<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FROM THE TRANSITION PERIOD FROM TO
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, if 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, 1999, the number of shares outstanding of the issuer's only
class of stock was 7,184,662 shares of Common Stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,330,268 $ 3,798,935
Accounts receivable, less allowance for doubtful accounts
($7,276 at June 30, 1999 and March 31, 1999,
respectively).......................................... 9,796,304 8,709,728
Inventories -- Note B..................................... 19,494,955 19,906,170
Prepaid expenses and other current assets................. 311,132 119,207
------------- --------------
Total Current Assets.............................. 30,932,659 32,534,040
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 221,543 221,543
Buildings and improvements................................ 3,346,912 3,317,088
Machinery and equipment................................... 15,933,005 15,879,803
Less allowance for depreciation........................... (11,386,289) (11,127,089)
------------- --------------
8,115,171 8,291,345
OTHER ASSETS
Cash value of officers' life insurance.................... 422,586 197,992
------------- --------------
$ 39,470,416 $ 41,023,377
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 5,186,552 $ 4,839,560
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 359,226 410,563
Contribution to profit-sharing plan....................... 63,000 252,000
Income taxes payable...................................... 317,691 68,522
Employee compensation and related expenses................ 371,614 387,393
------------- --------------
Total Current Liabilities......................... 7,098,083 6,758,038
LONG-TERM DEBT, less current portion........................ 4,200,000 6,400,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 345,560 329,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 7,184,662 at June 30, 1999 and 6,828,387 at
March 31, 1999....................................... 7,184,662 6,828,387
Additional paid-in capital................................ 26,870,918 25,725,195
Retained earnings......................................... (6,341,807) (5,130,803)
------------- --------------
Total Stockholders' Equity........................ 27,713,773 27,422,779
------------- --------------
$ 39,470,416 41,023,377
============= ==============
</TABLE>
1
<PAGE> 3
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales................................................... $26,664,262 $38,923,169
Costs and expenses
Costs of goods sold....................................... 24,510,941 36,001,776
General, selling and administrative costs................. 1,150,970 1,308,234
Interest.................................................. 137,711 102,722
----------- -----------
25,799,622 37,412,732
Interest and other income................................... (44,680) (39,181)
----------- -----------
Earnings before federal income taxes........................ 909,320 1,549,618
Provision (benefit) for federal income taxes:
Current................................................... 293,169 541,870
Deferred.................................................. 16,000 (15,000)
----------- -----------
309,169 526,870
----------- -----------
Net earnings................................................ $ 600,151 $ 1,022,748
=========== ===========
Average number of common shares outstanding:
Basic..................................................... 7,184,662 7,159,949
Diluted................................................... 7,184,662 7,306,673
Net earnings per share:
Basic..................................................... $ .08 $ 0.14
Diluted................................................... $ .08 $ 0.14
Cash dividends declared per common share.................... $ .05 $ 0.075
</TABLE>
2
<PAGE> 4
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 600,151 $ 1,022,748
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 259,200 172,476
Provision for deferred taxes........................... 16,000 (15,000)
Decrease (increase) in operating assets:
Accounts receivable.................................... (1,086,576) (795,891)
Inventories............................................ 411,215 456,738
Other current assets................................... (191,925) (53,317)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. 346,992 (1,133,397)
Contribution to profit-sharing plan payable............ (189,000) (209,800)
Employee compensation and related expenses............. (15,779) (103,493)
Federal income taxes payable........................... 249,169 231,870
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............ 399,447 (427,066)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (83,025) (948,639)
Increase in cash surrender value of officers' life
insurance.............................................. (224,594) (38,563)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............. (307,619) (987,202)
FINANCING ACTIVITIES
Cash dividends paid....................................... (410,563) (489,660)
Principal payments on long-term debt...................... (2,200,000) (200,000)
Proceeds from borrowings of long-term debt................ -- 833,333
Cash received from exercised stock options................ 50,068 5,262
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES..................................... (2,560,495) 148,935
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (2,468,667) (1,265,333)
Cash and cash equivalents at beginning of period.......... 3,798,935 1,361,693
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 1,330,268 $ 96,360
=========== ===========
</TABLE>
3
<PAGE> 5
FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
THREE MONTHS ENDED JUNE 30, 1999
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, 1999.
NOTE B -- INVENTORIES
Coil inventory consists primarily of raw materials. Tubular inventory is
comprised of both raw materials and finished goods.
NOTE C -- CASH VALUE OF OFFICERS' LIFE INSURANCE
During the quarter ended June 30, 1999, the Company repaid borrowings
against the cash surrender value of officers' life insurance ("CSV"). A total of
$217,715 was repaid which had the effect of increasing CSV by such amount.
NOTE D -- SEGMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales
Coil processing........................................... $18,801 $25,252
Tubular................................................... 7,863 13,671
------- -------
Total net sales................................... $26,664 $38,923
======= =======
Operating profit
Coil processing........................................... $ 1,105 $ 1,140
Tubular................................................... 541 1,167
------- -------
Total operating profit............................ 1,646 2,307
Corporate expenses........................................ 644 693
Interest expense.......................................... 138 103
Interest & other income................................... (45) (39)
------- -------
Total earnings before taxes....................... $ 909 $ 1,550
======= =======
Segment assets
Coil processing........................................... $23,570 $28,500
Tubular................................................... 14,047 17,226
------- -------
37,617 45,726
Corporate assets.......................................... 1,853 255
------- -------
Total assets...................................... $39,470 $45,981
======= =======
</TABLE>
4
<PAGE> 6
FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
During the quarter ended June 30, 1999, sales, costs of goods sold and
gross profit declined $12,258,907, $11,490,835 and $768,072, respectively, from
the comparable amounts recorded during the quarter ended June 30, 1998. The
declines in sales and costs of goods sold were related to both coil and tubular
operations. Sales of coil products declined approximately 25% due to a decrease
in tons sold and a decline in the average per ton selling price. The decrease in
tons sold of coil products was primarily related to the market demand for these
products, and the decline in the average per ton selling price was primarily a
reflection of reduced costs of coil products. Sales of tubular products declined
approximately 42% due primarily to a decline in volume. Soft demand for tubular
products continued to generate intense competition for available sales during
the 1999 quarter. The decline in gross profit was primarily related to the
decrease in tubular sales described above. Gross profit as a percentage of sales
increased from 7.5% during the 1998 quarter to 8.1% during the 1999 quarter. A
decline in margins earned on tubular sales was more than offset by an
improvement in margins earned on coil sales.
General, selling and administrative costs in the 1999 quarter declined
$157,264 from the amount recorded during the 1998 quarter. This decline was
primarily related to variable expenses associated with reduced volume and
earnings.
Interest expense in the 1999 quarter increased $34,989 from the amount
recorded in the 1998 quarter. During the 1999 quarter, the Company began
operating a temper pass mill at its Arkansas coil facility. Interest on the term
debt associated with this asset was capitalized in the 1998 quarter and was
expensed in the 1999 quarter.
Federal income taxes declined $217,701 as a result of the decrease in
earnings before tax. The effective tax rate was the same for both quarters.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at June 30, 1999. Current
ratios were 4.4 and 4.8 at June 30, 1999 and March 31, 1999, respectively.
Working capital was $23,834,576 at June 30, 1999 and $25,776,002 at March 31,
1999.
The Company has a credit arrangement with a bank which provides for a
revolving line of credit facility (the "revolving facility") and a term credit
facility (the "term facility"). Pursuant to the revolving facility which expires
April 1, 2002, the Company may borrow up to $8 million at an interest rate no
greater than the bank's prime rate. At June 30, 1999, the Company had borrowings
outstanding under the revolving facility of $2 million. The amount outstanding
under the term facility bears interest at a stated rate of LIBOR plus 1.25% and
requires quarterly principal payments of $200,000 plus accrued interest through
March 1, 2003. In July 1997, the Company entered into a swap transaction with
the bank pursuant to which it exchanged the term facility's LIBOR-based interest
rate obligation for a fixed interest rate obligation of 8% to remain in effect
for the entire term of the term facility. As of June 30, 1999, the principal
amount of indebtedness outstanding under the term facility was $3 million.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1996) and that involve risk and uncertainty. These forward-looking
statements may include, but are not limited to, future results of operations,
future production capacity and product quality. Forward-looking statements may
be made by management orally or in writing including, but not limited to, this
Management's Discussion and Analysis of Financial
5
<PAGE> 7
Condition and Results of Operations and other sections of the Company's filings
with the Securities and Exchange Commission under the Securities Act of 1933 and
the Securities Exchange Act of 1934. Actual results and trends in the future may
differ materially depending on a variety of factors including but not limited
to, the success of the Company's capital improvements at its Hickman, Arkansas
facility, changes in the demand and prices for the Company's products and
changes in the demand for steel and steel products in general, and the Company's
success in executing its internal operations plans.
EFFECT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programming being written
using two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of suppliers, third party payors and
customers, having date sensitive logic may interpret a date using "00" as the
year 1900 rather than 2000. This may cause inaccurate processing or possible
system failure and may potentially disrupt operations. This disruption may
result in, among other things, a temporary inability to process transactions,
send bills for services or engage in similar normal business activities.
In 1998, the Company completed an assessment of the readiness of its
internal computer systems and related applications to accommodate date-sensitive
information relating to the year 2000 and developed a plan to resolve all major
issues by the end of 1999. As a result, the Year 2000 issue is not expected to
pose significant operational or financial problems for the Company.
The Company will continue to analyze systems and services that utilize
date-embedded codes that may experience operational problems when the year 2000
is reached. The Company will continue to communicate with its suppliers,
third-party payors and customers to coordinate Year 2000 compliance. Because the
ability of these third parties to address their Year 2000 issues is outside the
Company's control, the failure of third parties to adequately address their
respective Year 2000 issues may have a material adverse effect on the Company's
results of operations and financial condition.
The foregoing statements are intended to be and are hereby designated "Year
2000 Readiness Disclosure" statements within the meaning of the Year 2000
Information and Readiness Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
6
<PAGE> 8
FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED JUNE 30, 1999
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
a). Not applicable
b). Not applicable
c). Not applicable
d). Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a). Not applicable
b). Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
<TABLE>
<C> <S>
10.1 -- Third Amendment to the Amended and Restated Letter
Agreement dated April 1, 1999 between the Company and
Chase Bank of Texas ("Chase")
10.2 -- Revolving Promissory Note dated April 1, 1999 between the
Company and Chase
27.1 -- Financial Data Schedule
</TABLE>
b). Reports on Form 8-K
None
7
<PAGE> 9
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, 1999 By /s/ BEN HARPER
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date August 13, 1999 By /s/ HAROLD FRIEDMAN
------------------------------------
Harold Friedman, Vice Chairman of
the Board
8
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Third Amendment to Amended and Restated Letter Agreement.
10.2 -- Revolving Promissory Note.
27.1 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT TO AMENDED AND RESTATED LETTER AGREEMENT
(WITH BORROWING BASE)
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LETTER AGREEMENT (this
"Amendment") dated effective as of April 1, 1999 (the "Effective Date"), is by
and between FRIEDMAN INDUSTRIES, INCORPORATED ("Borrower"), and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, formerly known as 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, as amended by a First
Amendment to Amended and Restated Letter Agreement dated as of April 1, 1997,
and a Second Amendment to Amended and Restated Letter Agreement dated as of
July 21, 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, modify and
extend the Revolving Credit 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. Revolving Credit Note. Section 1.1 of the Credit Agreement is amended by
substituting the following for the Section 1.1 of the Credit Agreement:
"Subject to the terms and conditions hereof, the Bank agrees to make
loans ("Loan" or "Loans") to Borrower from time to time before the
Termination Date, as defined in the Credit Agreement between Bank and
Borrower, not to exceed at any one time outstanding $8,000,000.00 (the
"Commitment"), Borrower having the right to borrow, repay and reborrow.
Bank and Borrower agree that Chapter 346 of the Texas Finance Code
shall not apply to this Agreement, the Note or any Loan. The Loans
shall be evidenced by and shall bear interest and be payable as
provided in the promissory note of Borrower dated the Effective Date
(together with any and all renewals, extensions, modifications,
replacements, and rearrangements thereof and substitutions therefor,
the "Note"), which is given in renewal, modification and extension of
that certain promissory note dated April 1, 1997, maturing April 1,
2000, in the original principal amount of $8,000.000.00 (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
$4,000,000.00 under the Note leaving a balance as of the Effective
Date of $4,000,000.00 under the Commitment available for Loans subject
to the terms and conditions of this Agreement. The "Note" as used in
the Credit Agreement shall also refer to the "Note" as used in this
Amendment. The purpose of the Loans is: business (working capital
support)."
2. Termination Date is hereby defined as the earlier of: (a) April 1, 2002; or
(b) the date on which the maturity of the Notes is accelerated in accordance
with Section 5 of the Credit Agreement.
3. Section 2.1 (c) of the Credit Agreement is amended to read "December
31, 1998" for the date of the last financial statement delivered to the Bank.
4. Section 4.2 of the Credit Agreement is amended to read as follows:
"SECTION 4.2 FINANCIAL COVENANTS Comply with each of the affirmative
covenants set forth in Exhibit A and furnish to Bank: (i) the financial
statements prepared in conformity with GAAP on consolidated and
consolidating bases and the other information described in, and within
the times required by, Exhibit A Reporting Requirements, Financial
Covenants and Compliance Certificate attached hereto and incorporated
herein by reference; and (ii) within the time required by Exhibit A,
Exhibit A signed and certified by the chief financial officer or
president of Borrower."
5. Exhibit A of the Credit Agreement is amended by replacing existing Exhibit A
with the Exhibit A attached hereto for all purposes, which shall be a quarterly
compliance certificate as further described therein.
6. 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 an 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.
7. 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.
8. 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.
9. 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.
10. This Amendment shall be included within the definition of "Loan Documents"
as used in the Agreement.
11. 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.
Page 1 of 2 Pages
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment [ILLEGIBLE]
Date.
BORROWER: FRIEDMAN INDUSTRIES INCORPORATED
By: /s/ BEN HARPER
----------------------------------------
Name: Ben Harper
--------------------------------------
Title: Senior Vice President - Finance
-------------------------------------
Address: P.O. Box 21147, Houston, TX 77226
-----------------------------------
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ KEVIN K. RECH
----------------------------------------
Name: Kevin K. Rech
--------------------------------------
Title: Vice President
-------------------------------------
Address: 545 W 19th Houston, TX 77008
-----------------------------------
Page 2 of 2 Pages
<PAGE> 3
EXHIBIT A TO AGREEMENT BETWEEN
FRIEDMAN INDUSTRIES, INCORPORATED ("BORROWER") AND CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION ("BANK")
DATED AS OF APRIL 1, 1995, 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 the times indicated: Compliance
Certificate
===================================================================================================================================
WHO WHEN DUE WHAT Compliance
(Circle)
Yes No
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWER (i) Quarterly at such time as this statement is Borrower's 10-Q together with a Yes No
submitted to the Securities and Exchange certificate of compliance duly executed by
Commission ("SEC") an officer of Borrower
------------------------------------------------------------------------------------------------------------
(ii) On an annual basis at such time as this Borrower's 10-K together with a Yes No
statement is submitted to the Securities and certificate of compliance duly executed by
Exchange Commission ("SEC") an officer of Borrower
===================================================================================================================================
C.
===================================================================================================================================
FINANCIAL COVENANTS. Borrower will comply with the COMPLIANCE CERTIFICATE
following financial covenants, defined in accordance with GAAP
incorporating the calculation adjustments indicated on the Compliance
Certificate:
- -----------------------------------------------------------------------------------------------------------------------------------
REQUIRED ACTUAL REPORTED Compliance
(Circle)
Except as specified otherwise, each covenant will be maintained at all For Current Reporting Period/as Yes No
times and reported for each Reporting Period or as of each Reporting of the End Date
Period End Date, as appropriate:
- -----------------------------------------------------------------------------------------------------------------------------------
1. Maintain a Working Capital of at least $10,000,000.00. $____________ - $______________ = $__________ Yes No
Current Assets Current Liabilities Working Capital
- -----------------------------------------------------------------------------------------------------------------------------------
2. Maintain a Tangible Net Worth as adjusted of at least Stockholders' Equity $ __________ Yes No
$22,500,000.00 at all times. Minus: Goodwill $ __________
Other Intangible
Thereafter, said required minimum Tangible Net Worth to be increased Assets $ __________
annually calculated as the amount equal to the sum of (x) the Plus: Subordinated Debt $ __________
immediately preceding year's required amount plus (y) 20% of the
immediately preceding year's net income. Equals Tangible Net Worth $ __________
Beginning April 1, 1999 and until March 31, 2000:
$22,500,000.00
Beginning April 1, 2000 and until March 31, 2001:
(x) $22,500,000.00
Plus (y) $_____________
Equals: Required minimum Tangible Net Worth $ _____
Beginning April 1, 2001 and thereafter:
(x) $____________
Plus (y) $____________
Equals: Required minimum Tangible Net Worth $_____
- -----------------------------------------------------------------------------------------------------------------------------------
3. Maintain a Current Ratio of at least 2.00 to 1.00. $____________ / $______________=$__________ Yes No
Current Assets Current Liabilities Current Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
4. Maintain a ratio of Total Indebtedness to Tangible Net Worth plus Total Indebtedness (GAAP) $_________ Yes No
Subordinated Debt no greater than 1.10 to 1.00 at all times
Tangible Net Worth $ ___________
$ ______________ / $ ____________ = $ _____________
Total Indebtedness Tangible Net Worth Ratio
===================================================================================================================================
</TABLE>
EXHIBIT A Page 1 of 2 Pages
<PAGE> 4
<TABLE>
===================================================================================================================================
<S> <C> <C>
5. Maintain a fixed charge ratio all times for the For all items except maturities of long term debt, YES NO
preceding 12 month period as of March 31, of show amounts for current month plus previous 11 months:
each year of at least 1.25 to 1.00.
Ordinary Net income $__________
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>
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:
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NAME:
--------------------------------------------------------------------------
TITLE:
-------------------------------------------------------------------------
ADDRESS:
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EXHIBIT A Page 2 of 2 Pages
<PAGE> 1
EXHIBIT 10.2
REVOLVING PROMISSORY NOTE
(this "Note")
U.S. $8,000,000.00 April 1, 1999
FOR VALUE RECEIVED, FRIEDMAN INDUSTRIES, INCORPORATED (the "Maker"), a Texas
corporation, promises to pay to the order of CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, formerly known as TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the
"Bank") on or before April 1, 2002 (the "Termination 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 EIGHT MILLION AND NO 100THS
DOLLARS (U.S. $8,000,000.00) 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 Termination Date. Each Loan shall be due and payable on
the maturity date agreed to by the Bank and the Maker with respect to such Loan
(the "Maturity Date"). In no event shall any Maturity Date fall on a date after
the Termination Date. SUBJECT TO THE LIMITATIONS SET FORTH HEREIN, THE MAKER MAY
BORROW, REPAY AND REBORROW HEREUNDER AND THERE IS NO LIMITATION ON THE NUMBER OF
LOANS MADE HEREUNDER SO LONG AS THE TOTAL UNPAID PRINCIPAL AMOUNT AT ANYTIME
OUTSTANDING DOES NOT EXCEED THE MAXIMUM LOAN TOTAL (AS HEREINAFTER DEFINED).
The Loans may be either CD Rate Loans (as hereinafter defined), Prime Rate Loans
(as hereinafter defined) or Eurodollar Loans (as hereinafter defined).
The Maker shall pay interest on each Prime Rate Loan for the Interest Period (as
hereinafter defined) with respect thereto at a rate per annum equal to the
lesser of: (i) the Prime Rate (as hereinafter defined) in effect from time to
time (the "Effective Prime Rate"); or (ii) the Highest Lawful Rate (as
hereinafter defined), which interest shall be due and payable on the last day of
each calendar quarter and on the last day of each Interest Period.
The Maker shall pay interest on each CD Rate Loan for the Interest Period with
respect thereto at a rate per annum equal to the lesser of: (i) the CD Rate (as
hereinafter defined) for such Interest Period plus one and one half of one
percent (1.50%) (the "Effective CD 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 ninety days, on
each ninetieth day during such Interest Period.
The Maker shall pay interest on each Eurodollar 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 Eurodollar Rate (as hereinafter defined) plus
one and one half of one percent 1.50%) (the "Effective Eurodollar 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 three months, on the last day of each third month during such
Interest Period.
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 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 Prime Rate, Effective CD Rate or Effective Eurodollar Rate, whichever
is applicable, 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 CD Rate Loans
and Eurodollar 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:
"Assessment Rate" means, for any date, the annual rate
(rounded upwards, if not already a whole multiple of 1/16 of 1%, to the
next higher 1/16 of 1%) most recently estimated by the Bank as the then
current net annual assessment rate that will be employed in determining
amounts payable by the Bank to the Federal Deposit Insurance
Corporation for insurance by the Corporation of time deposits made in
dollars at its domestic offices.
"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.
"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 Eurodollar Loans, on which dealings in United
States
Page 1 of 5 Pages
<PAGE> 2
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1999
Dollar deposits are carried out in the Eurodollar interbank markets.
"CD Rate" for any Interest Period means, for each CD Rate
Loan, an interest rate per annum determined by the Bank to be the sum
of: (a) the rate per annum obtained by dividing: (i) the consensus bid
rate obtained from certificate of deposit dealers of recognized
standing selected by the Bank for the purchase at face value of
certificates of deposit of the Bank in an amount approximately equal
to the Bank's CD Rate Loan during such Interest Period and with a
maturity equal to such Interest Period at 9:00 a.m. (Houston, Texas
time) (or as soon thereafter as practicable) on the first day of such
Interest Period, by (ii) Statutory Reserves; PLUS (b) the Assessment
Rate.
"CD Rate Loan" means a Loan which bears interest at a rate
determined by reference to the CD Rate.
"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.
"Eurodollar Loan" means a Loan which bears interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for each Eurodollar Loan, an
interest rate per annum determined by the Bank by dividing: (i) the
rate per annum determined by the Bank at or before 10:00 a.m.
(Houston, Texas time) (or as soon thereafter as practicable) two
Business Days before the first day of such Interest Period to be the
rate per annum at which deposits of dollars are offered to the Bank by
prime banks in whatever Eurodollar interbank market may be selected by
the Bank in its sole discretion, acting in good faith, at the time of
determination and in accordance with the usual practice in such market
for delivery on the first day of such Interest Period in immediately
available funds and for a period equal to such Interest Period and in
an amount substantially equal to the amount of the Bank's Eurodollar
Loan during 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 the Texas Finance Code) from time to time
in effect.
"Interest Period" means, with respect to any Loan, the period
commencing on the Borrowing Date and ending on the Maturity Date,
consistent with the following provisions. The duration of each
Interest Period shall be:
(a) in the case of a Prime Rate Loan, a period selected by the
Maker; and
(b) in the case of a CD Rate Loan, 30, 60 or 90 days; and
(c) in the case of a Eurodollar Loan, 1, 2 or 3 months;
in each case as selected by the Maker and agreed to by the Bank. The
Maker's choice of Interest Period is also subject to the following
limitations:
(i) No Interest Period shall end on a date after the
Termination Date; and
(ii) 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 Eurodollar 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).
Page 2 of 5 Pages
<PAGE> 3
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1999
"Maximum Loan Total" shall mean $8,000,000.00.
"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.
"Prime Rate Loan" means a Loan which bears interest at a rate
determined by reference to 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 CD Rate, for new negotiable time
deposits in dollars of over $100,000 with maturities approximately
equal to the applicable Interest Period; and (b) with respect to the
Eurodollar 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. Eurodollar 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.
The unpaid principal balance of this Note at any time shall be the total of all
Loans made by the Bank to or for the benefit of the Maker, less the amount of
all payments of principal made hereon by or for the account of the Maker. The
Bank's records shall serve as presumptive evidence of any and all amounts
outstanding hereunder.
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
Eurodollar Loans, the third Business Day prior to the proposed Borrowing Date
or, in the case of Prime Rate Loans or CD Rate Loans, the first 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) whether the requested Loan is
to be a Prime Rate Loan, CD Rate Loan or Eurodollar Loan; and (iv) the Interest
Period for such 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 Eurodollar 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 Eurodollar 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
Eurodollar 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 Eurodollar Loan is required to be prepaid under the
preceding paragraph, the Bank shall make on the required prepayment date a Prime
Rate Loan in the same principal amount and with an Interest Period ending on the
same day as the Eurodollar 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 (excluding those for which the Bank is fully
compensated pursuant to adjustments made in the definition of the
CD Rate) 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
Page 3 of 5 Pages
<PAGE> 4
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1999
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 on any Business Day prepay the outstanding principal amount of
any Prime Rate Loan, in whole or in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid. Partial prepayments
shall be in an aggregate principal amount of $10,000.00 or a greater integral
multiple of $10,000.00. Except as specified in this paragraph, the Maker shall
have no right to prepay any Loan.
The Maker will 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 CD Rate or the Eurodollar 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 Eurodollar Loan or CD Rate
Loan on a day other than Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any Eurodollar Loan or
CD Rate 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
Eurodollar Loan or CD Rate 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 CD Rate or Eurodollar A
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 CD Rate or
Eurodollar 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 preceding
paragraphs above shall be delivered as soon as practicable to the Maker and
shall be conclusive and binding, absent manifest error. The Maker shall pay the
Bank the amount shown as due on any such certificate within 15 days after 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
attorneys' fees and all costs and expenses.
This Note (i) is issued by the Maker to evidence revolving Loans outstanding
from time to time not to exceed in the aggregate the Maximum Loan Total; (ii)
is the revolving Note as defined in Section 1.1 of that certain Amended and
Restated Letter Agreement dated as of April 1, 1995, as may be amended from
time to time, executed by and between the Maker and the Bank and delivered to
the Bank (the "Letter Agreement"); and (iii) is subject to and accorded all the
rights and protections under the terms and conditions of the Letter Agreement.
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 the Texas Finance Code.
The Maker warrants and represents to the Bank and to a 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
Page 4 of 5 Pages
<PAGE> 5
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1999
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 Chapter 346 of the Texas
Finance Code, that Chapter 346 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 346 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 die 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:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ KEVIN K. RECH
-----------------------------------------------------------------------------
Name: KEVIN K. RECH
---------------------------------------------------------------------------
Title: VP
--------------------------------------------------------------------------
Page 5 of 5 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
THREE MONTHS ENDED JUNE 30, 1999
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,330,268
<SECURITIES> 0
<RECEIVABLES> 9,796,304
<ALLOWANCES> 0
<INVENTORY> 19,494,955
<CURRENT-ASSETS> 30,932,659
<PP&E> 19,501,460
<DEPRECIATION> 11,386,289
<TOTAL-ASSETS> 39,470,416
<CURRENT-LIABILITIES> 7,098,083
<BONDS> 4,200,000
0
0
<COMMON> 7,184,662
<OTHER-SE> 20,529,111
<TOTAL-LIABILITY-AND-EQUITY> 39,470,416
<SALES> 26,664,262
<TOTAL-REVENUES> 26,664,262
<CGS> 24,510,941
<TOTAL-COSTS> 25,661,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,711
<INCOME-PRETAX> 909,320
<INCOME-TAX> 309,169
<INCOME-CONTINUING> 600,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 600,151
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
