Document:

<PAGE>   1

                                                                     EXHIBIT 4.7

                              ANTEX BIOLOGICS INC.

                             SUBSCRIPTION AGREEMENT

Antex Biologics Inc.
Board of Directors
300 Professional Drive
Gaithersburg, Maryland  20879
Telephone: (301) 590-0129

Dear Members of the Board:

                The undersigned hereby subscribes to purchase from Antex
Biologics Inc., a Delaware corporation (the "Company"), units (the "Units")
consisting of one share of common stock, par value $0.01 per share, of the
Company (the "Common Stock"), and one warrant (the "Warrant") at a purchase
price of $0.66 per Unit.

                The Warrants shall have a five-year term from the date of
issuance (the "Term"). Each Warrant shall initially be exercisable for one share
of Common Stock at an exercise price of $1.50 per warrant, subject to
anti-dilution protection in the event of stock splits, dividends and
combinations. Upon thirty days' notice and provided there is then in effect a
registration statement covering the Warrants and the underlying Common Stock,
the Company may call the Warrants for $.10 per Warrant at any time after
eighteen months provided the closing price of the Common Stock has exceeded
$7.50 per share for twenty consecutive days and at any time after twenty-four
months provided the closing price of the Common Stock has exceeded $4.50 per
share for twenty consecutive trading days. The Warrants may be exercised at any
time until the earlier of the date of redemption or the end of the Term. The
Company shall use its best efforts to register the Common Stock subscribed for
(including the Common Stock underlying the Warrants) within 180 days of the date
of issuance of the Warrants and to keep such registration statement effective
during the Term.

                All references to the Units include the shares of Common Stock
and the Warrants comprising such Units. The Units are being offered and sold on
the terms set forth in this Agreement. This subscription may be rejected, either
in whole or in part, by the Company in its sole discretion. This Agreement shall
not become binding on the Company unless and until a copy hereof is executed by
the Company and delivered to the undersigned.

                Any questions regarding this document or your prospective
investment should be directed to Gregory Zakarian at Antex Biologics Inc., 300
Professional Drive, Gaithersburg, Maryland 20879 (telephone: 301-590-0129).

                1.      Purchase. Subject to the terms and conditions hereof,
the undersigned hereby irrevocably subscribes to purchase the aggregate number
of Units set forth on the signature page hereof, or such lesser number of Units
as may be approved by the Company, at the purchase price of $0.66 per Unit, and
agrees to tender on or before February 16, 2000, the aggregate purchase price
set forth on the signature page hereof by means of a check (cashier's or

<PAGE>   2

certified), money order or wire transfer payable to: "Antex Biologics Inc."; it
being understood that in the event the Company rejects the subscription in whole
or in part, the Company shall retain such aggregate purchase price as reflects
the subscription accepted by the Company (calculated by multiplying the number
of Units subscribed for and accepted by the Company by the purchase price per
Unit) and shall return the balance to the undersigned.

                2.     Representations and Warranties.  The undersigned hereby
makes the following representations and warranties to the Company:

                (a)     The undersigned is purchasing the Units for its own
                        account and not for the account or benefit of any other
                        person;

                (b)     The undersigned is an "accredited investor" as defined
                        in Rule 501 of Regulation D under the Securities Act of
                        1933, as amended (the "1933 Act");

                (c)     The undersigned has knowledge and experience in
                        financial and business matters such that the undersigned
                        is capable of evaluating the merits and risks of an
                        investment in the Units being subscribed for;

                (d)     The undersigned (i) has been given the opportunity to
                        obtain from the Company and to review each of the
                        documents and exhibits that have been filed with the
                        Securities and Exchange Commission (the "SEC"), (ii) has
                        been furnished with all such additional information as
                        the undersigned has deemed necessary to make an informed
                        investment decision with respect to the Units and (iii)
                        has been afforded an opportunity to ask questions and
                        receive answers from authorized officers and other
                        representatives of the Company concerning the Company
                        and the terms and conditions of the offering of the
                        Units;

                (e)     The undersigned confirms that it had the opportunity to
                        obtain such independent legal and tax advice and
                        financial planning services as the undersigned has
                        deemed appropriate to making a decision to subscribe for
                        the Units;

                (f)     The undersigned is aware that an investment in the
                        Company is highly speculative and subject to substantial
                        risks. The undersigned is capable of bearing the
                        economic risk of an investment in the Units, including,
                        but not limited to, the possibility of a complete loss
                        of the undersigned's investment, as well as limitations
                        on the transferability of the Common Stock and Warrants
                        comprising the Units, which may make the liquidation of
                        an investment in the securities difficult or impossible
                        for the indefinite future;

                (g)     The undersigned, if a corporation, partnership, trust or
                        other entity, is authorized and duly empowered to
                        purchase and hold the Units, has its

                                      -2-
<PAGE>   3

                        principal place of business at the address set forth on
                        the signature page and has not been formed for the
                        specific purpose of acquiring the Units;

                (h)     The Units are being acquired solely for investment, and
                        are not being purchased with a view to a distribution or
                        resale thereof;

                (i)     The undersigned understands that neither the Units nor
                        the Common Stock and Warrants comprising the Units have
                        been registered under the 1933 Act, or any state
                        securities laws, in reliance upon exemptions from
                        registration for non-public offerings. The undersigned
                        understands that neither such securities nor any
                        interest therein may be, and agrees that neither such
                        securities nor any interest therein will be, resold or
                        otherwise disposed of by the undersigned unless such
                        securities are subsequently registered under the 1933
                        Act and appropriate state securities laws or unless the
                        Company receives an opinion of counsel satisfactory to
                        it that an exemption from registration is applicable.

                (j)     The undersigned understands that (i) the shares of
                        Common Stock issuable upon the exercise of the Warrants
                        (the "Warrant Shares") have not been registered under
                        the 1933 Act, or any state securities laws, for sale to
                        the holders of the Warrants and any Warrant Shares
                        acquired upon the exercise of the Warrants may not be
                        resold or otherwise disposed of by the holder of such
                        shares unless (A) the shares are subsequently registered
                        for resale under the 1933 Act and under appropriate
                        state securities laws or (B) the Company receives an
                        opinion of counsel satisfactory to it that an exemption
                        from registration is available.

                (k)     The undersigned has been informed of and understands
                        that no federal or state agency has made any finding or
                        determination as to the merits of an investment in the
                        Units or any recommendation or endorsement of the Units;
                        and

                (l)     None of the following information has ever been
                        represented, guaranteed or warranted to the undersigned,
                        expressly or by implication, by the Company, by any
                        officer, director, employee or agent of any of the
                        foregoing, or by any other person:

                        (1)     The length of time that the undersigned will be
                                required to remain as a shareholder or
                                warrantholder in the Company;

                        (2)     The profit or loss that may be realized as a
                                result of an investment in the Units; and

                        (3)     That the past performance or experience of the
                                management of the Company or any other person
                                are in any way indicative of future

                                      -3-
<PAGE>   4

                                results of operations of the Company or a return
                                on an investment in the Units.

                3.      Indemnification. The undersigned acknowledges that the
Company intends to rely on the representations and warranties made by the
undersigned in Section 2 of this Agreement as the basis, in part, for its
determination that a sale of the Units can be made to the undersigned without
registration under the 1933 Act and applicable state securities laws. The
undersigned agrees to indemnify the Company and its respective directors,
officers, representatives, affiliates and agents, and hold each of them
harmless, from and against any and all loss, damage, liability, or expense,
including reasonable attorneys' fees, which they or any of them may sustain or
incur by reason of any misrepresentation or omission or any breach of warranty
or agreement by the undersigned in connection with its purchase of Units
pursuant hereto or by reason of the sale or distribution by the undersigned of
the Common Stock or Warrants comprising the Units or the Warrant Shares in
violation of the 1933 Act or of any applicable state securities law.

                4.      Transferability. This Agreement and the rights and
obligations of the undersigned hereunder are not transferable or assignable by
the undersigned.

                5.      Understandings of the Purchaser. The undersigned
acknowledges, understands and agrees that:

                (a)     The Company reserves the right to reject all or any part
                        of this subscription in its sole discretion;

                (b)     The undersigned will be promptly notified by the Company
                        whether this subscription has been accepted, either in
                        whole or in part on or before February 18, 2000; and

                (c)     The Units shall not be deemed issued to or owned by the
                        undersigned until the Company shall issue in the name of
                        and deliver to the undersigned certificates evidencing
                        ownership of the shares of Common Stock and Warrants
                        comprising the Units.

                6.      State Securities Laws. The offering and sale of the
Units is intended to be exempt from registration under the securities laws of
each state in which the Units are offered for sale. Purchasers who reside in
certain states shall note the language set forth in Exhibit A hereto.

                7.      Acceptance. Execution and delivery of this Agreement
shall constitute an irrevocable offer to purchase the Units indicated, which
offer may be accepted or rejected, either in whole or in part, by the Company in
its sole discretion. Acceptance of this offer by the Company shall be signified
by the execution hereof by a duly authorized officer of the Company and the
delivery of a duly executed copy of this Agreement to the undersigned.

                                      -4-
<PAGE>   5

                8.      Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators, guardians, conservators or legal
representatives.

                9.      Incorporation by Reference. The statement of the number
of Units subscribed and related information set forth on the signature page are
incorporated as integral terms of this Agreement.

                10.     Miscellaneous.

                (a)     Amendment and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Company and the undersigned.

                (b)     Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing and shall be by
hand-delivery or certified mail, return receipt requested and postage prepaid,
or by a nationally recognized overnight courier:

                        (i)     if to the undersigned, at its address indicated
on the signature page of this Agreement or at the most current address given by
the undersigned to the Company in writing; and

                        (ii)    if to the Company, at its offices located at 300
Professional Drive, Gaithersburg, MD 20879.

All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; upon receipt, if sent by
overnight courier.

                (c)     Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

                (d)     Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                (e)     GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF MARYLAND BY RESIDENTS OF
MARYLAND. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED IN THE STATE OF MARYLAND IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

                                      -5-
<PAGE>   6

                (f)     Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall, to the extent permitted by
law, remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.

                (g)     Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement, and is intended to be a
complete and exclusive statement of their agreement in respect of the subject
matter hereof. This Agreement supersedes all prior agreements between the
parties hereto with respect to such subject matter. There are no
representations, promises, warranties or undertakings between the parties hereto
in respect of the purchase by the undersigned of the Units, other than those set
forth or referred to herein and therein.

                (h)     Further Assurances. The parties agree to execute and
deliver all such further documents and agreements and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.

                IN WITNESS WHEREOF, the undersigned has executed this Agreement
on the date set forth on the signature page.
<TABLE>
<CAPTION>

                The undersigned desires to take title in the Common Stock and
Warrants comprising the Units as follows (check one):

<S>             <C>    <C>
         _____  (a)    Individual (one signature required on Page 8);

         _____  (b)    Husband and Wife as community property (one signature required on Page
                       8 if interest held in one name (i.e., managing spouse); two signatures
                       required on Page 8 if interest held in both names);

         _____  (c)    Joint Tenants with right of survivorship (both parties must sign on
                       Page 8);

         _____  (d)    Tenants in common (both parties must sign on Page 8);

         _____  (e)    Trust (Trustee(s) must sign on Page 9);

         _____  (f)    Partnership (general partner(s) must sign on Page 10);

         _____  (g)    Corporation (authorized officer must sign on Page 11).

</TABLE>

                                      -6-
<PAGE>   7

                The exact location (including account number and receiving
person, if applicable) for delivery of Units:

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

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

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

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

                                      -7-
<PAGE>   8

                             SUBSCRIPTION AGREEMENT

                                 SIGNATURE PAGE
                            FOR INDIVIDUAL INVESTORS

<TABLE>
<CAPTION>

Total Units subscribed: #                  Aggregate Purchase Price: $
                         -----------                                  --------------

INVESTOR #1                                INVESTOR #2
<S>                                        <C>

-------------------------------            -------------------------------------
Signature                                  Signature

-------------------------------            -------------------------------------
Social Security Number                     Social Security Number

-------------------------------            -------------------------------------
Print or Type Name                         Print or Type Name

Residence Address                          Residence Address
-----------------                          -----------------

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

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

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

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

-------------------------------            --------------------------------------
Facsimile Number                           Facsimile Number

Date:                                      Date:
     ---------------------------                 ---------------------------------
SUBSCRIPTION FOR ______ UNITS              AGGREGATE PURCHASE PRICE FOR
ACCEPTED:                                  UNITS ACCEPTED:  $
                                                             -------------------

By:
    -----------------------------
        Authorized Representative

Date:
     ----------------------------

</TABLE>

                                      -8-
<PAGE>   9

                             SUBSCRIPTION AGREEMENT

                                 SIGNATURE PAGE
                               FOR TRUST INVESTORS

Total Units subscribed: #                  Aggregate Purchase Price: $
                         -----------                                  ----------

------------------------------------
Name of Trust (please print or type)

-------------------------------------
Name of Trustee (please print or type)

-------------------------------------
Print or Type Name

-------------------------------------
Date Trust was Formed

By
  ------------------------------------
    Trustee's signature

-------------------------------------
Taxpayer Identification Number

Trustee's Address
                      ---------------------------

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

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

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

                      Attention:
                                -----------------

                      ---------------------------
                      Facsimile Number

Executed at _________, ______________, this ___ day of February, 2000.

SUBSCRIPTION FOR ______ UNITS              AGGREGATE PURCHASE PRICE FOR
ACCEPTED:                                  UNITS ACCEPTED:  $
                                                             -------------------
By:
    -----------------------------
        Authorized Representative

Date:
     ----------------------------

                                      -9-
<PAGE>   10

                             SUBSCRIPTION AGREEMENT

                                 SIGNATURE PAGE
                            FOR PARTNERSHIP INVESTORS

<TABLE>
<CAPTION>
Total Units subscribed: #                               Aggregate Purchase Price: $
                         -----------                                               --------------
<S>                                                    <C>

------------------------------------------              -------------------------------------
Name of Partnership (please print or type)              Jurisdiction of formation

By:
   -------------------------------
   Signature of a General Partner

By:
   -------------------------------
   Signature of Additional General Partner
   (if required by partnership agreement)

By:
   -------------------------------
   Signature of Additional General Partner
   (if required by partnership agreement)

----------------------------------
Taxpayer Identification Number

Partnership's Address
                      ---------------------------

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

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

                      ---------------------------
                      Attention:
                                -----------------

                      ---------------------------
                      Facsimile Number
</TABLE>

Executed at _________, ______________, this ___ day of February, 2000.

SUBSCRIPTION FOR ______ UNITS                     AGGREGATE PURCHASE PRICE FOR
ACCEPTED:                                         UNITS ACCEPTED:  $
                                                                    ------------
By:
    ----------------------------------
        Authorized Representative

Date:
     ----------------------------

                                      -10-
<PAGE>   11

                             SUBSCRIPTION AGREEMENT

                                 SIGNATURE PAGE
                             FOR CORPORATE INVESTORS

Total Units subscribed: #                  Aggregate Purchase Price: $
                         -----------                                   ---------

----------------------------------         -------------------------------------
Name of Corporation (please print or type) Jurisdiction of incorporation

By:
   -------------------------------
   Signature of authorized officer

----------------------------------
Taxpayer Identification Number

Corporation's Address
                      ---------------------------

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

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

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

                          Attention:
                                    -------------------

                          ------------------------------
                             Facsimile Number

Executed at _________, ______________, this ___ day of February, 2000.

SUBSCRIPTION FOR ______ UNITS       AGGREGATE PURCHASE PRICE FOR
ACCEPTED:                           UNITS ACCEPTED:  $
                                                      ------------------
By:
    -----------------------------
        Authorized Representative

Date:
     ----------------------------

                                      -11-
<PAGE>   12

                                    EXHIBIT A

[TO BE PROVIDED AT A LATER DATE BASED UPON REVIEW OF STATES IN WHICH SUBSCRIBERS
RESIDE/ARE BASED]

                                     -12-

<PAGE>   13
                             SCHEDULE OF INVESTORS

<TABLE>
<CAPTION>
                                                            A Units         B Units
Name                                                        Purchased       Purchased
----                                                        ---------       ---------
<S>                                                         <C>
Alexander, Jeffrey                                            37,879
Alexander, Lorie                                              37,879
Anfel Trading Limited                                        378,788
ATU Holdings LLC                                             400,000
Austost Anstalt Schaan                                       454,545
Azrak, Marvin                                                 75,758
Balmore S.A.                                                 757,575
Baron, Jeffrey                                               113,636
Barros, Arnaldo and Maria                                    303,030
Blech Family Trust                                           375,000
Block, Ira and Rosenfeld, Madelon                             22,727
Britannica Associates Limited                                359,848
Bulkley, Frank, III                                           37,879
Central Yeshiva Beth Joseph                                  303,030
Chassman Graphics                                            227,273
Chassman, Frederick                                           22,727
CHL Medical Partners, L.P.                                 1,515,151
Chung, Peter S.                                               15,152
Dan Ventures, LLC                                            303,030
Dare Investments, Inc.                                        75,758
De, Indrajit                                                  27,500
Donehew, Robert H.                                            22,727
Ellis Enterprises                                             75,758
Ensley, Burt and Carolyn                                      37,879
Eros, Stella, Trust                                          511,364
Falco, Robert                                                 38,000
Faskowitz, Moshe and Fagie                                    60,606
Faskowitz, Rose                                               53,030
Fiedler, David                                                38,000
Fiedler, Saul and Deena                                       38,000
First Lincoln Holdings, Inc.                               2,272,727
Fried, Dora                                                   75,758
Fullerton, William H., III                                    30,303
G.I.G. Capital Partners, Inc.                                378,788
Guido, Albert V.                                              25,000
H.A.A., Inc.                                                 151,515
Hamaayan Institute                                           151,515
Harbor Trust                                                 553,030        4,454,545
Harris, Tehillah                                              53,030
Havas, Josef                                                  75,758
Honig, Ira                                                     7,576
Janssen Partners, Inc.                                       151,515
Jesselson, Michael G., 4/8/71 Trust                          378,788
Jesselson, Benjamin J., 8/21/74 Trust                        378,788
Jesselson, Grandchildren 10/83 Trust
   FBO                                                       378,788
Jesselson, Michael G.                                        378,788
Krumholz, Cary                                                38,000
Leval Trading, Inc.                                          454,545

</TABLE>
<PAGE>   14

<TABLE>
<CAPTION>
                                                              A Units       B Units
Name                                                          Purchased     Purchased
----                                                          ---------     ---------
<S>                                                           <C>
Levitin, Eli                                                    75,758
Lichtenstein, George                                           303,030
M & G Equities                                                 378,788
MacDonald, Lawrence P.                                          15,152
Magic Consulting Corp.                                          37,879
Marlow, Martin                                                  37,879
Mayer, Jack N.                                                  75,758
Milstein, Howard P.                                            378,788
Momar Corp.                                                    750,000
MPI Partners                                                    25,000
MWDD Partnership                                                75,758
Nichols, Alexandra                                              22,727
Nordberg Capital Group Inc.                                     75,758
Nordberg, Elizabeth A.                                          30,303
Nordberg, Gerald, Pension Plan                                  30,303
Nordberg, Meredith B., Family Trust                             30,303
O'Connor, Francis G.                                            37,879
Palermo, Joseph                                                 30,303
Pasqua, William                                                151,515
Penner, Joseph A.                                               50,000
Perrault, David A.                                              38,000
Plummer Rickardo                                                 7,576
Prudential Securities C/F, Dorothy Merlo Prodani               303,030
Rosenfeld, Joel                                                 37,879
Safier, Jacob                                                   75,758
SAM Vitamin dba GNC 6510                                        37,879
Schick, Marvin                                                 189,394
Schneider, Howard M.                                            37,879
Shapiro, Abraham                                                37,879
Shapiro, Stanley K.                                            114,000
Sheehy, James P.                                               151,515
Siegmund, Jacqueline                                            27,273
Silva, Jose F.                                                   7,576
Steifman, Michael                                              151,515
Stone, Richard B.                                              151,515
Strata Equities Ltd.                                           151,515
Suster, Ronald                                                  30,303
Swetnick, Robert N.                                             75,000
Talbiya B. Investments Ltd.                                    151,515
Tenenbaum, Judy                                                 30,303
Tuchman, Nelson                                                151,515
Veraro, Inesa                                                  151,515
Weinreb, Zvi                                                   378,788
Weiss, Howard                                                   37,879
Wilson, F. Bradford, Jr.                                        15,152
Wolfson, Aaron                                                 151,515
Wolfson, Abraham                                               113,636
Wolfson, Morris                                                 75,758
Zabel, Martin and Kramer, Paula                                 37,879
Zalk, Laurence                                                 151,515
Zises, Jay                                                     378,788
</TABLE><PAGE>   1

                                                                   EXHIBIT 10(j)
As of December 1, 2000

Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn:  Sherrill Stone, Chairman and Chief Executive Officer

         Re:      Second Amended and Restated Credit Agreement dated as of
                  December 12, 1998 between PEERLESS MFG. CO. (the "Borrower")
                  and Chase Bank of Texas, National Association (who is now know
                  as The Chase Manhattan Bank as a result of the merger of Chase
                  Bank of Texas, National Association with and into The Chase
                  Manhattan Bank and is herein the "Bank" and such Credit
                  Agreement, as the same has been amended, the "Credit
                  Agreement"). All capitalized terms used herein, unless
                  otherwise defined herein, shall have the same meaning as in
                  the Credit Agreement.

Ladies and Gentlemen:

         Borrower has advised the Bank that Events of Default have occurred
under Section 6.C. of the Credit Agreement as a result of the Borrower's failure
to comply with the covenants set forth in Section 5.A.ii. of the Credit
Agreement as of June 30, 2000 and September 30, 2000 and for each of the four
quarter periods then ended (the "Existing Defaults" and the covenants in Section
5.A.ii., herein the "Violated Covenants"). In accordance with the Credit
Agreement, the Borrower has requested that the Bank waive the Existing Defaults
and amend the Credit Agreement to change the definition of the term "Termination
Date" as defined in the Credit Agreement to mean January 31, 2001.

         Borrower has granted (or has agreed to grant) to Bank of America, N.A.
as agent for itself and the Bank a first priority perfected security interests
(subject to certain permitted encumbrances and exceptions) in and to all of its
property to secure the obligations of the Borrower to Bank of America, N.A. and
to the Bank. In consideration for such grant and the other agreements of the
Borrower herein, the Bank (i) agrees to waive the Existing Defaults; (ii) agrees
not to exercise any rights or remedies available as a result of the occurrence
thereof and (iii) agrees that the term "Termination Date" as defined in the
Credit Agreement and used in the Note and the other Loan Documents is amended to
mean January 31, 2001 (the "Amendment").

         To induce the Bank to agree to the terms of this letter (the "Waiver
Letter"), Borrower and the Bank also agree that:

         1. The waiver specifically described herein shall not constitute and
            shall not be deemed a waiver of any other Event of Default or event
            or condition that with the giving of notice or passage of time or
            both would be an Event of Default (a "Potential Default"), whether
            arising as a result of the further violation of the Violated
            Covenants or otherwise, or a waiver of any rights or remedies
            arising as a result of such other Potential Defaults or Events of
            Default. The failure to comply with the Violated Covenants for any
            date, or any period ending on any date, other than as described
            above in the definition of Existing Defaults shall constitute an
            Event of Default.

<PAGE>   2

         2. The term "Adjusted LIBOR Rate" set forth in Section 1 of the Credit
            Agreement is amended in its entirety to read as follows, effective
            as of the date hereof for all Interest Periods in effect as of the
            date hereof and all Interest Periods hereafter established:

            Adjusted LIBOR Rate means, for any Interest Period, LIBOR plus 3%.

         3. Effective as of the date hereof, Section 5 of the Credit Agreement
            is amended to add a new clause I to the end thereto, to read in its
            entirety as follows:

            I. DIVIDENDS AND OTHER DISTRIBUTIONS. Declare or pay any dividends
            or make any other payment or distribution (whether in cash, other
            property, or obligations) on account of its capital stock, or
            redeem, purchase, retire, or otherwise acquire any of its capital
            stock, or permit any of the Subsidiaries to purchase or otherwise
            acquire any capital stock of the Borrower or another Subsidiary, or
            set apart any money for a sinking or other analogous fund for any
            dividend or other distribution on its capital stock or for any
            redemption, purchase, retirement, or other acquisition of any of its
            capital stock; except that (i) Subsidiaries may declare and pay
            dividends to the Borrower and (ii) Borrower may declare and pay
            dividends if no Event of Default exists or would result therefrom .

         4. Borrower agrees to pay to the Bank on the date hereof a waiver fee
            in the amount of $10,000 as additional consideration for the Bank's
            agreement to waive the Existing Defaults as herein set forth and
            agrees to the Amendment.

         5. Except as specifically set forth herein, all terms and provisions of
            the Loan Documents, all rights of the Bank thereunder and all
            obligations of Borrower thereunder shall remain in full force and
            effect and are ratified and confirmed in all respects. Borrower
            agrees to strictly comply with the Loan Documents.

         6. The Credit Agreement and the other Loan Documents shall continue to
            be legal, valid, binding and enforceable in accordance with their
            respective terms.

         7. IN ADDITION, TO INDUCE THE BANK TO AGREE TO THE TERMS OF THIS WAIVER
            LETTER, BORROWER REPRESENTS AND WARRANTS THAT AS OF THE DATE OF ITS
            EXECUTION OF THIS WAIVER LETTER THERE ARE NO CLAIMS OR OFFSETS
            AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE
            LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT:

                        (a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS,
            DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR
            TO THE DATE OF ITS EXECUTION OF THIS WAIVER LETTER AND

                        (b) RELEASE. RELEASES AND DISCHARGES BANK, AND ITS
            OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES AND
            ATTORNEYS (COLLECTIVELY THE "RELEASED PARTIES") FROM ANY

<PAGE>   3

            AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS,
            CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN,
            SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH THE BORROWER EVER
            HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY
            ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION WITH THE
            LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.

         Borrower also represents and warrants to the Bank that the following
statements are true, correct and complete: (a) after giving effect to this
Waiver Letter, no Potential Default or Event of Default has occurred and is
continuing; (b) after giving effect to this Waiver Letter, the representations
and warranties set forth in the Loan Documents are true and correct in all
material respects on and as of the date hereof with the same effect as though
made on and as of such date except with respect to any representations and
warranties limited by their terms to a specific date; and (c) the execution,
delivery and performance of this Waiver Letter has been duly authorized by all
necessary action on the part of Borrower and does not and will not: (1) violate
any provision of law applicable to Borrower, the certificate of incorporation or
bylaws of Borrower or any order, judgment, or decree of any court or agency of
government binding upon Borrower; (2) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of Borrower; (3) result in or require the
creation or imposition of any material lien upon any of the assets of Borrower;
or (4) require any approval or consent of any party under any material
contractual obligation of Borrower.

         THIS WAIVER LETTER EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS WHETHER WRITTEN OR ORAL RELATING TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. This Waiver Letter shall be governed by and construed in
accordance with the internal laws of the State of Texas without regard to
conflicts of law principles. This Waiver Letter may be executed in one or more
counterparts and on telecopies counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.

                                  Very truly yours,

                                  The Chase Manhattan Bank
                                  (successor in interest by merger to Chase Bank
                                  of Texas, National Association)

                                  By:    /s/ Michael B. Phillips
                                         ---------------------------------------
                                         Michael B. Phillips, Vice President

Accepted and agreed to
as of December 1, 2000

BORROWER:

PEERLESS MFG. CO.

<PAGE>   4

By:      /s/ Sherrill Stone
       -------------------------------------------------------
       Sherrill Stone, Chairman and Chief Executive Officer

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