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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1504405
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
</TABLE>
4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585
(Address of principal executive office zip code)
Registrant's telephone number, including area code (713) 672-9433
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, of changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At June 30, 1997, the number of shares outstanding of the issuer's only
class of stock was 6,469,731 shares of Common Stock.
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PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 544,906 $ 168,245
Accounts receivable, less allowance for doubtful accounts
($7,276 at June 30, 1997 and March 31, 1997,
respectively).......................................... 13,630,363 11,902,925
Inventories -- Note B..................................... 23,460,314 21,203,665
Prepaid expenses and other current assets................. 149,135 82,325
------------- --------------
Total Current Assets.............................. 37,784,718 33,357,160
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 198,021 198,021
Buildings and improvements................................ 2,727,449 2,695,913
Machinery and equipment................................... 11,900,012 11,724,974
Less allowance for depreciation........................... (9,968,977) (9,909,444)
------------- --------------
4,856,505 4,709,464
OTHER ASSETS
Cash value of officers' life insurance.................... 57,486 50,567
------------- --------------
$ 42,698,709 $ 38,117,191
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 11,736,636 $ 8,112,096
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 453,296 369,715
Contribution to profit-sharing plan....................... 62,499 242,000
Federal income taxes payable.............................. 632,698 256,434
Employee compensation and related expenses................ 562,655 392,427
------------- --------------
Total Current Liabilities......................... 14,247,784 10,172,672
LONG-TERM DEBT, less current portion........................ 4,400,000 4,600,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 434,560 449,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 6,469,731 at June 30, 1997 and 6,161,994 at
March 31, 1997....................................... 6,469,731 6,161,994
Additional paid-in capital................................ 23,646,661 22,377,246
Retained earnings......................................... (6,613,027) (5,757,281)
------------- --------------
Total Stockholders' Equity........................ 23,503,365 22,781,959
------------- --------------
$ 42,698,709 $ 38,117,191
============= ==============
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENT OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales................................................... $38,300,432 $28,751,479
Costs and expenses
Costs of goods sold....................................... 35,065,621 26,128,966
General, selling and administrative costs................. 1,353,728 1,106,965
Interest.................................................. 115,588 134,223
----------- -----------
36,534,937 27,370,154
Interest and other income................................... (17,179) (28,996)
----------- -----------
Earnings before federal income taxes........................ 1,782,674 1,410,321
Provision (benefit) for federal income taxes:
Current................................................... 621,110 492,009
Deferred.................................................. (15,000) (12,500)
----------- -----------
606,110 479,509
----------- -----------
Net earnings................................................ $ 1,176,564 $ 930,812
=========== ===========
Net earnings per share -- Note C............................ $ 0.18 $ 0.14
=========== ===========
Cash dividends declared per common share.................... $ 0.07 $ 0.05
=========== ===========
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 1,176,564 $ 930,812
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 166,026 158,010
Provision for deferred taxes........................... (15,000) (12,500)
Decrease (increase) in operating assets:
Accounts receivable.................................... (1,727,438) (400,908)
Inventories............................................ (2,256,649) (1,310,491)
Other current assets................................... (66,810) (81,069)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. 3,624,540 730,941
Contribution to profit-sharing plan payable............ (179,501) (162,000)
Employee compensation and related expenses............. 170,228 56,827
Federal income taxes payable........................... 376,264 42,009
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............ 1,268,224 (48,369)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (313,069) (3,691)
Increase in cash surrender value of officers' life
insurance.............................................. (6,919) (23,828)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............. (319,988) (27,519)
FINANCING ACTIVITIES
Cash dividends paid....................................... (371,575) (293,303)
Principal payments on long-term debt...................... (200,000) (200,000)
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES..................................... (571,575) (493,303)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 376,661 (569,191)
Cash and cash equivalents at beginning of period.......... 168,245 595,216
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 544,906 $ 26,025
=========== ===========
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
THREE MONTHS ENDED JUNE 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed, consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information
refer to the financial statements and footnotes included in the Company's annual
report on Form 10-K for the year ended March 31, 1997.
NOTE B -- INVENTORIES
Coil inventory consists primarily of raw materials. Tubular inventory is
comprised of both raw materials and finished goods.
NOTE C -- EARNINGS PER SHARE
Earnings per common and common equivalent share for the periods ended June
30, 1997 and June 30, 1996 are based on the weighted average number of common
and common equivalent (stock options) shares outstanding as follows:
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Common Stock:
Shares outstanding during the entire period............... 6,161,994 5,834,195
Retroactive effect of stock dividends declared............ 307,737 597,593
--------- ---------
Weighted average number of common and common
equivalent shares............................... 6,469,731 6,431,788
========= =========
</TABLE>
Earnings per share assuming full dilution for the quarters ended June 30,
1997 and 1996, are not presented because they are not materially dilutive. Stock
options are not included in the above computations of common and common
equivalent shares outstanding since their effect is not significant.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share, which is required
to be adopted for financial statements issued for periods ending after December
31, 1997. The statement replaces primary and fully diluted earnings per share
with basic and diluted earnings per share. The Company does not anticipate that
the implementation of this new standard will materially impact earnings per
share.
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FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
During the three months ended June 30, 1997, sales, costs of goods sold and
gross profit increased $9,548,953, $8,936,655 and $612,298, respectively, from
the comparable amounts recorded during the three months ended June 30, 1996. The
increases in sales and costs of goods sold were primarily related to coil and
tubular operations which reflected an overall increase in volume of
approximately 33% during the 1997 quarter. Gross profit declined on coil
products and increased on tubular products, the effect of which produced the
increase in gross profit noted above. Gross profit as a percentage of sales was
9.1% and 8.4% for the 1996 and 1997 quarters, respectively. This decline in
margin rates was primarily related to coil operations which produced increased
sales at the expense of margins. Sales of coil products met with stiff
competition during the 1997 quarter. Market demand for tubular products remained
strong during the 1997 quarter.
General, selling and administrative costs increased $246,763 from the
amount recorded in the 1996 quarter. This increase was primarily related to
expenses associated with volume and/or earnings, to costs related to additional
sales employees and to an increase in bad debt expense.
Interest expense declined $18,635. This decline was primarily related to
the reduction in term debt.
Federal income taxes increased $126,601 from the amount recorded during the
1996 quarter due to the increase in earnings before taxes. Tax rates were the
same for both quarters.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at June 30, 1997. Current
ratios were 2.7 and 3.3 at June 30, 1997 and March 31, 1997, respectively.
Working capital was $23,536,934 at June 30, 1997 and $23,184,448 at March 31,
1997. The Company has a line of credit arrangement with a bank whereby it may
borrow up to $8,000,000. At June 30, 1997, borrowings of $4,000,000 had been
made under this line of credit arrangement which expires April 1, 2000.
In July, 1997, the Company secured financing for certain capital
improvements contemplated at its Hickman, Arkansas facility. This financing was
in the form of an amendment to the Company's then-existing credit facility with
its bank. The new credit facility provides for a $4.7 million advancing
promissory note, which converts to a term loan on December 1, 1998 (the "Note").
The Note, which also refinanced the outstanding indebtedness under the Company's
then-existing credit facility, bears interest at a stated interest rate of LIBOR
plus 1.25% and requires quarterly principal payments of $200,000 plus accrued
interest through March 1, 2003. The Company has converted the Note to a fixed
interest rate of 8% for the life of the Note pursuant to a swap transaction with
its bank.
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FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED JUNE 30, 1997
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
a). Not applicable
b). Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a). None
b). Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Financial Data Schedule
<TABLE>
<C> <S>
10.1 -- ISDA Master Agreement between the Company and Texas
Commerce Bank National Association ("TCB") dated July 21,
1997.
10.2 -- Advancing Promissory Note of the Company to TCB dated
July 21, 1997 in the amount of $4,700,000.
10.3 -- Second Amendment to amended and restated letter agreement
between the Company and TCB dated July 21, 1997.
27.1 -- Financial Data Schedule.
</TABLE>
b). None
6
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN INDUSTRIES, INCORPORATED
Date August 13, 1997 By /s/ BEN HARPER
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date August 13, 1997 By /s/ HAROLD FRIEDMAN
------------------------------------
Harold Friedman, Vice Chairman of
the Board
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Friedman Industries, Incorporated
We have reviewed the accompanying condensed consolidated balance sheet of
Friedman Industries, Incorporated, as of June 30, 1997, and the related
consolidated statements of earnings and cash flows for the three-month periods
ended June 30, 1997 and 1996. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Friedman Industries, Incorporated,
as of March 31, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein) and in our report dated May 30, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1997, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Houston, Texas
August 10, 1997
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- ISDA Master Agreement between the Company and Texas
Commerce Bank National Association ("TCB") dated July 21,
1997.
10.2 -- Advancing Promissory Note of the Company to TCB dated
July 21, 1997 in the amount of $4,700,000.
10.3 -- Second Amendment to amended and restated letter agreement
between the Company and TCB dated July 21, 1997.
27.1 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
(Multicurrency--Cross Border)
ISDA
International Swap Dealers Association, Inc.(R)
MASTER AGREEMENT
dated as of July 21, 1997
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION and FRIEDMAN INDUSTRIES, INCORPORATED
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Merger Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the
required currency. Where settlement is by delivery (that is, other than
by payment), such delivery will be made for receipt on the due date in
the manner customary for the relevant obligation unless otherwise
specified in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject
to (1) the condition precedent that no Event of Default or Potential
Event of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
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(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction.
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the
other party, replaced by an obligation upon the party by whom the larger
aggregate amount would have been payable to pay to the other party the excess
of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be
made in the Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii)
separately for different groups of Transactions from such date). This election
may be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and
receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS UP. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withholding is required
or receiving notice that such amount has been assessed against Y:
(1) promptly notify the other party ("Y") of such
requirements;
(2) pay to the relevant authorities the full amount required
to be deducted or withheld (including the full amount required
to be deducted or withheld from any additional amount paid by X
to Y under this Section 2(d) promptly under the earlier of
determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a
certified copy), or other documentation reasonably acceptable to
Y, evidencing such payment to such authorities; and
(4) is such Tax is an Indemnified Tax, pay to Y, in
addition to the payment to which Y is otherwise entitled under
this Agreement, such additional amount as is necessary to ensure
that the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will equal
the full amount Y would have received had no such deduction or
withholding been required. However, X will not be required to
pay additional amount to Y to the extent that it would not be
required to be paid but for:--
(A) the failure by Y to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d); or
(B) the failure of a representation made by Y
pursuant to Section 3 (f) to be accurate and true
unless such failure would not have occurred but for (I)
any action taken by a taxing authority, or brought in a
court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of
whether such action is taken or brought with respect to
a party to this Agreement) or (II) a Change in Tax Law.
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(ii) LIABILITY. If:-
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not e
required to pay an additional amount to Y under Section
2(d)(i)(4):
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X.
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax. Y will promptly pay to X the amount
of such liability (including any related liability for interest, but
including any related liability for penalties only if Y has failed to
comply with or perform any agreement contained in Section 4(a)(i),
4(a)(iii) or 4(d).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment obligation
will, to the extent permitted by law and subject to Section 6(c), be required
to pay interest (before as well as after judgment) on the overdue amount to the
other party on demand in the same currency as such overdue amount for the
period from (and including) the original due date for payment to (but
excluding) the date of actual payment, at the Default Rate. Such interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. If, prior to the occurrence or effective designation of any Early
Termination Date in respect of the relevant Transaction, a party defaults in
the performance of any obligation required to be settled by delivery, it will
compensate the other party on demand if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each party on each date on which a Transaction
is entered into and, in the case of the representations in Section 3(f), at all
times until the termination of this Agreement) that:-
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws
of the jurisdiction of its organisation or incorporation and, if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform it obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorise such execution, delivery and
performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment of
any court or other agency of government applicable to it or any of its
assets or any contractual restriction binding on or affecting it or any
of its assets;
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganisation, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)).
3
<PAGE> 4
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is accurate
and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a payment
under this Agreement or any applicable Credit Support Document without
any deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and to
be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
4
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organised, managed and controlled, or considered to have its seat, or in which
a branch or office through which it is acting for the purpose of this Agreement
is located ("Stamp Tax Jurisdiction") and will indemnify the other party
against any Stamp Tax levied or imposed upon the other party or in respect of
the other party's execution or performance of this Agreement by any such Stamp
Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:-
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when
due, any payment under this Agreement or delivery under Section 2(a)(i)
or 2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with
or performed by the party in accordance with this Agreement if such
failure is not remedied on or before the thirtieth day after notice of
such failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of
such party to comply with or perform any agreement or obligation
to be complied with or performed by it in accordance with any
Credit Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of this
Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such
party under each Transaction to which such Credit Support
Document relates without the written consent of the other party;
or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a
representation under Section 3(e) or (f)) made or repeated or deemed to
have been made or repeated by the party or any Credit Support Provider
of such party in this Agreement or any Credit Support Document proves to
have been incorrect or misleading in any material respect when made or
repeated or deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and, after giving
effect to any applicable notice requirement or grace period, there
occurs a liquidation of, an acceleration of obligations under, or an
early termination of, that Specified Transaction, (2) defaults, after
giving effect to any applicable notice requirement or grace period, in
making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local Business
Days if there is no applicable notice requirement or grace period) or
(3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a
Specified Transaction (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule
as applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of
them (individually or collectively) in an aggregate amount of not less
than the applicable Threshold Amount (as specified in the Schedule)
which has resulted in such Specified Indebtedness becoming, or becoming
capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support Provider or
such Specified Entity (individually or collectively) in making one or
more payments on the due date thereof in an aggregate amount of not less
than the applicable Threshold Amount under such agreements or
instruments (after giving effect to any applicable notice requirement or
grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:-
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights,
or a petition is presented for its winding-up or liquidation,
and, in the case of any such proceeding or petition instituted
or presented against it, such proceeding or petition (A) results
in a judgment of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter;
(8) causes or is subject to any event with respect to it which,
under the applicable laws of any jurisdiction, has an analogous
effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any
of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:-
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit Support
Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or
pursuant to an agreement reasonably satisfactory to the other
party to this Agreement; or
2) the benefits of any Credit Support Document fail to
extend (without the consent of the other party) to the
performance by such resulting, surviving or transferee entity of
its obligations under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes lawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make
a payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such
party to perform, any contingent or other obligation which the
party (or such Credit Support Provider) has under any Credit
Support Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will, or
there is a substantial likelihood that it will, on the next succeeding
Scheduled Payment Date (1) be required to pay to the other party an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii)
or 6(e)) or (2) receive a payment from which an amount is required to be
deducted or withheld for or on account of a Tax (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount
is required to be paid in respect of such Tax under Section 2(d)(i)(4)
(other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been
deducted or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not required to pay an additional
amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either
case as a result of a party consolidating or amalgamating with, or
merging with or into, or transferring all or substantially all its
assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
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6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred
and is then continuing, the other party (the "Non-defaulting Party") may,
by not more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect of
all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in Section 5(a)(vii)(1),
(3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the
presentation of the relevant petition upon the occurrence with respect to such
party of an Event of Default specified in Section 5(a)(vii)(4) or, to the
extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality
under Section 5(b)(i)(1) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition to
its right to designate an Early Termination Date under Section 6(b)(iv),
use all reasonable efforts (which will not require such party to incur a
loss, excluding immaterial, incidental expenses) to transfer within 20
days after it gives notice under Section 6(b)(i) all its rights and
obligations under this Agreement in respect of the Affected Transactions
to another of its Offices or Affiliates so that such Termination Event
ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject
to and conditional upon the prior written consent of the other party,
which consent will not be withheld if such other party's policies in
effect at such time would permit it to enter into transactions with the
transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1)
or a Tax Event occurs and there are two Affected Parties, each party
will use all reasonable efforts to reach agreement within 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected
with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event
Upon Merger or an Additional Termination Event occurs, or a Tax
Event Upon Merger occurs and the Burdened Party is not the
Affected Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the case
of a Credit Event Upon Merger or an Additional Termination Event if
there is only one Affected Party may, by not more than 20 days notice to
the other party and provided that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving details
of the relevant account to which any amount payable to it is to be paid.
In the absence of written confirmation from the source of a quotation
obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence
and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of
any Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment) in the Termination Currency, from (and including) the
relevant Early Termination date to (but excluding) the date such amount
is paid, at the Applicable Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment
method, either the "First Method" or the "Second Method". If the parties fail
to designate a payment measure or payment method in the Schedule, it will be
deemed that "Market Quotation" or the "Second Method", as the case may be,
shall apply. The amount, if any, payable in respect of an Early Termination
Date and determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from
an Event of Default:--
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method
and Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A)
the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party over (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss
apply, the Defaulting Party will pay to the Non-defaulting
Party, if a positive number, the Non-defaulting Party's Loss in
respect of this Agreement.
(3) SECOND METHOD AND MARKET QUOTATION. If the Second Method
and Market Quotation apply, an amount will be payable equal to
(A) the sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it
is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event: -
(1) ONE AFFECTED PARTY. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is
not the Affected Party, respectively, and, if Loss applies and
fewer than all the Transactions are being terminated, Loss shall
be calculated in respect of all Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected
Parties:-
(A) if Market Quotation applies, each party will
determine a Settlement Amount in respect of the
Terminated Transactions, and an amount will be payable
equal to (I) the sum of (a) one-half of the difference
between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement Amount
of the party wit the lower Settlement Amount ("Y") and
(b) the Termination Currency Equivalent of the Unpaid
Amounts owing to X less (II) the Termination Currency
Equivalent of the Unpaid Amounts owing to Y; and
(3) (B) if Loss applies, each party will determine its
Loss in respect of this Agreement (or, if fewer than all
the Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable
equal to one-half of the difference between the Loss of
the party with the higher Loss ("X") and the Loss of the
party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay
it to X; if it is a negative number, X will pay the
absolute value of that amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will
be subject to such adjustments as are appropriate and permitted by law
to reflect any payments or deliveries made by one party to the other
under this Agreement (and retained by such other party) during the
period from the relevant Early Termination Date of the date for payment
determined under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to
any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable
law, any obligation to make payments under this Agreement in the Contractual
Currency will not be discharged or satisfied by any tender in any currency
other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in a
reasonable manner and in good faith in converting the currency so tendered into
the Contractual Currency, of the full amount in the Contractual Currency of all
amounts payable in respect of this Agreement. If for any reason the amount in
the Contractual Currency so received falls short of the amount in the
Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law,
immediately pay such additional amount in the Contractual Currency as may be
necessary to compensate for the shortfall. If for any reason the amount in the
Contractual Currency so received exceeds the amount in the Contractual Currency
payable in respect of this Agreement, the party receiving the payment will
refund promptly the amount of such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is
rendered (i) for the payment of any amount owing in respect of this Agreement,
(ii) for the payment of any amount relating to any early termination in respect
of this Agreement or (iii) in respect of a judgment or order of another court
for the payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such
party. The term "rate of exchange" includes, without limitation, any premiums
and costs of exchange payable in connection with the purchase of or conversion
into the Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the
party to which any payment is owed and will not be affected by judgment being
obtained or claim or proof being made for any other sums payable in respect of
this Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by
an exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts (including
by facsimile transmission) or be created by an exchange of telexes or by
an exchange of electronic messages on an electronic messaging system,
which in each case will be sufficient for all purposes to evidence a
binding supplement to this Agreement. The parties will specify therein
or through another effective means that any such counterpart, telex or
electronic message constitutes a Confirmation.
(f) NO WAVIER OF RIGHTS. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a
Transaction will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the
date it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the recipient in
legible form (it being agreed that the burden of proving receipt will
be on the sender and will not be met by a transmission report generated
by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan in
New York City, if this Agreement is expressed to be governed by the laws
of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any
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<PAGE> 14
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of
any court, (iii) relief by way of injunction, order for specific performance or
for recovery of property, (iv) attachment of its assets (whether before or
after judgment) and (v) execution or enforcement of any judgment to which it or
its revenues or assets might otherwise be entitled in any Proceedings in the
courts of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after the
date on which the relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified
as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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<PAGE> 15
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed
in respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such
recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of such
jurisdiction, or being or having been organised, present or engaged in a trade
or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding a
connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority)
and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for
performance with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating, liquidating,
obtaining or reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 11. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition
precedent) by the parties under Section 2(a)(i) in respect of such Terminated
Transaction or group of Terminated Transactions that would, but for the
occurrence of the relevant Early Termination Date, have
15
<PAGE> 16
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as
of the same day and time (without regard to different time zones) on or as soon
as reasonably practicable after the relevant Early Termination Date. The day
and time as of which those quotations are to be obtained will be selected in
good faith by the party obliged to make a determination under Section 6(e),
and, if each party is so obliged, after consultation with the other. If more
than three quotations are provided, the Market Quotation will be the arithmetic
mean of the quotations, without regard to the quotations having the highest and
lowest values. If exactly three such quotations are provided, the Market
Quotation will be the quotation remaining after disregarding the highest and
lowest quotations. For this purpose, if more than one quotation has the same
highest value or lowest value, then one of such quotations shall be
disregarded. If fewer than three quotations are provided, it will be deemed
that the Market Quotation in respect of such Terminated Transaction or group of
Terminated Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or
to make an extension of credit and (b) to the extent practicable, from among
such dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organised, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
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<PAGE> 17
"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto) that
is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation or
similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a
rate for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event Upon Merger or, if
specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under
Section 2(a)(i) which was (or would have been but for Section 2(a)(iii))
required to be settled by delivery to such party on or prior to such Early
Termination Date and which has not been so settled as at such Early Termination
Date, an amount equal to the fair market
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<PAGE> 18
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding) such
Early Termination Date, at the Applicable Rate. Such amounts of interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligations referred to in clause (b)
above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION FRIEDMAN INDUSTRIES, INCORPORATED
- --------------------------------- ---------------------------------
(Name of Party) (Name of Party)
By: /s/ STEVE SHIPLEY By: /s/ BEN HARPER
----------------------------- ---------------------------------
Name: Steve Shipley Name: Ben Harper
Title: Vice President Title: Senior Vice President-Finance
Date: 7/31/97 Date: 7/29/97
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<PAGE> 19
(MULTICURRENCY-CROSS BORDER)
EXECUTION COPY
SCHEDULE TO THE MASTER AGREEMENT
DATED AS OF JULY 21, 1997 BETWEEN
TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("PARTY A")
AND FRIEDMAN INDUSTRIES, INCORPORATED ("PARTY B")
PART 1: TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS
(a) "SPECIFIED ENTITY" means, in relation to Party A, for the
purpose of:
SECTION 5(a)(v), none;
SECTION 5(a)(vi), none;
SECTION 5(a)(vii), none; and
SECTION 5(b)(iv), none;
and, in relation to Party B, for the purpose of:
SECTION 5(a)(v), none;
SECTION 5(a)(vi), none;
SECTION 5(a)(vii), none; and
SECTION 5(b)(iv), none.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in
Section 14.
(c) The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will not
apply to Party A. The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will
apply to Party B. In connection therewith, "SPECIFIED INDEBTEDNESS" will have
the meaning specified in Section 14, and "THRESHOLD AMOUNT" means USD$500,000.
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<PAGE> 20
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will apply to Party A and to Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a)
will not apply to Party A or Party B.
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section
6(e):
(i) Loss will apply.
(ii) The Second Method will apply.
(G) "TERMINATION CURRENCY" means United States Dollars.
PART 2: TAX REPRESENTATIONS
Not applicable.
PART 3: AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Sections 4(a)(i) and (iii) of this Agreement, each party
agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are: none.
(b) Other documents to be delivered are:
<TABLE>
<CAPTION>
PARTY REQUIRED FORM/ DATE BY COVERED B
TO DELIVER DOCUMENT/ WHICH TO BE SECTION 3(d)
DOCUMENT CERTIFICATE DELIVERED REPRESENTATION
-------- ----------- --------- --------------
<S> <C> <C> <C>
Party B Opinion of counsel Upon execution and delivery No
satisfactory to Party A of this Agreement
substantially in the form
of Exhibit I hereto
</TABLE>
2
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Party B Certified copies of all Upon execution and delivery Yes
corporate authorizations of this Agreement
and any other documents
with respect to the
execution, delivery and
performance of this
Agreement
</TABLE>
<TABLE>
<S> <C> <C> <C>
Party B Certificate of authority Upon execution and delivery Yes
and specimen signatures of of this Agreement and
individuals executing this thereafter upon request of
Agreement and Party A
Confirmations
</TABLE>
PART 4: MISCELLANEOUS
(a) ADDRESS FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:
Address for notice or communications to Party A:
Any notice shall be delivered to the address or facsimile or telex number
specified below:
Texas Commerce Bank National Association
Attention: Derivatives Desk
707 Travis
Houston, Texas 77002
Facsimile No.: (713) 216-6977
Address for notice or communications to Party B:
Friedman Industries, Incorporated
Attention: Treasurer
4001 Homestead Road
Houston, Texas 77028
Facsimile No.: (713) 672-1256
(b) PROCESS AGENT. For the purpose of Section 13(c):
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<PAGE> 22
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10 of this
Agreement:
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless
otherwise specified in a Confirmation in relation to the relevant Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support
Document: There are no Credit Support Documents.
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means:
there are no Credit Support Providers.
(h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REFERENCE
TO CHOICE OF LAW DOCTRINE).
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) will
not apply to any Transaction unless specified in the relevant Confirmation.
(j) "AFFILIATE" will have the meaning specified in Section 14 of
this Agreement.
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<PAGE> 23
PART 5: OTHER PROVISIONS
(a) SET-OFF. Any amount (the "Early Termination Amount") payable
to one party (the "Payee") by the other party (the "Payer") under Section 6(e),
in circumstances where there is a Defaulting Party or one Affected Party in the
case where a Termination Event under Section 5(b)(iv) has occurred, will, at
the option of the party ("X") other than the Defaulting Party or the Affected
Party (and without prior notice to the Defaulting Party or the Affected Party),
be reduced by its set-off against any amount(s) (the "Other Agreement Amount")
payable (whether at such time or in the future or upon the occurrence of a
contingency) by the Payee to the Payer (irrespective of the currency, place of
payment or booking office of the obligation) under any other agreement(s)
between the Payee and the Payer or instrument(s) or undertaking(s) issued or
executed by one party to, or in favor of, the other party (and the Other
Agreement Amount will be discharged promptly and in all respects to the extent
it is so set-off). X will give notice to the other party of any set-off
effected under this section.
For this purpose, either the Early Termination Amount or the Other Agreement
Amount (or the relevant portion of such amounts) may be converted by X into the
currency in which the other is denominated at the rate of exchange at which
such party would be able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that obligation
and set-off in respect of the estimate, subject to the relevant party
accounting to the other when the obligation is ascertained.
Nothing in this section shall be effective to create a charge or other security
interest. This section shall be without prejudice and in addition to any right
of set-off, combination of accounts, lien or other right to which any party is
at any time otherwise entitled (whether by operation of law, contract or
otherwise).
(b) EXCHANGE OF CONFIRMATIONS. For each Transaction entered into
hereunder, Party A shall promptly send to Party B a Confirmation via facsimile
transmission. Party B agrees to respond to such Confirmation within 10
Business Days, either confirming agreement thereto or requesting a correction
of any error(s) contained therein. Failure by Party B to respond within such
period shall not affect the validity or enforceability of such Transaction and
shall be deemed to be an affirmation of the terms contained in such
Confirmation, absent manifest error. The parties agree that any such exchange
of facsimile transmissions shall constitute a Confirmation for all purposes
hereunder.
(c) RELATIONSHIP BETWEEN PARTIES. The following representation
shall be added as a new Section 3(g) of this Agreement:
"(g) RELATIONSHIP BETWEEN PARTIES. Absent a written agreement to
the contrary:
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<PAGE> 24
(i) It is not relying on any advice (whether written or
oral) of the other party regarding any Transaction, other than
the representations expressly made by that other party in this
Agreement and in the Confirmation in respect of that
Transaction;
(ii) In respect of each Transaction under this Agreement,
(1) it has the capacity to evaluate (internally or
through independent professional advice) that
Transaction and has made its own decision to enter
into that Transaction;
(2) It understands the terms, conditions and risks
of that Transaction and is willing to accept those
terms and conditions and to assume (financially and
otherwise) those risks; and
(3) the other party (a) is not acting as a fiduciary
or financial, investment or commodity trading advisor
for it; (b) has not given to it (directly or
indirectly through any other person) any assurance,
guaranty or representation whatsoever as to the
merits (either legal, regulatory, tax, financial,
accounting or otherwise) of that Transaction or any
documentation related thereto; and (c) has not
committed to unwind that Transaction."
(d) WAIVER OF RIGHT TO TRIAL BY JURY. Each party recognizes that,
in matters related to this Agreement or any Transaction, either party may be
entitled to a trial in which matters of fact are determined by a jury (as
opposed to a trial in which such matters are determined by a judge). By
execution of this Agreement, each party will give up its respective rights to
trial by jury, and each party has carefully considered the consequences of
signing this Agreement and has consulted with its respective attorneys. Each
party acknowledges that this waiver is entered into to avoid delays, minimize
trial expense, and streamline the legal proceedings in order to accomplish a
quick resolution of claims arising under or in conjunction with this Agreement
or any Transaction. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH PARTY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING UNDER, OR IN CONNECTION
WITH, THIS AGREEMENT OR ANY TRANSACTION HEREUNDER.
(e) FURTHER REPRESENTATIONS. Each party represents to the other
party that it is an "eligible swap participant" as such term is defined in Part
35 of Chapter I of Title 17 of the Code of Federal Regulations, promulgated by
the Commodity Futures Trading Commission, entitled "Exemption of Swap
Agreements".
(f) JURISDICTION. Section 13(b) of this Agreement is hereby
restated as follows:
(b) JURISDICTION. WITH RESPECT TO ANY CLAIM ARISING OUT
OF THIS AGREEMENT, (A) EACH PARTY IRREVOCABLY SUBMITS TO THE
6
<PAGE> 25
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE UNITED
STATES DISTRICT COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS; AND (B) EACH
PARTY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM, AND IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT
TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH
COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.
(g) TELEPHONIC RECORDING. Each party (i) consents to the
recording of the telephone conversations of trading and marketing personnel of
the parties and their Affiliates in connection with this Agreement or any
potential Transaction and (ii) agrees to obtain any necessary consent of, and
give notice of such recording to, such personnel of it and its Affiliates.
(h) USURY NOT INTENDED; SAVINGS PROVISIONS. Notwithstanding any
provision to the contrary contained in this Agreement, it is expressly provided
that in no case or event shall the aggregate of any amounts accrued or paid
pursuant to this Agreement which under applicable laws are or may be deemed to
constitute interest ever exceed the maximum nonusurious interest rate permitted
by applicable Texas or federal laws, whichever permit the higher rate. In this
connection, Party A and Party B stipulate and agree that it is their common and
overriding intent to contract in strict compliance with applicable usury laws.
In furtherance thereof, none of the terms of this Agreement shall ever be
construed to create a contract to pay, as consideration for the use,
forbearance or detention of money, interest at a rate in excess of the maximum
rate permitted by applicable laws. Neither party shall ever be liable for
interest in excess of the maximum rate permitted by applicable laws. If, for
any reason whatsoever, such interest paid or received during the full term of
the applicable indebtedness produces a rate which exceeds the maximum rate
permitted by applicable laws, the receiving party shall credit against the
principal of such indebtedness (or, if such indebtedness shall have been paid
in full, shall refund to the payor of such interest) such portion of said
interest as shall be necessary to cause the interest paid to produce a rate
equal to the maximum rate permitted by applicable laws. All sums paid or
agreed to be paid for the use, forbearance or detention of money shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of the applicable indebtedness,
so that the interest rate is uniform throughout the full term of such
indebtedness. The provisions of this paragraph shall control all agreements,
whether now or hereafter existing and whether written or oral, between Party A
and Party B.
7
<PAGE> 26
(i) ENTIRE AGREEMENT.
THIS WRITTEN MASTER AGREEMENT 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.
(j) "LETTER AGREEMENT" means the Amended and Restated Letter
Agreement, dated as of April 1, 1995, between Party A and Party B, as further
amended, supplemented or otherwise modified from time to time; provided that if
the obligations under the Letter Agreement are paid in full or the Letter
Agreement is otherwise terminated or cancelled, Letter Agreement means the
Letter Agreement as it existed immediately prior to such event. Capitalized
terms defined therein and not otherwise defined herein shall have the meanings
assigned in the Letter Agreement.
(k) FURTHER AGREEMENTS OF PARTY B. Party B agrees with Party A
that Party B will comply with each of the covenants set forth in Section 4 of
the Letter Agreement.
(l) ADDITIONAL EVENT OF DEFAULT. With respect to Party B, it
shall constitute an Event of Default under this Agreement if there shall occur
any Event of Default under the Letter Agreement (other than an Event of Default
under Section 5(b) of the Letter Agreement, it being understood that an Event
of Default under Section 5(b) of the Letter Agreement will not constitute an
Event of Default under this Agreement).
(m) FURTHER REPRESENTATION OF PARTY B. Party B represents and
warrants to Party A (which representation will be deemed to be repeated by
Party B on each date on which a Transaction is entered into) that each of the
representations and warranties made by Party B in Section 3 of the Letter
Agreement would be true and correct if made as of the date hereof, and, on the
date hereof, no Event of Default under the Letter Agreement has occurred and is
continuing.
ACCEPTED AND AGREED:
TEXAS COMMERCE BANK FRIEDMAN INDUSTRIES,
NATIONAL ASSOCIATION INCORPORATED
By: /s/ STEVE SHIPLEY By: /s/ BEN HARPER
----------------------- ------------------------
Name: Steve Shipley Name: Ben Harper
Title: Vice President Title: Senior Vice President-Finance
8
<PAGE> 1
ADVANCING PROMISSORY NOTE CONVERTING TO A TERM NOTE
(this "Note")
<TABLE>
<CAPTION>
=============================================================================================================================
U.S. $4,700,000.00 July 21, 1997 (the "DATE")
ACCOUNT NUMBER: NOTE NUMBER: RENEWAL CODE: TELLER: OFFICER:
<S> <C> <C> <C> <C>
-------------------------- ----------------------- ----- ------------------- ---------------
=============================================================================================================================
</TABLE>
FOR VALUE RECEIVED, FRIEDMAN INDUSTRIES, INCORPORATED (the "Maker"), a Texas
corporation, promises to pay to the order of TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Bank") on or before August 1, 2003 (the "Stated Maturity
Date"), at its banking house at 712 Main Street, Houston, Harris County, Texas,
or at such other location as the Bank may designate, in lawful money of the
United States of America, the lesser of: (i) the principal sum of FOUR MILLION
SEVEN HUNDRED THOUSAND AND NO 100THS DOLLARS (U.S. $4,700,000.00) or (ii) the
aggregate unpaid principal amount of all loans made by the Bank hereunder (each
such loan being a "Loan"), which may be outstanding on the Stated Maturity Date
("Maximum Loan Total"). Each Loan shall be due and payable on the Interest
Period maturity date agreed to by the Bank and the Maker with respect to such
Loan (the "Maturity Date"), provided that the principal of any Loan that
becomes due and payable on a Maturity Date preceding the Stated Maturity Date
and that is not repaid on such Maturity Date (with the proceeds of a Loan made
by the Bank at the request of the Maker or otherwise) shall be deemed to be
automatically (without the requirement of any request for advance or other
action on the part of the Maker) repaid in full by an advance of (and such
maturing Loan shall automatically be deemed to be converted to) a LIBOR Loan
for an Interest Period of 30 days.
The Loans shall be LIBOR Loans (as hereinafter defined).
The Maker shall pay interest on each LIBOR Loan for the Interest Period with
respect thereto on the unpaid principal amount thereof at a rate per annum
equal to the lesser of: (i) the LIBOR Rate (as hereinafter defined) plus one
and one quarter of one percent (1.250%) (the "Effective LIBOR Rate"); or (ii)
the Highest Lawful Rate, which interest shall be due and payable on the last
day of each such Interest Period, and if such Interest Period has a duration
exceeding one month, on the first day of each month during such Interest
Period.
The unpaid principal balance of this Note at any time shall be the total
amounts loaned or advanced by the Bank or holder hereof, less the amount of all
payments or prepayments of principal made hereon by or for the Maker. Absent
manifest error, the records of the Bank or any subsequent holder shall be
conclusive as to amounts owed, both principal and accrued interest, hereunder.
Subject to the terms and conditions of this Note and the Credit Agreement (as
defined below), and provided that no Event of Default has occurred, Maker may
use all or any part of the credit provided for herein at any time before
December 1, 1998 (the "Advance Termination Date") and may borrow and repay but
not reborrow hereunder prior to the Advance Termination Date. There is no
limitation on the number of advances made hereunder so long as the total amount
advanced prior to the Advance Termination Date does not exceed the Maximum Loan
Total.
Advances against this Note by the Bank or other owner or holder hereof shall be
governed by the terms and conditions hereof, and that one certain Amended and
Restated Letter Agreement by and between Bank and maker dated as of April 1,
1995 as amended by a First Amendment dated as of April 1, 1997 and a Second
Amendment dated as of July 21, 1997, and including any amendments,
modifications, supplements thereto and restatements thereof (the "Credit
Agreement").
Principal payments of $200,000.00 each plus accrued interest shall be due and
payable quarterly, beginning on September 1, 1997, and continuing on the first
(1st) day of each June, September, December, and March thereafter and at the
Stated Maturity Date when all unpaid principal and accrued and unpaid interest
shall be finally due and payable.
Any amount not paid when due with respect to principal (whether at Maturity
Date, by acceleration or otherwise), costs, expenses, and to the extent
permitted by applicable law, interest, shall bear interest at a rate per annum
equal to the lesser of: (i) the Prime Rate (as herein defined) in effect from
time to time; or (ii) the Highest Lawful Rate, which interest shall be due and
payable on demand. The principal of any Loan shall be deemed past due if not
paid on or before the Maturity Date or any earlier maturity date resulting from
acceleration in accordance with the terms of this Note or as provided by law or
otherwise. Interest accrued and unpaid with respect to any Loan shall be
deemed past due if not paid on or before the applicable interest payment due
date as provided for herein.
Notwithstanding the foregoing, if at any time the effective rate of interest
which would otherwise be payable on any Loan evidenced by this Note exceeds the
Highest Lawful Rate, the rate of interest to accrue on the unpaid principal
balance of such Loan during all such times shall be limited to the Highest
Lawful Rate, but any subsequent reductions in such interest rate shall not
become effective to reduce such interest rate below the Highest Lawful Rate
until the total amount of interest accrued on the unpaid principal balance of
such Loan equals the total amount of interest which would have accrued if the
Effective LIBOR Rate, had at all times been in effect.
Each Loan shall be in an amount not less than $10,000.00 and an integral
multiple of $10,000.00. Interest with respect to Prime Rate Loans shall be
calculated on the basis of a 365 day year or 366 day year, as the case may be,
for the actual number of days elapsed. Interest with respect to LIBOR Loans
shall be calculated on the basis of a 360 day year for the actual days elapsed,
unless such calculation would result in a usurious interest rate, in which case
such interest shall be calculated on the basis of a 365 day or 366 day year, as
the case may be.
The following terms shall have the respective meanings indicated:
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing Date" means any Business Day on which the Bank shall make a
Loan hereunder.
Page 1 of 4 Pages
Signed for Identification
By: /s/ ILLEGIBLE
---------------
<PAGE> 2
"Business Day" means a day: (i) on which the Bank and commercial banks
in New York City are generally open for business; and (ii) with
respect to LIBOR Loans, on which dealings in United States Dollar
deposits are carried out in the Eurodollar interbank markets.
"Eurodollar Lending Office" means the office of the Bank located at
712 Main Street, Houston, Texas, or such other office of the Bank as
the Bank may from time to time specify to the Maker.
"LIBOR Loan" means a Loan which bears interest at a rate determined by
reference to the LIBOR Rate.
"LIBOR Rate" means, for each LIBOR Loan, an interest rate per annum
determined by the Bank by dividing: (i) for any Interest Period, the
interest rate determined by Bank by reference to the British Bankers'
Association Interest Settlement Rates (as set forth on Telerate Page
3750 or any successor or substitute page; or if unavailable there, by
any service selected by Bank which has been nominated by the British
Bankers' Association as an authorized information vendor for the
purpose of displaying such rates including but not limited to
Bloomberg or Reuters) to be the rate at approximately 11:00 a.m.
London time, two Business Days prior to the commencement of such
Interest Period for dollar deposits in an amount comparable to such
LIBOR Loan with a maturity comparable to such Interest Period; by (ii)
Statutory Reserves.
"Highest Lawful Rate" as used herein shall mean the maximum
nonusurious interest rate permitted from time to time to be contracted
for, taken, reserved, charged or received on any Loan under applicable
federal or Texas laws, whichever permits the higher lawful rate;
provided, however, that in the event: (i) such maximum nonusurious
interest rate shall, at any time or times during the term of a Loan
evidenced hereby, be reduced to a rate less than the maximum
nonusurious rate in effect on the date of such Loan; and (ii)
applicable law permits contracting for, taking, reserving, charging,
and receiving on such Loan throughout the duration thereof the maximum
nonusurious rate in effect on the date such Loan was made, then and at
all such times the Highest Lawful Rate shall be the maximum
nonusurious rate permitted to be contracted for, taken, reserved,
charged or received on such Loan under applicable law in effect on the
date of such Loan. At all such times, if any, as Texas law shall
establish the Highest Lawful Rate, the Highest Lawful Rate shall be
the "indicated rate ceiling" (as defined in Tex. Rev. Civ. Stat. art.
5069-1.04) from time to time in effect.
"Interest Period" means the period commencing on the Borrowing Date
and ending on the Maturity Date. The duration of each Interest Period
shall be 30 days. No Interest Period shall end on a date after the
Stated Maturity Date, and if the last day of an Interest Period would
be a day other than a Business Day, the Interest Period shall end on
the next succeeding Business Day (unless the Interest Period relates
to a LIBOR Loan and the next succeeding Business Day is in a different
calendar month than the day on which the Interest Period would
otherwise end, in which case the Interest Period shall end on the next
preceding Business Day).
"Prime Rate" shall mean the rate of interest per annum determined from
time to time by the Bank as its prime rate in effect at its principal
office in Houston, Texas and thereafter entered in the minutes of its
Loan and Discount Committee; each change in the Prime Rate shall be
effective on the date such change is determined; without special
notice to the Maker or any other person or entity. THE PRIME RATE IS
A REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST
RATE ACTUALLY CHARGED TO ANY CUSTOMER AND ANY STATEMENT,
REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT EFFECT IS
EXPRESSLY DISCLAIMED BY THE BANK. THE BANK MAY MAKE LOANS AT RATES OF
INTEREST AT, ABOVE OR BELOW THE PRIME RATE.
"Statutory Reserves" shall mean the difference (expressed as a
decimal) of the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any marginal, special,
emergency, or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Bank is subject: (a) with respect to the LIBOR Rate, for Eurocurrency
Liabilities (as defined in Regulation D of the Board). Such reserve
percentages shall include, without limitation, those imposed under
such Regulation D. LIBOR Loans shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to
such reserve requirements without benefit of or credit for proration,
exceptions or offsets which may be available from time to time to any
Bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any
reserve percentage.
Any Loan which the Bank makes hereunder shall be made on the Maker's
irrevocable notice, given not later than 10:00 A.M. (Houston, Texas time) on,
in the case of LIBOR Loans, the third Business Day prior to the proposed
Borrowing Date from the Maker to the Bank. Each such notice of a requested
borrowing (a "Notice of Requested Borrowing") under this paragraph may be oral
or written, and shall specify: (i) the requested amount of such Loan; (ii) the
proposed Borrowing Date; (iii) that the requested Loan is to be a 30 day LIBOR
Loan. If any Notice of Requested Borrowing shall be oral, the Maker shall
deliver to the Bank prior to the Borrowing Date a confirmatory written Notice
of Requested Borrowing.
If at any time the Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or in the
interpretation, application or administration thereof makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
the Bank or its foreign branch or branches to maintain or fund any Loan by
means of dollar deposits obtained in any Eurodollar interbank market (any of
the above being described as a "Eurodollar Event"), then, at the option of the
Bank, the aggregate principal amount of the Bank's LIBOR Loans then
outstanding, which Loans are directly affected by such Eurodollar Event, shall
be prepaid by the Maker. Upon the occurrence of any Eurodollar Event, and at
any time thereafter so long as such Eurodollar Event shall continue, the Bank
may exercise its aforesaid option by giving written notice thereof to the
Maker.
Any prepayment of any LIBOR Loan which is required under the preceding
paragraph shall be made, together with accrued and unpaid interest and all
other amounts payable to the Bank under this Note with respect to such prepaid
LIBOR Loan on the date stated in the notice to the Maker referred to above,
which date ("required prepayment date") shall be not less than 15 days from the
date of such notice. If any LIBOR Loan is required to be prepaid under the
preceding paragraph, the Bank shall make on the required
Page 2 of 4 Pages
Signed for Identification
By: /s/ ILLEGIBLE
---------------
<PAGE> 3
prepayment date a Prime Rate Loan in the same principal amount and with an
Interest Period ending on the same day as the LIBOR Loan so prepaid.
If any domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D of the
Board of Governors of the Federal Reserve System) or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law):
(a) changes, imposes, modifies, applies or deems applicable any
reserve, special deposit or similar requirements in respect of
any such Loan or against assets of, deposits with or for the
account of, or credit extended or committed by, the Bank; or
(b) imposes on the Bank or the interbank eurocurrency deposit and
transfer market or the market for domestic bank certificates
or deposit any other condition affecting any such Loan;
and the result of any of the foregoing is to impose a cost to the Bank of
agreeing to make, funding or maintaining any such Loan or to reduce the amount
of any sum receivable by the Bank in respect of any such Loan, then the Bank
may notify the Maker in writing of the happening of such event and the Maker
shall upon demand pay to the Bank such additional amounts as will compensate
the Bank for such costs. Without prejudice to the survival of any other
agreement of the Maker under this Note, the obligations of the Maker under this
paragraph shall survive the termination of this Note.
The Maker may from time to time, on the applicable Maturity Date of any LIBOR
Loan, pay or prepay the outstanding principal amount of such LIBOR Loan, in
whole or in part, together with accrued interest to the date of such prepayment
on the principal amount prepaid.
Notwithstanding the previous paragraph, the Maker may from time to time prepay
any Loan on any Business Day, provided that if the date for such prepayment is
not a Maturity Date then the Maker shall indemnify the Bank against, and
reimburse the Bank on demand for, any loss, cost or expense incurred or
sustained by the Bank (including without limitation any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by the Bank to fund or maintain Loans bearing interest at the
LIBOR Rate) as a result of: (a) any payment or prepayment (whether permitted by
the Bank or required hereunder or otherwise) of all or a portion of any LIBOR
Loan on a day other than the Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any LIBOR Loan made
after the delivery of a Notice of Requested Borrowing but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan from
becoming fully effective; or (c) the failure of any LIBOR Loan to be made by
the Bank due to any action or inaction of the Maker. For purposes of this
paragraph, funding losses arising by reason of liquidation or reemployment of
deposits or other funds acquired by the Bank to fund or maintain Loans bearing
interest at the LIBOR Rate shall be calculated as the remainder obtained by
subtracting: (i) the yield (reflecting both stated interest rate and discount,
if any) to maturity of obligations of the United States Treasury in an amount
equal or comparable to such Loan for the period of time commencing on the date
of the payment, prepayment or change of rate as provided above and ending on
the last day of the subject Interest Period; from (ii) the interest payable at
the LIBOR Rate for the period commencing on the date of such payment,
prepayment or change of rate and ending on the last day of such Interest
Period. Such funding losses and other costs and expenses shall be calculated
and billed by the Bank and such bill shall, as to the costs incurred, be
conclusive absent manifest error.
If after the date of this Note, the Bank shall have determined that the
adoption of any applicable law, rule or regulation regarding capital adequacy,
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 with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of making any Loans hereunder to a level below
that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank in good faith to be material,
then from time to time, the Maker shall pay to the Bank such additional amount
or amounts as will compensate the Bank for such reduction.
A certificate of the Bank setting forth such amount or amounts as shall be
necessary to compensate the Bank as specified in the immediately four preceding
paragraphs above shall be delivered as soon as practicable to the Maker and
shall be conclusive and binding, absent manifest error, provided that such
certificate is prepared in good faith and on a reasonable basis. The Maker
shall pay the Bank the amount shown as due on any such certificate within 15
days after the Bank delivers such certificate. In preparing such certificate,
the Bank may employ such assumptions and allocations of costs and expenses as
it shall in good faith deem reasonable and may use any reasonable averaging and
attribution method.
If any payment of interest or principal herein provided for is not paid when
due then the owner or holder of this Note may at its option, by notice to the
Maker, declare the unpaid principal balance of all Loans, all accrued and
unpaid interest thereon and all other amounts payable under this Note to be
forthwith due and payable, whereupon the Loans, all such interest and all such
amounts shall become and be forthwith due and payable in full, without
presentment, demand, protest, notice of intent to accelerate, notice of actual
acceleration or further notice of any kind, all of which are hereby expressly
waived by the Maker.
If default is made in the payment of this Note and it is placed in the hands of
an attorney for collection, or collected through probate or bankruptcy
proceedings, or if suit is brought on the same, the Maker agrees to pay
reasonable attorneys' fees and all costs and expenses.
The Maker warrants and represents to the Bank, and to all other owners and/or
holders of any indebtedness evidenced hereby, that all Loans evidenced by this
Note are for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter One of the Texas Credit Code, Tex. Rev. Civ. Stat. arts.
5069-1.01 et. seq.
Page 3 of 4 Pages
Signed for Identification
By: /s/ ILLEGIBLE
----------------
<PAGE> 4
The Maker warrants and represents to the Bank and to all other owners or
holders of this Note that no Loans shall be used for the purchase or carrying
of any "margin stock" within the meaning of Regulation "U" of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect on
the date hereof.
Except as otherwise specified in this Note, the Maker and any and all
co-makers, endorsers, guarantors and sureties hereby severally waive grace,
presentment, demand, notice of default, notice of intent to accelerate, notice
of acceleration, and all other demands and notices of any nature or type
whatsoever, in connection with the delivery, acceptance, performance, default,
dishonor or enforcement of, or entry of judgment in connection with this Note,
and further waive the filing of suit hereon for the purpose of fixing
liability.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
NOTE SHALL BE PERFORMABLE FOR ALL PURPOSES IN HARRIS COUNTY, TEXAS, AND THE
MAKER AND THE BANK AGREE THAT HARRIS COUNTY, TEXAS IS PROPER VENUE FOR ANY
ACTION OR PROCEEDING BROUGHT BY THE MAKER OR THE BANK, WHETHER IN CONTRACT,
TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE MAKER MAY BE BROUGHT
IN ANY STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS. THE MAKER HEREBY
IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND
(B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS
AN INCONVENIENT FORUM. THE MAKER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS
SPECIFIED BELOW.
The Maker and the Bank expressly agree, pursuant to Article 15.10(b) of Chapter
15 ("Chapter 15") of the Texas Credit Code, that Chapter 15 shall not apply to
this Note or to any Loan and that this Note and all such Loans shall not be
governed by or subject to the provisions of Chapter 15 in any manner
whatsoever.
It is the intention of the Maker and the Bank to comply with usury laws in
force in the State of Texas and in the United States of America as applicable.
Anything in this Note to the contrary notwithstanding, the Maker shall never be
required to pay unearned interest on this Note and shall never be required to
pay interest on this Note at a rate in excess of the Highest Lawful Rate, and
if the effective rate of interest which would otherwise be payable under this
Note would exceed the Highest Lawful Rate, or if the holder of the Note shall
receive any unearned interest or shall receive monies that are deemed to
constitute interest which would increase the effective rate of interest payable
under this Note to a rate in excess of the Highest Lawful Rate, then: (i) the
amount of interest which would otherwise be payable under this Note shall be
reduced to the amount allowed under applicable law; and (ii) any unearned
interest paid by the Maker or any interest paid by the Maker in excess of the
Highest Lawful Rate shall, at the option of the holder of this Note, be either
refunded to the Maker or credited on the principal of this Note. It is further
agreed that, without limitation of the foregoing, all calculations of the rate
of interest contracted for, charged or received by the Bank or any holder of
this Note that are made for the purpose of determining whether such rate
exceeds the Highest Lawful Rate shall be made, to the extent permitted by usury
laws applicable to the Bank (now or hereafter enacted), by amortizing,
prorating and spreading in equal parts during the period of the full stated
term of the Loans evidenced by this Note all interest at any time contracted
for, charged or received by the Bank in connection therewith.
The Bank reserves the right in its sole discretion without notice to the Maker,
to sell participations or assign its interest, or both in all or part of the
Loans, the Note, or the Line of Credit.
THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Maker has executed this Note effective the day, month
and year first aforesaid.
MAKER: FRIEDMAN INDUSTRIES, INCORPORATED
By: /s/ BEN HARPER
_____________________________________________________________________________
Name: Ben Harper
___________________________________________________________________________
Title: Senior Vice President-Finance
__________________________________________________________________________
Acknowledged for purposes of notice pursuant to the above cited statute by:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:_____________________________________________________________________________
Name:___________________________________________________________________________
Title:__________________________________________________________________________
Page 4 of 4 Pages
Signed for Identification
By:_____
<PAGE> 1
SECOND AMENDMENT TO AMENDED AND RESTATED LETTER AGREEMENT
(with Borrowing Base)
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LETTER AGREEMENT (this
"Amendment") dated effective as of July 21, 1997 (the "Effective Date"), is by
and between FRIEDMAN INDUSTRIES, INCORPORATED ("Borrower"), and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association ("Bank").
PRELIMINARY STATEMENT. Bank and Borrower have entered into an Amended And
Restated Letter Agreement dated as of April 1, 1995 and First Amendment to
Amended and Restated Letter Agreement dated as of April 1, 1997 (collectively,
"Credit Agreement"). The "Agreement", as used in the Credit Agreement, shall
also refer to the Credit Agreement as amended by this Amendment. All
capitalized terms defined in the Credit Agreement and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement. Bank and
Borrower have agreed to amend the Credit Agreement to the extent set forth
herein, and in order to, among other things, renew, increase, modify and extend
the Advance Note.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, Bank and Borrower hereby agree as follows:
1. Advance/Term Note. Section 1.2 of the Credit Agreement is amended by
substituting the following 1.2 for the previous Section 1.2 of the Credit
Agreement:
"Section 1.2 ADVANCE LINE OF CREDIT The Bank agrees to make advances
(an "Advance" and "Advances") in an aggregate amount of $4,700,000.00,
pursuant to an Advance Commitment ("Advance Commitment") as evidenced
by that certain Advancing Promissory Note Converting To A Term Note
dated July 21, 1997 in the original principal amount of $4,700,000.00
executed by the Borrower payable to the order of the Bank and having a
final maturity date of August 1, 2003 (together with any and all
renewals, extensions, modifications, rearrangements and replacements
thereof and substitutions therefor, the "Advance/Term Note") which is
given in renewal, increase, modification and extension of that certain
promissory note dated December 1, 1993 in the original principal
amount of $4,000,000.00 maturing on December 1, 1999, (including all
prior notes of which said note represents a renewal, extension,
modification, increase, substitution, rearrangement or replacement
thereof, the "Renewed Note"). The parties hereto agree that there is
as of the Effective Date an outstanding principal balance of
$1,200,000.00 under the Advance Note. The "Advance Note" as used in
the Credit Agreement shall also refer to the "Advance/Term Note" as
used in this Amendment. The purpose of the Advance/Term Note is: to
purchase equipment up to $3,500,000.00 and to refinance existing debt
of $1,200,000.00.
2. The Credit Agreement is amended to amend Exhibit A, attached hereto for all
purposes.
3. Borrower hereby represents and warrants to the Bank that after giving effect
to the execution and delivery of this Amendment: (a) the representations and
warranties set forth in the Credit Agreement are true and correct on the date
hereof as though made on and as of such date; and (b) no Event of Default, or
event which with passage of time, the giving of notice or both would become an
Event of Default, has occurred and is continuing as of the date hereof.
4. This Amendment shall become effective as of the Effective Date upon its
execution and delivery by each of the parties named in the signature lines
below, and the "Agreement" as used in the Credit Agreement shall also refer to
the Credit Agreement as amended by this Amendment.
5. Borrower further acknowledges that each of the other Loan Documents is in
all other respects ratified and confirmed, and all of the rights, powers and
privileges created thereby or thereunder are ratified, extended, carried
forward and remain in full force and effect except as the Credit Agreement is
amended by this Amendment.
6. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
7. This Amendment shall be included within the definition of "Loan Documents"
as used in the Agreement.
8. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF THE UNITED STATES OF
AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE
CODE, AND 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.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed effective as of the Effective Date.
BORROWER: FRIEDMAN INDUSTRIES, INCORPORATED
By: /s/ BEN HARPER
---------------------------------
Name: Ben Harper
-------------------------------
Title: Senior Vice President-Finance
------------------------------
Address: Houston, Texas
----------------------------
BANK: TEXAS COMMERCE BANKNATIONAL ASSOCIATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
--------------------------
Page 1 of 1
<PAGE> 2
EXHIBIT A to Agreement between
FRIEDMAN INDUSTRIES, INCORPORATED ("Borrower") and Texas Commerce
Bank National Association ("Bank") dated the Effective Date
as same may be amended, restated and supplemented in writing
REPORTING REQUIREMENTS, FINANCIAL COVENANTS
AND
COMPLIANCE CERTIFICATE FOR CURRENT REPORTING PERIOD ENDING
________________, 199__ ("END DATE")
A. REPORTING PERIOD. THIS EXHIBIT WILL BE IN PROPER FORM AND BE SUBMITTED
QUARTERLY.
<TABLE>
<S> <C> <C>
B.
======================================================================================================================
Financial Reporting. Borrower will provide the following financial information within Compliance
- ------------------- the times indicated: Certificate
======================================================================================================================
WHO WHEN DUE WHAT Compliance
--- -------- ---- (Circle)
Yes No
BORROWER (i) Quarterly at such time as Borrower's 10-Q together Yes No
this statement is submitted to with a certificate of
the Securities and Exchange compliance duly executed by
Commission ("SEC") an officer of Borrower
(ii) On an annual basis at such Borrower's 10-K together Yes No
time as this statement is with a certificate of
submitted to the Securities and compliance duly executed by
Exchange Commission ("SEC") an officer of Borrower
======================================================================================================================
C.
======================================================================================================================
FINANCIAL COVENANTS. COMPLIANCE CERTIFICATE
------------------- ----------------------
Borrower will comply with
the following financial
covenants, defined in
accordance with GAAP
incorporating the
calculation adjustments
indicated on the Compliance
Certificate:
REQUIRED ACTUAL REPORTED Compliance
-------- ---------------
Except as specified For Current Reporting Period/as of the End Date (Circle)
otherwise, each covenant Yes No
will be maintained at all
times and reported for each
Reporting Period or as of
each Reporting Period End
Date, as appropriate:
1. Maintain a Working $ - $ = $ Yes No
------------------- --------------------------- ----------------
Capital of at least
$10,000,000.00. Current Assets Current Liabilities Working Capital
2. Maintain a Tangible Net Stockholders' Equity $ Yes No
-------------
Worth as adjusted of at least Minus: Goodwill $
$18,200,000.00 at all times. -------------
Other Intangible Assets $
-------------
Plus: Subordinated Debt $
-------------
Equals Tangible Net Worth $
-------------
Thereafter, said required
------------
minimum Tangible Net Worth Beginning March 31, 1996 and thereafter:
----------------------------------------
to be increased annually FYE 1997 FYE 1998
-------------------------- --------
calculated as the amount (x) $17,500,000.00 ________
equal to the sum of (x) the Plus (y) ___________ ________
immediately preceding year's Equals: Required minimum Tangible Net Worth
required amount plus (y) 20% beginning March 31, 1996 and thereafter:
of the immediately preceding
---------------
year's net income.
3. Maintain a Current Ratio $ /$ = $ Yes No
------------------- ----------------------- --------------------
of at least 2.00 to 1.00. Current Assets Current Liabilities Current Ratio
4 Maintain a ratio of Total Total Indebtedness (GAAP) $ Yes No
-----------------
Indebtedness to Tangible Net
Worth plus Subordinated Debt Tangible Net Worth $
no greater than 1.10 to 1.00 -----------------
at all times.
$ /$ = $
------------------------- ------------------------- ------------
Total Indebtedness Tangible Net Worth Ratio
5. Maintain a fixed charge For all items except maturities of long term debt, show amounts for Yes No
ratio all times for the current month plus previous 11 months:
preceding 12 month period as ------- --------
of March 31, of each year of Ordinary Net income $
-----------------
at least 1.25 to 1.00. Plus: Depreciation $
-----------------
Interest Expense $
-----------------
Tax Expense $
-----------------
Minus: Cash taxes $
-----------------
Equals: Available Cash Flow $
-----------------
Scheduled Principal
Payments made by Borrower $
-----------------
Plus: Interest Expense $
-----------------
Capital Expenditures
(non-financed)
$_________________
Equals: Total Fixed Charges $ __
---------------
$ / $ =
----------------------- ------------------------ ---
----------
Available Cash Flow Total Fixed Charges Ratio
=================================================================================================================
</TABLE>
<PAGE> 3
EXHIBIT A Page 1 of 2
THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS CONTAINED IN
THE NOTE AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE TERMS AND CONDITIONS OF
THE NOTE. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT A AND THE NOTE, THE NOTE
SHALL CONTROL.
The undersigned hereby certifies that the above information and computations
are true and correct and not misleading as of the date hereof, and that since
the date of the Borrower's most recent Compliance Certificate (if any):
[ ] No default or Event of Default has occurred under the Note
during the current Reporting Period, or been discovered from a
prior period, and not reported.
[ ] A default or Event of Default (as described below) has occurred
during the current Reporting Period or has been discovered from
a prior period and is being reported for the first time
and:
[ ] was cured on ___________________________________.
[ ] was waived by Bank in writing on _______________________
[ ] is continuing.
Description of Event of Default:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Executed this ____________ day of _________________________, 19________________.
BORROWER: FRIEDMAN INDUSTRIES, INCORPORATED
SIGNATURE:
---------------------------------------------------------------------
NAME:
--------------------------------------------------------------------------
TITLE:
-------------------------------------------------------------------------
ADDRESS:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
EXHIBIT A Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10Q -- THREE MONTHS ENDED JUNE 30, 1997
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 544,906
<SECURITIES> 0
<RECEIVABLES> 13,630,363
<ALLOWANCES> 0
<INVENTORY> 23,460,314
<CURRENT-ASSETS> 37,784,718
<PP&E> 14,825,482
<DEPRECIATION> 9,968,977
<TOTAL-ASSETS> 42,698,709
<CURRENT-LIABILITIES> 14,247,784
<BONDS> 4,400,000
0
0
<COMMON> 6,469,731
<OTHER-SE> 17,033,634
<TOTAL-LIABILITY-AND-EQUITY> 42,698,709
<SALES> 38,300,432
<TOTAL-REVENUES> 38,300,432
<CGS> 35,065,621
<TOTAL-COSTS> 36,419,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,588
<INCOME-PRETAX> 1,782,674
<INCOME-TAX> 606,110
<INCOME-CONTINUING> 1,176,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,176,564
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
