the extent
                  (but only to the extent) caused by Bank's gross negligence or
                  wilful misconduct. Upon Bank's receipt of written notice of
                  any such Indemnified Matters, Bank will provide to Debtor
                  notice, in writing accompanied by reasonable detail, of such
                  Indemnified Matters, but any failure by Bank to provide such
                  notice to Debtor shall not impair or otherwise affect the
                  rights of Bank, its employees, agents, shareholders,
                  affiliates, officers, or directors to be indemnified and held
                  harmless under this Section.

3.       COLLECTION OF PROCEEDS.

         3.1      Debtor agrees to collect and enforce payment of all Collateral
                  until Bank, after the occurrence and during the continuance of
                  an Event of Default, shall direct Debtor to the contrary.
                  Immediately upon notice to Debtor by Bank and at all times
                  after that, Debtor agrees to fully and promptly cooperate and
                  assist Bank in the collection and enforcement of all
                  Collateral and to hold in trust for Bank all payments received
                  in connection with Collateral and from the sale, lease or
                  other disposition of any Collateral, all rights by way of
                  suretyship or guaranty and all rights in the nature of a lien
                  or security interest which Debtor now or later has regarding
                  Collateral. Immediately upon and after such notice, Debtor
                  agrees to (a) endorse to Bank and immediately deliver to Bank
                  all payments received on Collateral or from the sale, lease or
                  other disposition of any Collateral or arising from any other
                  rights or interests of Debtor in the Collateral, in the form
                  received by Debtor without commingling with any other funds,
                  and (b) immediately deliver to Bank all property in Debtor's
                  possession or later coming into Debtor's possession through
                  enforcement of Debtor's rights or interests in the Collateral.
                  Debtor irrevocably authorizes Bank or any Bank employee or
                  agent to endorse the name of Debtor upon any checks or other
                  items which are received in payment for any Collateral, and to
                  do any and all things necessary in order to reduce these items
                  to money. Bank shall have no duty as to the collection or
                  protection of Collateral or the proceeds of it, or as to the
                  preservation of any related rights, beyond the use of
                  reasonable care in the custody and preservation of Collateral
                  in the possession of Bank. Debtor agrees to take all steps
                  necessary to preserve rights against prior parties with
                  respect to the Collateral. Nothing in this Section 3.1 shall
                  be deemed a consent by Bank to any sale, lease or other
                  disposition of any Collateral.

         3.2      Debtor agrees that immediately upon Bank's request (if and for
                  so long as an Event of Default exists) the Indebtedness shall
                  be on a "remittance basis" as follows: Debtor shall at its
                  sole expense establish and maintain (and Bank, at Bank's
                  option may establish and maintain at Debtor's expense): (a) an
                  United States Post Office lock box (the "Lock Box"), to which
                  Bank shall have exclusive access and control. Debtor expressly
                  authorizes Bank, from time to time, to remove contents from
                  the Lock Box, for disposition in accordance with this
                  Agreement. Debtor agrees to notify all account debtors and
                  other parties obligated to Debtor that all payments made to
                  Debtor (other than payments by electronic funds transfer)
                  shall be remitted, for the credit of Debtor, to the Lock Box,
                  and Debtor shall include a like statement on all invoices; and
                  (b) a non-interest bearing deposit account with Bank which
                  shall be titled as designated by Bank (the "Cash Collateral
                  Account") to which Bank shall have exclusive access and
                  control. Debtor agrees to notify all account debtors and other
                  parties obligated to Debtor that all payments made to Debtor
                  by electronic funds transfer shall be remitted to the Cash
                  Collateral Account, and Debtor, at Bank's request, shall
                  include a like statement on all invoices. Debtor shall execute
                  all documents and authorizations as required by Bank to
                  establish and maintain the Lock Box and the Cash Collateral
                  Account.

         3.3      All items or amounts which are remitted to the Lock Box, to
                  the Cash Collateral Account, or otherwise delivered by or for
                  the benefit of Debtor to Bank on account of partial or full
                  payment of, or with respect to, any Collateral shall, at
                  Bank's option, (a) be applied to the payment of the
                  Indebtedness, whether then due or not, in such order or at
                  such time of application as Bank may determine in its sole
                  discretion, or, (b) be deposited to the Cash Collateral
                  Account. Debtor agrees that Bank shall not be liable for any
                  loss or damage which Debtor may suffer as a result of Bank's
                  processing of items or its exercise of any other rights or
                  remedies under this Agreement, including without limitation
                  indirect, special or consequential damages, loss of revenues
                  or profits, or any claim, demand or action by any third party
                  arising out of or in connection with the processing of items
                  or the exercise of any other rights or remedies under this
                  Agreement. Debtor agrees to indemnify and hold Bank harmless
                  from and against all such third party claims, demands or
                  actions, and all related expenses or liabilities (as used in
                  this Section, collectively, the "Indemnified Matters"),
                  including, without limitation, attorneys' fees and INCLUDING
                  CLAIMS, DAMAGES, FINES, EXPENSES, LIABILITIES OR CAUSES OF
                  ACTION OF WHATEVER KIND RESULTING FROM BANK'S OWN NEGLIGENCE
                  except to the extent (but only to the extent) caused by Bank's
                  gross negligence or willful misconduct. Upon Bank's receipt of
                  written notice of any such Indemnified Matters, Bank will
                  provide to Debtor notice, in writing accompanied by reasonable
                  detail, of such Indemnified Matter, but any failure by Bank to
                  provide such notice to Debtor shall not impair or otherwise
                  affect the rights of Bank to be indemnified and held harmless
                  under this Section.

4.       DEFAULTS, ENFORCEMENT AND APPLICATION OF PROCEEDS.

         4.1      Upon the occurrence of any "Event of Default" (as defined in
                  the Credit Agreement and used with the same meaning herein),
                  Debtor shall be in default under this Agreement.

         4.2      Upon the occurrence of any Event of Default, Bank may at its
                  discretion and without prior notice to Debtor declare any or
                  all of the Indebtedness to be immediately due and payable, and
                  shall have and may exercise any right or remedy available to
                  it including, without limitation, any one or more of the
                  following rights and remedies:

                  (a)      Exercise all the rights and remedies upon default, in
                           foreclosure and otherwise, available to secured
                           parties under the provisions of the Uniform
                           Commercial Code and other applicable law;

                  (b)      Institute legal proceedings to foreclose upon the
                           lien and security interest granted by this Agreement,
                           to recover judgment for all amounts then due and
                           owing as Indebtedness, and to collect the same out of
                           any Collateral or the proceeds of any sale of it;

                  (c)      Institute legal proceedings for the sale, under the
                           judgment or decree of any court of competent
                           jurisdiction, of any or all Collateral; and/or

                  (d)      Personally or by agents, attorneys, or appointment of
                           a receiver, enter upon any premises where Collateral
                           may then be located, and take possession of all or
                           any of it and/or render it unusable; and without
                           being responsible for loss or damage to such
                           Collateral, hold, operate, sell, lease, or dispose of
                           all or any Collateral at one or more public or
                           private sales, leasings or other dispositions, at
                           places and times and on terms and conditions as Bank
                           may deem fit, without any previous demand or
                           advertisement; and except as provided in this
                           Agreement, all notice of sale, lease or other
                           disposition, and advertisement, and other notice or
                           demand, any right or equity of redemption, and any
                           obligation of a prospective purchaser or lessee to
                           inquire as to the power and authority of Bank to
                           sell, lease, or otherwise dispose of the Collateral
                           or as to the application by Bank of the proceeds of
                           sale or otherwise, which would otherwise be required
                           by, or available to Debtor under, applicable law are
                           expressly waived by Debtor to the fullest extent
                           permitted.

                                       3

<PAGE>

                  At any sale pursuant to this Section 4.2, whether under the
                  power of sale, by virtue of judicial proceedings or otherwise,
                  it shall not be necessary for Bank or a public officer under
                  order of a court to have present physical or constructive
                  possession of Collateral to be sold. The recitals contained in
                  any conveyances and receipts made and given by Bank or the
                  public officer to any purchaser at any sale made pursuant to
                  this Agreement shall, to the extent permitted by applicable
                  law, conclusively establish the truth and accuracy of the
                  matters stated (including, without limit, as to the amounts of
                  the principal of and interest on the Indebtedness, the accrual
                  and nonpayment of it and advertisement and conduct of the
                  sale); and all prerequisites to the sale shall be presumed to
                  have been satisfied and performed. Upon any sale of any
                  Collateral, the receipt of the officer making the sale under
                  judicial proceedings or of Bank shall be sufficient discharge
                  to the purchaser for the purchase money, and the purchaser
                  shall not be obligated to see to the application of the money.
                  Any sale of any Collateral under this Agreement shall be a
                  perpetual bar against Debtor with respect to that Collateral.
                  At any sale or other disposition of the Collateral pursuant to
                  this Section 4.2, Bank disclaims all warranties which would
                  otherwise be given under the Uniform Commercial Code,
                  including without limit a disclaimer of any warranty relating
                  to title, possession, quiet enjoyment or the like, and Bank
                  may communicate these disclaimers to a purchaser at such
                  disposition. This disclaimer of warranties will not render the
                  sale commercially unreasonable.

         4.3      Debtor shall at the request of Bank, after the occurrence and
                  during the continuance of an Event of Default, notify the
                  account debtors or obligors of Bank's security interest in the
                  Collateral and direct payment of it to Bank. Bank may, itself,
                  upon the occurrence of any Event of Default so notify and
                  direct any account debtor or obligor. At the request of Bank,
                  after an Event of Default shall have occurred, Debtor shall
                  immediately take such actions as the Bank shall request to
                  establish exclusive control (as defined in the Uniform
                  Commercial Code) by Bank over any Collateral which is of such
                  a nature that perfection of a security interest may be
                  accomplished by control.

         4.4      The proceeds of any sale or other disposition of Collateral
                  authorized by this Agreement shall be applied by Bank in such
                  order as the Bank, in its discretion, deems appropriate
                  including, without limitation, the following order: first upon
                  all expenses authorized by the Uniform Commercial Code and all
                  reasonable attorneys' fees and legal expenses incurred by
                  Bank; the balance of the proceeds of the sale or other
                  disposition shall be applied in the payment of the
                  Indebtedness, first to interest, then to principal, then to
                  remaining Indebtedness and the surplus, if any, shall be paid
                  over to Debtor or to such other person(s) as may be entitled
                  to it under applicable law. Debtor shall remain liable for any
                  deficiency, which it shall pay to Bank immediately upon
                  demand. Debtor agrees that Secured Party shall be under no
                  obligation to accept any noncash proceeds in connection with
                  any sale or disposition of Collateral unless failure to do so
                  would be commercially unreasonable. If Secured Party agrees in
                  its sole discretion to accept noncash proceeds (unless the
                  failure to do so would be commercially unreasonable), Secured
                  Party may ascribe any commercially reasonable value to such
                  proceeds. Without limiting the foregoing, Secured Party may
                  apply any discount factor in determining the present value of
                  proceeds to be received in the future or may elect to apply
                  proceeds to be received in the future only as and when such
                  proceeds are actually received in cash by Secured Party.

         4.5      Nothing in this Agreement is intended, nor shall it be
                  construed, to preclude Bank from pursuing any other remedy
                  provided by law or in equity for the collection of the
                  Indebtedness or for the recovery of any other sum to which
                  Bank may be entitled for the breach of this Agreement by
                  Debtor. Nothing in this Agreement shall reduce or release in
                  any way any rights or security interests of Bank contained in
                  any existing agreement between Debtor or any Guarantor and
                  Bank.

         4.6      No waiver of default or consent to any act by Debtor shall be
                  effective unless in writing and signed by an authorized
                  officer of Bank. No waiver of any default or forbearance on
                  the part of Bank in enforcing any of its rights under this
                  Agreement shall operate as a waiver of any other default or of
                  the same default on a future occasion or of any rights.

         4.7      Debtor (a) irrevocably appoints Bank or any agent of Bank
                  (which appointment is coupled with an interest) the true and
                  lawful attorney of Debtor (with full power of substitution) in
                  the name, place and stead of, and at the expense of, Debtor
                  and (b) authorizes Bank or any agent of Bank, in its own name,
                  at Debtor's expense, to do any of the following, after the
                  occurrence and during the continuance of an Event of Default,
                  as Bank, in its sole discretion, deems appropriate:

                  (i)      to demand, receive, sue for, and give receipts or
                           acquittances for any moneys due or to become due on
                           any Collateral (including, without limit, to draft
                           against Collateral) and to endorse any item
                           representing any payment on or proceeds of the
                           Collateral;

                  (ii)     to execute and file in the name of and on behalf of
                           Debtor all financing statements or other filings or
                           Collateral control agreements deemed necessary or
                           desirable by Bank to evidence, perfect, or continue
                           the security interests granted in this Agreement; and

                  (iii)    to do and perform any act on behalf of Debtor
                           permitted or required under this Agreement.

         4.8      Upon the occurrence of an Event of Default, Debtor also
                  agrees, upon request of Bank, to assemble the Collateral and
                  make it available to Bank at any place designated by Bank
                  which is reasonably convenient to Bank and Debtor.

         4.9      The following shall be the basis for any finder of fact's
                  determination of the value of any Collateral which is the
                  subject matter of a disposition giving rise to a calculation
                  of any surplus or deficiency under Section 9.615 (f) of the
                  Uniform Commercial Code (as in effect on or after July 1,
                  2001): (a) the Collateral which is the subject matter of the
                  disposition shall be valued in an "as is" condition as of the
                  date of the disposition, without any assumption or expectation
                  that such Collateral will be repaired or improved in any
                  manner; (b) the valuation shall be based upon an assumption
                  that the transferee of such Collateral desires a resale of the
                  Collateral for cash promptly (but no later than 30 days)
                  following the disposition; (c) all reasonable closing costs
                  customarily borne by the seller in commercial sales
                  transactions relating to property similar to such Collateral
                  shall be deducted including, without limitation, brokerage
                  commissions, tax prorations, attorneys' fees, whether inside
                  or outside counsel is used, and marketing costs; (d) the value
                  of the Collateral which is the subject matter of the
                  disposition shall be further discounted to account for any
                  estimated holding costs associated with maintaining such
                  Collateral pending sale (to the extent not accounted for in
                  (c) above), and other maintenance, operational and ownership
                  expenses; and (e) any expert opinion testimony given or
                  considered in connection with a determination of the value of
                  such Collateral must be given by persons having at least 5
                  years experience in appraising property similar to the
                  Collateral and who have conducted and prepared a complete
                  written appraisal of such Collateral taking into consideration
                  the factors set forth above. The "value" of any such
                  Collateral shall be a factor in determining the amount of
                  proceeds which would have been realized in a disposition to a
                  transferee other than a secured party, a person related to a
                  secured party or a secondary obligor under Section 9-615(f) of
                  the Uniform Commercial Code.

5.       MISCELLANEOUS.

         5.1      Until Bank is advised in writing by Debtor to the contrary,
                  all notices, requests and demands required under this
                  Agreement or by law shall be given to, or made upon, Debtor at
                  the following address: 2819 Walnut Hill Lane, Dallas, Texas
                  75229.

         5.2      Debtor will give Bank not less than 90 days prior written
                  notice of all contemplated changes in Debtor's name, location,
                  chief executive office, principal place of business , and/or
                  location of any Collateral, but the giving of this notice
                  shall not cure any Event of Default caused by this change.

                                       4

<PAGE>

         5.3      Bank assumes no duty of performance or other responsibility
                  under any contracts contained within the Collateral.

         5.4      Bank has the right to sell, assign, transfer, negotiate or
                  grant participations or any interest in, any or all of the
                  Indebtedness and any related obligations, including without
                  limit this Agreement, as provided in the Credit Agreement. In
                  connection with the above, but without limiting its ability to
                  make other disclosures to the full extent allowable, Bank may
                  disclose all documents and information which Bank now or later
                  has relating to Debtor, the Indebtedness or this Agreement,
                  however obtained. Debtor further agrees that Bank may provide
                  information relating to this Agreement or relating to Debtor
                  or the Indebtedness to the Bank's parent, affiliates,
                  subsidiaries, and service providers.

         5.5      In addition to Bank's other rights, any indebtedness owing
                  from Bank to Debtor can be set off and applied by Bank on any
                  Indebtedness at any time(s) either before or after maturity or
                  demand without notice to anyone. Any such action shall not
                  constitute acceptance of collateral in discharge of any
                  portion of the Indebtedness.

         5.6      Debtor, to the extent not expressly prohibited by applicable
                  law, waives any right to require the Bank to: (a) proceed
                  against any person or property; (b) give notice or
                  notification of the terms, time and place of, or of any other
                  information relating to, any public or private sale or
                  disposition of personal property security held from Debtor or
                  any other person, or otherwise comply with the provisions of
                  Sections 9.611 or 9.621 of the Uniform Commercial Code; or (c)
                  pursue any other remedy in the Bank's power. Debtor waives
                  notice of acceptance of this Agreement and presentment,
                  demand, protest, notice of protest, dishonor, notice of
                  dishonor, notice of default, notice of intent to accelerate or
                  demand payment or notice of acceleration of any Indebtedness,
                  any and all other notices to which the undersigned might
                  otherwise be entitled, and diligence in collecting any
                  Indebtedness, and agree(s) that the Bank may, once or any
                  number of times, modify the terms of any Indebtedness,
                  compromise, extend, increase, accelerate, renew or forbear to
                  enforce payment of any or all Indebtedness, all without notice
                  to Debtor and without affecting in any manner the
                  unconditional obligation of Debtor under this Agreement.
                  Debtor unconditionally and irrevocably waives each and every
                  defense and setoff of any nature which, under principles of
                  guaranty or otherwise, would operate to impair or diminish in
                  any way the obligation of Debtor under this Agreement, and
                  acknowledges that such waiver is by this reference
                  incorporated into each security agreement, collateral
                  assignment, pledge and/or other document from Debtor now or
                  later securing the Indebtedness, and acknowledges that as of
                  the date of this Agreement no such defense or setoff exists.

         5.7      [Intentionally Omitted.]

         5.8      In the event that applicable law shall obligate Bank to give
                  prior notice to Debtor of any action to be taken under this
                  Agreement, Debtor agrees that a written notice given to Debtor
                  at least ten days before the date of the act shall be
                  reasonable notice of the act and, specifically, reasonable
                  notification of the time and place of any public sale or of
                  the time after which any private sale, lease, or other
                  disposition is to be made, unless a shorter notice period is
                  reasonable under the circumstances. A notice shall be deemed
                  to be given under this Agreement when delivered to Debtor or
                  when placed in an envelope addressed to Debtor and deposited,
                  with postage prepaid, in a post office or official depository
                  under the exclusive care and custody of the United States
                  Postal Service or delivered to an overnight courier. The
                  mailing shall be by overnight courier, certified, or first
                  class mail.

         5.9      Notwithstanding any prior revocation, termination, surrender,
                  or discharge of this Agreement in whole or in part, the
                  effectiveness of this Agreement shall automatically continue
                  or be reinstated in the event that any payment received or
                  credit given by Bank in respect of the Indebtedness is
                  returned, disgorged, or rescinded under any applicable law,
                  including, without limitation, bankruptcy or insolvency laws,
                  in which case this Agreement, shall be enforceable against
                  Debtor as if the returned, disgorged, or rescinded payment or
                  credit had not been received or given by Bank, and whether or
                  not Bank relied upon this payment or credit or changed its
                  position as a consequence of it. In the event of continuation
                  or reinstatement of this Agreement, Debtor agrees upon demand
                  by Bank in writing, accompanied by reasonable detail and
                  explanation, to execute and deliver to Bank those documents
                  which Bank determines are appropriate to further evidence (in
                  the public records or otherwise) this continuation or
                  reinstatement, although the failure of Debtor to do so shall
                  not affect in any way the reinstatement or continuation.

         5.10     This Agreement and all the rights and remedies of Bank under
                  this Agreement shall inure to the benefit of Bank's permitted
                  successors and assigns and to any other holder who derives
                  from Bank title to or an interest in the Indebtedness or any
                  portion of it, and shall bind Debtor and the heirs, legal
                  representatives, successors, and assigns of Debtor. Nothing in
                  this Section 5.10 is deemed a consent by Bank to any
                  assignment by Debtor.

         5.11     If there is more than one Debtor, all undertakings, warranties
                  and covenants made by Debtor and all rights, powers and
                  authorities given to or conferred upon Bank are made or given
                  jointly and severally.

         5.12     Except as otherwise expressly provided in this Agreement, all
                  terms in this Agreement which are defined in the Uniform
                  Commercial Code shall have the meanings assigned to them in
                  Article 9 (or, absent definition in Article 9, in any other
                  Article) of the Uniform Commercial Code, as those meanings may
                  be amended, revised or replaced from time to time. "Uniform
                  Commercial Code" means the Texas Business and Commerce Code as
                  amended, revised or replaced from time to time.
                  Notwithstanding the foregoing, the parties intend that the
                  terms used herein which are defined in the Uniform Commercial
                  Code have, at all times, the broadest and most inclusive
                  meanings possible. Accordingly, if the Uniform Commercial Code
                  shall in the future be amended or held by a court to define
                  any term used herein more broadly or inclusively than the
                  Uniform Commercial Code in effect on the date of this
                  Agreement, then such term, as used herein, shall be given such
                  broadened meaning. If the Uniform Commercial Code shall in the
                  future be amended or held by a court to define any term used
                  herein more narrowly, or less inclusively, than the Uniform
                  Commercial Code in effect on the date of this Agreement, such
                  amendment or holding shall be disregarded in defining terms
                  used in this Agreement.

         5.13     No single or partial exercise, or delay in the exercise, of
                  any right or power under this Agreement, shall preclude other
                  or further exercise of the rights and powers under this
                  Agreement. The unenforceability of any provision of this
                  Agreement shall not affect the enforceability of the remainder
                  of this Agreement. This Agreement constitutes the entire
                  agreement of Debtor and Bank with respect to the subject
                  matter of this Agreement. No amendment or modification of this
                  Agreement shall be effective unless the same shall be in
                  writing and signed by Debtor and an authorized officer of
                  Bank. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
                  ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS,
                  WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

         5.14     [Intentionally Omitted.]

         5.15     Debtor represents and warrants that Debtor's exact name is the
                  name set forth in this Agreement. Debtor further represents
                  and warrants the following and agrees that Debtor is, and at
                  all times shall be, located in the following place :

                  Debtor is a registered organization which is organized under
                  the laws of one of the states comprising the United States
                  (e.g. corporation, limited partnership, registered limited
                  liability partnership or limited liability company), and
                  Debtor is located (as determined pursuant to the Uniform
                  Commercial Code) in the state under the laws of which it was
                  organized, which is: 2819 Walnut Hill Lane, Dallas, Texas
                  75229.

                                       5

<PAGE>

                  The Collateral is located and shall be maintained at the
                  following location(s):

                  2819 Walnut Hill Lane, Dallas, Dallas County, Texas 75229

                  1115 Duncan, Denton, Denton County, Texas 75205

                  2675 East Highway 80, Abilene, Taylor  County, Texas 79601

                  Collateral shall be maintained only at the locations
                  identified in this Section 5.15.

         5.16     A carbon, photographic or other reproduction of this Agreement
                  shall be sufficient as a financing statement under the Uniform
                  Commercial Code and may be filed by Bank in any filing office.

         5.17     This Agreement shall be terminated only by the filing of a
                  termination statement in accordance with the applicable
                  provisions of the Uniform Commercial Code, but the obligations
                  contained in Section 2.13 of this Agreement shall survive
                  termination.

         5.18     Debtor agrees to reimburse the Bank upon demand in writing,
                  accompanied by reasonable detail and explanation, for any and
                  all costs and expenses (including, without limit, court costs,
                  legal expenses and reasonable attorneys' fees, whether inside
                  or outside counsel is used, whether or not suit is instituted
                  and, if suit is instituted, whether at the trial court level,
                  appellate level, in a bankruptcy, probate or administrative
                  proceeding or otherwise) incurred in enforcing or attempting
                  to enforce this Agreement or in exercising or attempting to
                  exercise any right or remedy under this Agreement or incurred
                  in any other matter or proceeding relating to this Security
                  Agreement.

6.       DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
         CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
         CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
         THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
         WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
         THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
         AGREEMENT OR THE INDEBTEDNESS.

7.       THIS IS A TEXAS SPECIFIC PROVISION: THIS WRITTEN LOAN AGREEMENT (AS
         DEFINED BY SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE)
         REPRESENTS 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.

8.       SPECIAL PROVISIONS APPLICABLE TO THIS AGREEMENT. (*NONE, IF LEFT BLANK)

DEBTOR:                                       BANK:

PEERLESS MFG. CO.                             COMERICA BANK

By: /s/ Richard L. Travis, Jr.                By: /s/ Deborah T. Purvin
    --------------------------------              ------------------------------
    Richard L. Travis, Jr.                        Deborah T. Purvin
    Chief Financial Officer                       Vice President

                                       6

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