Exhibit 10.1

 

LOGO [g925068g06l96.jpg]   Credit Agreement

This agreement dated as of April 27, 2015 is between JPMorgan Chase Bank, N.A.
(together with its successors and assigns, the “Bank”), whose address is 712
Main Street, Houston, TX 77002-3201, and Friedman Industries, Incorporated
(individually, the “Borrower” and if more than one, collectively, the
“Borrowers”), whose address is 19747 Highway 59 North, Ste. 200, Houston, TX
77338.

 

1. Credit Facilities.

 

  1.1 Scope. This agreement governs Facility A, and, unless otherwise agreed to
in writing by the Bank and the Borrower or prohibited by any Legal Requirement
(as hereafter defined), governs the Credit Facilities as defined below. Advances
under any Credit Facilities shall be subject to the procedures established from
time to time by the Bank. Any procedures agreed to by the Bank with respect to
obtaining advances, including automatic loan sweeps, shall not vary the terms or
conditions of this agreement or the other Related Documents regarding the Credit
Facilities.

 

  1.2 Facility A (Line of Credit). The Bank has approved a credit facility to
the Borrower in the principal sum not to exceed $5,000,000.00 in the aggregate
at any one time outstanding (“Facility A”). Credit under Facility A shall be
repayable as set forth in a Line of Credit Note executed concurrently with this
agreement, and any renewals, modifications, extensions, rearrangements,
restatements thereof and replacements or substitutions therefor.

 

  1.3 Borrowing Base. The aggregate principal amount of advances outstanding at
any one time under the Line of Credit Note (and any and all renewals,
modifications, extensions, rearrangements, restatements thereof and replacements
or substitutions therefor) evidencing Facility A (the “Aggregate Outstanding
Amount”) shall not exceed the Borrowing Base or the maximum principal amount
then available under Facility A, whichever is less (the “Maximum Available
Amount”). If at any time the Aggregate Outstanding Amount exceeds the Maximum
Available Amount, the Borrower shall immediately pay the Bank an amount equal to
such excess. “Borrowing Base” means the aggregate of:

A. 80% of the book value of all Eligible Accounts; plus

B. 50% of the lower of cost (determined using the first-in, first-out method of
inventory accounting) or wholesale market value, as determined by the Bank, of
all Eligible Inventory, not to exceed the amount calculated as the Eligible
Accounts component of the Borrowing Base in “ A” above.

 

2. Definitions and Interpretations.

 

  2.1 Definitions. As used in this agreement, the following terms have the
following respective meanings:

A. “Account” means a trade account, account receivable, other receivable, or
other right to payment for goods sold or leased or services rendered.

B. “Account Debtor” means the Person obligated on an Account.

C. “Affiliate” means any Person which, directly or indirectly Controls or is
Controlled by or under common Control with, another Person, and any director or
officer thereof. The Bank is under no circumstances to be deemed an Affiliate of
the Borrower or any of its Subsidiaries.

D. “Anti-Corruption Laws” means all laws, rules, and regulations of any
jurisdiction applicable to the Borrower or its Subsidiaries from time to time
concerning or relating to bribery or corruption.

E. “Authorizing Documents” means certificates of authority to transact business,
certificates of good standing, borrowing resolutions, appointments, officer’s
certificates, certificates of incumbency, and other documents which empower and
authorize or evidence the power and authority of all Persons (other than the
Bank) executing any Related Document or their representatives to execute and
deliver the Related Documents and perform the Person’s obligations thereunder.

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F. “Collateral” means all Property, now or in the future subject to any Lien in
favor of the Bank, securing or intending to secure, any of the Liabilities.

G. “Control” as used with respect to any Person, means the power to direct or
cause the direction of, the management and policies of that Person, directly or
indirectly, whether through the ownership of Equity Interests, by contract, or
otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

H. “Credit Facilities” means all extensions of credit from the Bank to the
Borrower, whether now existing or hereafter arising, including but not limited
to those described in Section 1, if any, and those extended contemporaneously
with this agreement.

I. “Distributions” means all dividends and other distributions made to any
Equity Owners, other than salary, bonuses, and other compensation for services
expended in the current accounting period.

J. “Eligible Accounts” means, at any time, all of the Borrower’s Accounts in
which the Bank has a first priority continuing perfected Lien and which are
earned and invoiced within thirty (30) days of being earned and which contain
selling terms and conditions satisfactory to the Bank, are payable on ordinary
trade terms, and are not evidenced by a promissory note, other instrument or
chattel paper. The net amount of any Eligible Account against which the Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of any
nature. Unless otherwise agreed to by the Bank in writing, Eligible Accounts do
not include Accounts: (1) which are not owned by the Borrower free and clear of
all Liens, constructive trust, statutory priorities not in favor of the Bank,
and claims of Persons other than the Bank; (2) with respect to which the Account
Debtor is an Affiliate of the Borrower or otherwise affiliated with or related
to the Borrower, including without limitation, any employee, officer, director,
Equity Owner or agent of the Borrower; (3) with respect to which goods are
placed on consignment, guaranteed sale, bill-and-hold, sale-and-return, sale on
approval, cash-on-delivery or other terms by reason of which the payment by the
Account Debtor may be conditional; (4) with respect to which the Account Debtor
is not a resident of the United States, except to the extent such Accounts are
otherwise Eligible Accounts and are supported by insurance, bonds or other
assurances satisfactory to the Bank; (5) subject to the U.S. Office of Foreign
Asset Control Special Designated Nationals and Blocked Person’s List, or with
respect to which the Account Debtor is otherwise a Person with whom the Borrower
or the Bank is prohibited from doing business by any applicable Legal
Requirement; (6) which are not payable in U.S. Dollars; (7) with respect to
which the Borrower is or may become liable to the Account Debtor for goods sold
or services rendered by the Account Debtor to the Borrower; (8) which are
subject to dispute, counterclaim, deduction, withholding, defense, or setoff;
(9) with respect to which the goods have not been shipped or delivered, or the
services have not been rendered, to the Account Debtor, or which otherwise
constitute pre-billed Accounts; (10) which constitute retainage, or are bonded
Accounts; (11) with respect to which the Bank determines the creditworthiness,
financial or business condition of the Account Debtor to be unsatisfactory;
(12) of any Account Debtor who is the subject of any state or federal
bankruptcy, insolvency, or debtor-in-relief acts, or who has had appointed a
trustee, custodian, or receiver for the assets of such Account Debtor, or who
has made an assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such debts become
due; (13) with respect to which the Account Debtor is the United States
government or any department or agency of the United States; (14) otherwise
determined to be ineligible by the Bank (15) which have not been paid in full
within ninety (90) days from the due date; and (16) due from any one Account
Debtor to the extent such Accounts constitute more than 15% of all Eligible
Accounts. In no event will the balance of any Account of any single Account
Debtor be eligible whenever the portion of the Accounts of such Account Debtor
which have not been paid within ninety (90) days from the fur date is in excess
of 20% of the total amount outstanding on all Accounts of such Account Debtor.

K. “Eligible Inventory” means, at any time, all of the Borrower’s Inventory in
which the Bank has a first priority continuing perfected Lien except Inventory
which is: (1) not owned by it free and clear of all Liens except in favor of the
Bank, and claims of Persons other than the Bank; (2) slow moving, obsolete,
unsalable, damaged, defective, perishable, or unfit for

 

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further processing; (3) work in process; (4) subject to consignment or otherwise
in the possession of another Person, unless otherwise agreed to by the Bank in
writing; (5) in transit or located outside of the United States; (6) identified
to be purchased under a contract under which it has received, or is entitled to
receive, an advance payment; (7) determined by the Bank to be ineligible due to
licensing, intellectual property, or any Legal Requirements that would make it
difficult to sell, lease or use such Inventory; (8) comprised of samples,
returns, rejected items, re-work items, non-standard items, odd-lots, or
repossessed goods; (9) produced in violation of applicable Legal Requirements,
including the Fair Labor Standards Act and the regulations and orders of the
Department of Labor; or (10) otherwise determined ineligible by the Bank;
provided, however, that transportation and storage charges shall be excluded
from amounts otherwise included in Eligible Inventory.

L. “Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
equity interest.

M. “Equity Owner” means a shareholder, partner, member, holder of a beneficial
interest in a trust or other owner of any Equity Interests.

N. “GAAP” means generally accepted accounting principles in effect from time to
time in the United States of America, consistently applied.

O. “Inventory” means raw materials, work in process, finished goods,
merchandise, parts and supplies, of every kind and goods held for sale or lease
or furnished under contracts of service and all documents of title, warehouse
receipts, bills of lading, and all other documents of every type covering all or
any part of the foregoing.

P. “Intangible Assets ” means the aggregate amount of: (1) all assets classified
as intangible assets under GAAP, including, without limitation, goodwill,
trademarks, patents, copyrights, organization expenses, franchises, licenses,
trade names, brand names, mailing lists, catalogs, excess of cost over book
value of assets acquired, and bond discount and underwriting expenses; and
(2) loans or advances to, investments in, or receivables from (i) any Affiliate,
officer, director, employee, Equity Owner or agent of the Borrower or (ii) any
Person if such loan, advance, investment or receivable is outside the Borrower’s
ordinary course of business.

Q. “Legal Requirement” means any law, ordinance, decree, requirement, order,
judgment, rule, Sanctions, regulation (or interpretation of any of the
foregoing) of any foreign governmental authority, the United States of America,
any state thereof, any political subdivision of any of the foregoing or any
agency, department, commission, board, bureau, court or other tribunal having
jurisdiction over the Bank, any Pledgor or any Obligor or any of its
Subsidiaries or their respective Properties or any agreement by which any of
them is bound.

R. “Liabilities” means all indebtedness, liabilities and obligations of every
kind and character of the Borrower to the Bank, whether the obligations,
indebtedness and liabilities are individual, joint and several, contingent or
otherwise, now or hereafter existing, including, without limitation, all
liabilities, interest, costs and fees, arising under or from any note, open
account, overdraft, credit card, lease, Rate Management Transaction, letter of
credit application, endorsement, surety agreement, guaranty, acceptance, foreign
exchange contract or depository service contract, whether payable to the Bank or
to a third party and subsequently acquired by the Bank, any monetary obligations
(including interest) incurred or accrued during the pendency of any bankruptcy,
insolvency, receivership or other similar proceedings, regardless of whether
allowed or allowable in such proceeding, and all renewals, extensions,
modifications, consolidations, rearrangements, restatements, replacements or
substitutions of any of the foregoing.

S. “Lien” means any mortgage, deed of trust, pledge, charge, encumbrance,
security interest, collateral assignment or other lien or restriction of any
kind.

T. “Notes” means all promissory notes, instruments and/or contracts now or
hereafter evidencing the Credit Facilities.

 

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U. “Obligor” means any Borrower, guarantor, surety, co-signer, endorser, general
partner or other Person who may now or in the future be obligated to pay any of
the Liabilities.

V. “Organizational Documents” means, with respect to any Person, certificates of
existence or formation, documents establishing or governing the Person or
evidencing or certifying that the Person is duly organized and validly existing
in accordance with all applicable Legal Requirements, including all amendments,
restatements, supplements or modifications to such certificates and documents as
of the date of the Related Document referring to the Organizational Document and
any and all future modifications thereto approved by the Bank.

W. “Permitted Investments” means (1) readily marketable direct obligations of
the United States of America or any agency thereof with maturities of one year
or less from the date of acquisition; (2) fully insured (if issued by a bank
other than the Bank) certificates of deposit with maturities of one year or less
from the date of acquisition issued by any commercial bank operating in the
United States of America having capital and surplus in excess of
$500,000,000.00; and (3) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating categories of
Standard and Poor’s Corporation or Moody’s Investors Service.

X. “Person” means any individual, corporation, partnership, limited liability
company, joint venture, joint stock association, association, bank, business
trust, trust, unincorporated organization, any foreign governmental authority,
the United States of America, any state of the United States and any political
subdivision of any of the foregoing or any other form of entity.

Y. “Pledgor” means any Person providing Collateral.

Z. “Property” means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.

AA. “Rate Management Transaction” means any transaction (including an agreement
with respect thereto) that is a rate swap, 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, forward transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option, derivative transaction or any other similar transaction (including any
option with respect to any of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures.

BB. “Related Documents” means this agreement, the Notes, applications for
letters of credit, all loan agreements, credit agreements, reimbursement
agreements, security agreements, mortgages, deeds of trust, pledge agreements,
assignments, guaranties, and any other instrument or document executed in
connection with this agreement or with any of the Liabilities.

CC. “Sanctions” means economic or financial sanctions or trade embargoes
imposed, administered or enforced from time to time by the U.S. government,
including those administered by the Office of Foreign Assets Control of the U.S.
Department of the Treasury or the U.S. Department of State.

DD. “Sanctioned Country” means, at any time, a country or territory which is the
subject or target of any Sanctions.

EE. “Sanctioned Person” means, at any time, (a) any Person listed in any
Sanctions-related list of designated Persons maintained by the Office of Foreign
Assets Control of the U.S. Department of the Treasury, the U.S. Department of
State, (b) any Person operating, organized or resident in a Sanctioned Country
or (c) any Person controlled by any such Person.

FF. “Subsidiary” means, as to any particular Person (the “parent”), a Person the
accounts of which would be consolidated with those of the parent in the parent’s
consolidated financial statements if such financial statements were prepared in
accordance with GAAP as of the

 

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date of determination, as well as any other Person of which fifty percent
(50%) or more of the Equity Interests is at the time of determination directly
or indirectly owned, Controlled or held, by the parent or by any Person or
Persons Controlled by the parent, either alone or together with the parent.

GG. “Tangible Net Worth” means total assets less the sum of Intangible Assets
and total liabilities.

 

  2.2 Interpretations. Whenever possible, each provision of the Related
Documents shall be interpreted in such manner as to be effective and valid under
applicable Legal Requirements. If any provision of this agreement cannot be
enforced, the remaining portions of this agreement shall continue in effect. In
the event of any conflict or inconsistency between this agreement and the
provisions of any other Related Documents, the provisions of this agreement
shall control. Use of the term “including” does not imply any limitation on (but
may expand) the antecedent reference. Any reference to a particular document
includes all modifications, supplements, replacements, renewals or extensions of
that document, but this rule of construction does not authorize amendment of any
document without the Bank’s consent. Section headings are for convenience of
reference only and do not affect the interpretation of this agreement. Except as
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP. Whenever the Bank’s
determination, consent, approval or satisfaction is required under this
agreement or the other Related Documents or whenever the Bank may at its option
take or refrain from taking any action under this agreement or the other Related
Documents, the decision as to whether or not the Bank makes the determination,
consents, approves, is satisfied or takes or refrains from taking any action,
shall be in the sole and exclusive discretion of the Bank, and the Bank’s
decision shall be final and conclusive.

 

3. Conditions Precedent to Extensions of Credit.

 

  3.1 Conditions Precedent to Initial Extension of Credit under each of the
Credit Facilities. Before the first extension of credit governed by this
agreement and any initial advance under any of the Credit Facilities, whether by
disbursement of a loan, issuance of a letter of credit, or otherwise, the
Borrower shall deliver to the Bank, in form and substance satisfactory to the
Bank:

A. Loan Documents. The Notes, and as applicable, the letter of credit
applications, reimbursement agreements, the security agreements, the pledge
agreements, financing statements, mortgages or deeds of trust, the guaranties,
the subordination agreements, and any other documents which the Bank may
reasonably require to give effect to the transactions described in this
agreement or the other Related Documents;

B. Organizational and Authorizing Documents. The Organizational Documents and
Authorizing Documents of the Borrower and any other Persons (other than the
Bank) executing the Related Documents in form and substance satisfactory to the
Bank that at a minimum: (i) document the due organization, valid existence and
good standing of the Borrower and every other Person (other than the Bank) that
is a party to this agreement or any other Related Document; (ii) evidence that
each Person (other than the Bank) which is a party to this agreement or any
other Related Document has the power and authority to enter into the
transactions described therein; and (iii) evidence that the Person signing on
behalf of each Person that is a party to the Related Documents (other than the
Bank) is duly authorized to do so; and

C. Liens. The termination, assignment or subordination, as determined by the
Bank, of all Liens on the Collateral in favor of any secured party (other than
the Bank).

 

  3.2 Conditions Precedent to Each Extension of Credit. Before any extension of
credit governed by this agreement, whether by disbursement of a loan, issuance
of a letter of credit or otherwise, the following conditions must be satisfied:

A. Representations. The representations of the Borrower and any other parties,
other than the Bank, in the Related Documents are true on and as of the date of
the request for and funding of the extension of credit;

 

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B. No Event of Default. No default, event of default or event that would
constitute a default or event of default but for the giving of notice, the lapse
of time or both, has occurred in any provision of this agreement, the Notes or
any other Related Documents and is continuing or would result from the extension
of credit;

C. Additional Approvals, Opinions, and Documents. The Bank has received any
other approvals, opinions and documents as it may reasonably request; and

D. No Prohibition or Onerous Conditions. The making of the extension of credit
is not prohibited by and does not subject the Bank, any Obligor, or any
Subsidiary of the Borrower to any penalty or onerous condition under, any Legal
Requirement.

 

4. Affirmative Covenants. The Borrower agrees to do, and cause each of its
Subsidiaries to do, each of the following:

 

  4.1 Insurance. Maintain insurance with financially sound and reputable
insurers, with such insurance and insurers to be satisfactory to the Bank,
covering its Property and business against those casualties and contingencies
and in the types and amounts as are in accordance with sound business and
industry practices, and furnish to the Bank, upon request of the Bank, reports
on each existing insurance policy showing such information as the Bank may
reasonably request.

 

  4.2 Existence. Maintain its existence and business operations as presently in
effect in accordance with all applicable Legal Requirements, pay its debts and
obligations when due under normal terms, and pay on or before their due date,
all taxes, assessments, fees and other governmental monetary obligations, except
as they may be contested in good faith if they have been properly reflected on
its books and, at the Bank’s request, adequate funds or security has been
pledged or reserved to insure payment.

 

  4.3 Financial Records. Maintain proper books and records of account, in
accordance with GAAP, and consistent with financial statements previously
submitted to the Bank.

 

  4.4 Inspection. Permit the Bank, its agents and designees to: (a) inspect and
photograph its Property, to examine and copy files, books and records, and to
discuss its business, operations, prospects, assets, affairs and financial
condition with the Borrower’s or its Subsidiaries’ officers and accountants, at
times and intervals as the Bank reasonably determines; (b) perform audits or
other inspections of the Collateral, including the records and documents related
to the Collateral; and (c) confirm with any Person any obligations and
liabilities of the Person to the Borrower or its Subsidiaries. The Borrower
will, and will cause its Subsidiaries to cooperate with any inspection or audit.
The Borrower will pay the Bank the reasonable costs and expenses of any audit or
inspection of the Collateral (including fees and expenses charged internally by
the Bank for asset reviews) promptly after receiving the invoice.

 

  4.5 Financial Reports. Furnish to the Bank whatever information, statements,
books and records the Bank may from time to time reasonably request, including
at a minimum:

A. Within forty-five (45) days after each quarterly period, the consolidated
financial statements of the Borrower and its Subsidiaries prepared and presented
in accordance with GAAP, including a balance sheet as of the end of that period,
and income statement for that period, and, if requested at any time by the Bank,
statements of cash flow and retained earnings for that period, all certified as
correct by one of its authorized agents.

B. Within one hundred and twenty (120) days after and as of the end of each of
its fiscal years, the consolidated financial statements of the Borrower and its
Subsidiaries prepared and presented in accordance with GAAP, including a balance
sheet and statements of income, cash flow and retained earnings, such financial
statements to be audited by an independent certified public accountant of
recognized standing satisfactory to the Bank.

C. Within thirty (30) days after and as of the end of each calendar month in
which there was an outstanding principal balance under Facility A on the last
day of such calendar month, and if none of the following lists have been
provided or are otherwise due as of the end of

 

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the immediately preceding calendar month, with any request for an advance under
the Credit Facilities, the following lists, each certified as correct by one of
its authorized agents:

(1) a list of Accounts, aged from date of invoice, and

(2) a list of Inventory, valued at the lower of cost (determined using the
first-in, first-out method of inventory accounting) or wholesale market value.

D. A borrowing base certificate, in form and detail satisfactory to the Bank,
along with such supporting documentation as the Bank may request, at the
following times: (A) within thirty (30) days after and as of the end of each
calendar month in which there was an outstanding principal balance under
Facility A on the last day of such calendar month, and (B) if no borrowing base
certificate has been provided or is otherwise due as of the end of the
immediately preceding calendar month, with any request for an advance under the
Credit Facilities.

 

  4.6 Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in
writing of: (1) all existing and all threatened litigation, claims,
investigations, administrative proceedings and similar actions or changes in
Legal Requirements affecting it which could materially affect its business,
assets, affairs, prospects or financial condition; (2) the occurrence of any
event which gives rise to the Bank’s option to terminate the Credit Facilities;
(3) the institution of steps by it to withdraw from, or the institution of any
steps to terminate, any employee benefit plan as to which it may have liability;
(4) any reportable event or any prohibited transaction in connection with any
employee benefit plan; (5) any additions to or changes in the locations of its
businesses; and (6) any alleged breach by the Bank of any provision of this
agreement or of any other Related Document.

 

  4.7 Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between it and any other Person.

 

  4.8 Title to Assets and Property. Maintain good and marketable title to all of
its Properties, and defend them against all claims and demands of all Persons at
any time claiming any interest in them.

 

  4.9 Additional Assurances. Promptly make, execute and deliver any and all
agreements, documents, instruments and other records that the Bank may request
to evidence any of the Credit Facilities, cure any defect in the execution and
delivery of any of the Related Documents, perfect any Lien, comply with any
Legal Requirement applicable to the Bank or the Credit Facilities or describe
more fully particular aspects of the agreements set forth or intended to be set
forth in any of the Related Documents.

 

  4.10 Employee Benefit Plans. Maintain each employee benefit plan as to which
it may have any liability, in compliance with all Legal Requirements.

 

  4.11 Banking Relationship. Establish and maintain its primary banking
depository and disbursement relationship with the Bank.

 

  4.12 Compliance Certificates. Provide the Bank, within forty-five (45) days
after the end of each fiscal quarter, with a certificate executed by its chief
financial officer, or other officer or an individual satisfactory to the Bank,
certifying that, as of the date of the certificate, no default exists under any
provision of this agreement or the other Related Documents.

 

  4.13 Compliance with Anti-Corruption Laws and Sanctions. Maintain in effect
and enforce policies and procedures designed to ensure compliance by the
Borrower, its Subsidiaries and their respective directors, officers, employees
and agents with Anti-Corruption Laws and applicable Sanctions.

 

5. Negative Covenants.

 

  5.1 Unless otherwise noted, the financial requirements set forth in this
section will be computed in accordance with GAAP applied on a basis consistent
with financial statements previously submitted by the Borrower to the Bank.

 

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  5.2 Without the written consent of the Bank, the Borrower will not and no
Subsidiary of the Borrower will:

A. Distributions. Redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of its Equity Interests, return any contribution to an Equity
Owner or, other than stock dividends and dividends paid to the Borrower, declare
or pay any Distributions; provided, however, that if there is no existing
default under this agreement or any other Related Document and to do so will not
cause a default under this agreement or any other Related Document the Borrower
may pay Distributions to its Equity Owners.

B. Sale of Equity Interests. Issue, sell or otherwise dispose of its Equity
Interests, except that the Borrower shall be permitted to issue common stock and
distribute it from treasury shares pursuant to an employee stock option program
adopted by the Borrower, provided that (1) the aggregate issuance of shares
shall be less than an amount that would result in a change in Control of the
Borrower, and (2) such plan shall not obligate the Borrower to repurchase such
options or shares except subject in all respects to compliance with section 5.2
A of this agreement.

C. Debt. Incur, contract for, assume, or permit to remain outstanding,
indebtedness for borrowed money, installment obligations, or obligations under
capital leases or operating leases, other than (1) unsecured trade debt incurred
in the ordinary course of business, (2) indebtedness owing to the Bank,
(3) indebtedness reflected in its latest financial statement furnished to the
Bank prior to execution of this agreement and that is not to be paid with
proceeds of borrowings under the Credit Facilities, and (4) indebtedness
outstanding as of the date hereof that has been disclosed to the Bank in writing
and that is not to be paid with proceeds of borrowings under the Credit
Facilities.

D. Guaranties. Guarantee or otherwise become or remain secondarily liable on the
undertaking of another, except for endorsement of drafts for deposit and
collection in the ordinary course of business.

E. Liens. Create or permit to exist any Lien on any of its Accounts or Inventory
except: existing Liens known to and approved by the Bank; Liens to the Bank;
Liens incurred in the ordinary course of business securing current
non-delinquent liabilities for taxes, worker’s compensation, unemployment
insurance, social security and pension liabilities.

F. Use of Proceeds. Use, or permit any proceeds of the Credit Facilities to be
used, directly or indirectly, for: (1) any personal, family or household
purpose; or (2) the purpose of “purchasing or carrying any margin stock” within
the meaning of Federal Reserve Board Regulation U. At the Bank’s request, it
will furnish a completed Federal Reserve Board Form U-1. Request any Credit
Facility or use, or permit any proceeds of the Credit Facilities to be used,
directly or indirectly, by the Borrower or any of its Subsidiaries or its or
their respective directors, officers, employees and agents: (1) in furtherance
of an offer, payment, promise to pay, or authorization of the payment or giving
of money, or anything else of value, to any Person in violation of any
Anti-Corruption Laws; (2) for the purpose of funding, financing or facilitating
any activities, business or transaction of or with any Sanctioned Person, or in
any Sanctioned Country; or (3) in any manner that would result in the violation
of any Sanctions applicable to any party hereto.

G. Continuity of Operations. (1) Engage in any business activities substantially
different from those in which it is presently engaged; (2) cease operations,
liquidate, merge, transfer, acquire or consolidate with any other Person, change
its name, dissolve, or sell any assets out of the ordinary course of business;
(3) enter into any arrangement with any Person providing for the leasing by it
of Property which has been sold or transferred by it to such Person; or
(4) change its business organization, the jurisdiction under which its business
organization is formed or organized, or its chief executive office, or any
places of its businesses.

H. Limitation on Negative Pledge Clauses. Enter into any agreement with any
Person other than the Bank which prohibits or limits its ability to create or
permit to exist any Lien on any of its Accounts or Inventory, whether now owned
or hereafter acquired.

 

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I. Conflicting Agreements. Enter into any agreement containing any provision
which would be violated or breached by the performance of its obligations under
this agreement or any of the other Related Documents.

J. Transfer of Ownership. Permit any pledge of any Equity Interest in it or any
sale or other transfer of any Equity Interest in it.

K. Limitation on Loans, Advances to and Investments in Others and Receivables
from Others. Purchase, hold or acquire any Equity Interest or evidence of
indebtedness of, make or permit to exist any loans or advances to, permit to
exist any receivable from, or make or permit to exist any investment or acquire
any interest whatsoever in, any Person, except: (1) extensions of trade credit
to customers in the ordinary course of business on ordinary terms; (2) Permitted
Investments; and (3) loans, advances, investments and receivables existing as of
the date of this agreement that have been disclosed to and approved by the Bank
in writing and that are not to be paid with proceeds of borrowings under the
Credit Facilities.

L. Organizational Documents. Alter, amend or modify any of its Organizational
Documents.

M. Tangible Net Worth. Permit at any time, its Tangible Net Worth to be less
than $57,000,000.00.

N. Leverage Ratio. Permit at any time, its ratio of (i) total liabilities to
(ii) Tangible Net Worth to be greater than 1.00 to 1.00.

O. Net Income. Permit its net income for any “Test Period” (hereinafter defined
in this subsection) to be less than $1.00. As used in this subsection, the term
“Test Period” means each period of four consecutive fiscal quarters.

P. Government Regulation. (1) Be or become subject at any time to any Legal
Requirement or list of any government agency (including, without limitation, the
U.S. Office of Foreign Asset Control list) that prohibits or limits the Bank
from making any advance or extension of credit to it or from otherwise
conducting business with it, or (2) fail to provide documentary and other
evidence of its identity as may be requested by the Bank at any time to enable
the Bank to verify its identity or to comply with any applicable Legal
Requirement, including, without limitation, Section 326 of the USA Patriot Act
of 2001, 31 U.S.C. Section 5318.

Q. Subsidiaries. Form, create or acquire any Subsidiary.

 

  5.3 Financial Statement Calculations. The financial covenant(s) set forth in
the Section entitled “Negative Covenants” or in any subsection thereof shall,
except as may be otherwise expressly provided with respect to any particular
financial covenant, be calculated on the basis of the Borrower’s financial
statements prepared on a consolidated basis with its Subsidiaries in accordance
with GAAP. Except as may be otherwise expressly provided with respect to any
particular financial covenant, if any financial covenant states that it is to be
tested with respect to any particular period of time (which may be referred to
therein as a “Test Period”) ending on any test date (e.g., a fiscal month end,
fiscal quarter end, or fiscal year end), then compliance with that covenant
shall be required commencing with the period of time ending on the first test
date that occurs after the date of this agreement (or, if applicable, of the
amendment to this agreement which added or amended such financial covenant).

 

6. Representations.

 

  6.1

Representations and Warranties by the Borrower. To induce the Bank to enter into
this agreement and to extend credit or other financial accommodations under the
Credit Facilities, the Borrower represents and warrants as of the date of this
agreement and as of the date of each request for credit under the Credit
Facilities that each of the following statements is and shall remain true and
correct throughout the term of this agreement and until all Credit Facilities
and all Liabilities under the Notes and other Related Documents are paid in
full: (a) its principal residence or chief executive office is at the address
shown above, (b) its name as it appears in this agreement is its exact name as
it appears in its Organizational Documents, (c) the execution and delivery of
this agreement and the other

 

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  Related Documents to which it is a party, and the performance of the
obligations they impose, do not violate any Legal Requirement, conflict with any
agreement by which it is bound, or require the consent or approval of any other
Person, (d) this agreement and the other Related Documents have been duly
authorized, executed and delivered by all parties (other than the Bank) and are
valid and binding agreements of those Persons, enforceable according to their
terms, except as may be limited by bankruptcy, insolvency or other laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity, (e) all balance sheets, profit and loss statements, and
other financial statements and other information furnished to the Bank in
connection with the Liabilities are accurate and fairly reflect the financial
condition of the Persons to which they apply on their effective dates, including
contingent liabilities of every type, which financial condition has not changed
materially and adversely since those dates, (f) no litigation, claim,
investigation, administrative proceeding or similar action (including those for
unpaid taxes) is pending or threatened against it, and no other event has
occurred which may in any one case or in the aggregate materially adversely
affect it or any of its Subsidiaries’ financial condition, properties, business,
affairs or operations, other than litigation, claims, or other events, if any,
that have been disclosed to and acknowledged by the Bank in writing, (g) all of
its tax returns and reports that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have been paid
in full, except those presently being contested by it in good faith and for
which adequate reserves have been provided, (h) it is not an “investment
company” or a company “controlled” by an “investment company”, within the
meaning of the Investment Company Act of 1940, as amended, (i) there are no
defenses or counterclaims, offsets or adverse claims, demands or actions of any
kind, personal or otherwise, that it could assert with respect to this agreement
or the Credit Facilities, (j) it owns, or is licensed to use, all trademarks,
trade names, copyrights, technology, know-how and processes necessary for the
conduct of its business as currently conducted, (k) the execution and delivery
of this agreement and the Notes and the performance of the obligations they
impose, if the Borrower is other than a natural Person (i) are within its
powers, (ii) have been duly authorized by all necessary action of its governing
body, and (iii) do not contravene the terms of its Organizational Documents or
other agreement or document governing its affairs; and (l) with respect to the
Borrowing Base, (i) each asset represented by it to be eligible for Borrowing
Base purposes of this agreement conforms to the eligibility definitions set
forth in this agreement (ii) all asset values delivered to the Bank will be true
and correct, subject to immaterial variance; and be determined on a consistent
accounting basis; (iii) except as agreed to the contrary by the Bank in writing,
each asset is now and at all times hereafter will be in its physical possession
and shall not be held by others on consignment, sale or approval, or sale or
return; (iv) except as reflected in schedules delivered to the Bank, each asset
is now and at all times hereafter will be of good and merchantable quality, free
from defects; and (v) each asset is not now and will not at any time hereafter
be stored with a bailee, warehouseman, or similar Person without the Bank’s
prior written consent, and in such event, it will concurrently at the time of
bailment cause any such bailee, warehouseman, or similar Person to issue and
deliver to the Bank, warehouseman receipts in the Bank’s name evidencing the
storage of the assets.

 

  6.2 Representations and Warranties Regarding Anti-Corruption Laws and
Sanctions. The Borrower has implemented and maintains in effect policies and
procedures designed to ensure compliance by the Borrower, its Subsidiaries and
their respective directors, officers, employees and agents with Anti-Corruption
Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their
respective officers and employees and to the knowledge of the Borrower its
directors and agents, are in compliance with Anti-Corruption Laws and applicable
Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or
to the knowledge of the Borrower or such Subsidiary any of their respective
directors, officers or employees, or (b) to the knowledge of the Borrower, any
agent of the Borrower or any Subsidiary that will act in any capacity in
connection with or benefit from the credit facility established hereby, is a
Sanctioned Person. No advance, letter of credit, use of proceeds or other
transaction contemplated by the Credit Facilities will violate Anti-Corruption
Laws or applicable Sanctions.

 

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7. Default/Remedies.

 

  7.1 Events of Default/Acceleration. If any of the following events occurs, the
Notes shall become due immediately, without notice, at the Bank’s option, and
the Borrower hereby waives notice of intent to accelerate the maturity of the
Notes and notice of acceleration of the Notes upon the occurrence of any of the
following events:

A. Any Obligor fails to pay when due any of the Liabilities or any other debt to
any Person, or any amount payable with respect to any of the Liabilities, or
under any Note, any other Related Document, or any agreement or instrument
evidencing other debt to any Person.

B. Any Obligor or any Pledgor: (i) fails to observe or perform or otherwise
violates any other term, covenant, condition or agreement of any of the Related
Documents; (ii) makes any materially incorrect or misleading representation,
warranty, or certificate to the Bank; (iii) makes any materially incorrect or
misleading representation in any financial statement or other information
delivered to the Bank; or (iv) defaults under the terms of any agreement or
instrument relating to any debt for borrowed money (other than the debt
evidenced by the Related Documents) and the effect of such default will allow
the creditor to declare the debt due before its stated maturity.

C. In the event (i) there is a default under the terms of any Related Document,
(ii) any Obligor terminates or revokes or purports to terminate or revoke its
guaranty or any Obligor’s guaranty becomes unenforceable in whole or in part,
(iii) any Obligor fails to perform promptly under its guaranty, or (iv) any
Obligor fails to comply with, or perform under any agreement, now or hereafter
in effect, between the Obligor and the Bank, or any Affiliate of the Bank or
their respective successors and assigns.

D. There is any loss, theft, damage, or destruction of any Collateral not
covered by insurance.

E. Any event occurs that would permit the Pension Benefit Guaranty Corporation
to terminate any employee benefit plan of any Obligor or any Subsidiary of any
Obligor.

F. Any Obligor or any of its Subsidiaries or any Pledgor: (i) becomes insolvent
or unable to pay its debts as they become due; (ii) makes an assignment for the
benefit of creditors; (iii) consents to the appointment of a custodian,
receiver, or trustee for itself or for a substantial part of its Property;
(iv) commences any proceeding under any bankruptcy, reorganization, liquidation,
insolvency or similar laws; (v) conceals or removes any of its Property, with
intent to hinder, delay or defraud any of its creditors; (vi) makes or permits a
transfer of any of its Property, which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or (vii) makes a transfer of any of its
Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid.

G. A custodian, receiver, or trustee is appointed for any Obligor or any of its
Subsidiaries or any Pledgor or for a substantial part of their respective
Property.

H. Any Obligor or any of its Subsidiaries, without the Bank’s written consent:
(i) liquidates or is dissolved; (ii) merges or consolidates with any other
Person; (iii) leases, sells or otherwise conveys a material part of its assets
or business outside the ordinary course of its business; (iv) leases, purchases,
or otherwise acquires a material part of the assets of any other Person, except
in the ordinary course of its business; or (v) agrees to do any of the
foregoing; provided, however, that any Subsidiary of an Obligor may merge or
consolidate with any other Subsidiary of that Obligor, or with the Obligor, so
long as the Obligor is the survivor.

I. Proceedings are commenced under any bankruptcy, reorganization, liquidation,
or similar laws against any Obligor or any of its Subsidiaries or any Pledgor
and remain undismissed for thirty (30) days after commencement; or any Obligor
or any of its Subsidiaries or any Pledgor consents to the commencement of those
proceedings.

J. Any judgment is entered against any Obligor or any of its Subsidiaries, or
any attachment, seizure, sequestration, levy, or garnishment is issued against
any Property of any Obligor or any of its Subsidiaries or of any Pledgor or any
Collateral.

 

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K. Any individual Obligor or Pledgor dies, or a guardian or conservator is
appointed for any individual Obligor or Pledgor or all or any portion of their
respective Property, or the Collateral.

L. Any material adverse change occurs in: (i) the reputation, Property,
financial condition, business, assets, affairs, prospects, liabilities, or
operations of any Obligor or any of its Subsidiaries; (ii) any Obligor’s or
Pledgor’s ability to perform its obligations under the Related Documents; or
(iii) the Collateral.

 

  7.2 Remedies. At any time after the occurrence of a default, the Bank may do
one or more of the following: (a) cease permitting the Borrower to incur any
Liabilities; (b) terminate any commitment of the Bank evidenced by any of the
Notes; (c) declare any of the Notes to be immediately due and payable, without
notice of acceleration, intention to accelerate, presentment and demand or
protest or notice of any kind, all of which are hereby expressly waived;
(d) exercise all rights of setoff that the Bank may have contractually, by law,
in equity or otherwise; and (e) exercise any and all other rights pursuant to
any of the Related Documents, at law, in equity or otherwise.

A. Generally. The rights of the Bank under this agreement and the other Related
Documents are in addition to other rights (including without limitation, other
rights of setoff) the Bank may have contractually, by law, in equity or
otherwise, all of which are cumulative and hereby retained by the Bank. Each
Obligor agrees to stand still with regard to the Bank’s enforcement of its
rights, including taking no action to delay, impede or otherwise interfere with
the Bank’s rights to realize on any Collateral.

B. Bank’s Right of Setoff. The Borrower grants to the Bank a security interest
in the Deposits, and the Bank is authorized to setoff and apply, all Deposits,
Securities and Other Property, and Bank Debt against any and all Liabilities.
This right of setoff may be exercised at any time from time to time after the
occurrence of any default, without prior notice to or demand on the Borrower and
regardless of whether any Liabilities are contingent, unmatured or unliquidated.
In this paragraph: (a) the term “Deposits” means any and all accounts and
deposits of the Borrower (whether general, special, time, demand, provisional or
final) at any time held by the Bank (including all Deposits held jointly with
another, but excluding any IRA or Keogh Deposits, or any trust Deposits in which
a security interest would be prohibited by any Legal Requirement); (b) the term
“Securities and Other Property” means any and all securities and other personal
Property of the Borrower in the custody, possession or control of the Bank,
JPMorgan Chase & Co. or their respective Subsidiaries and Affiliates (other than
Property held by the Bank in a fiduciary capacity); and (c) the term “Bank Debt”
means all indebtedness at any time owing by the Bank, to or for the credit or
account of the Borrower and any claim of the Borrower (whether individual, joint
and several or otherwise) against the Bank now or hereafter existing.

 

8. Miscellaneous.

 

  8.1 Notice. Any notices and demands under or related to this agreement shall
be in writing and delivered to the intended party at its address stated in this
agreement, and if to the Bank, at its main office if no other address of the
Bank is specified in this agreement, by one of the following means: (a) by hand;
(b) by a nationally recognized overnight courier service; or (c) by certified
mail, postage prepaid, with return receipt requested. Notice shall be deemed
given: (a) upon receipt if delivered by hand; (b) on the Delivery Day after the
day of deposit with a nationally recognized courier service; or (c) on the third
Delivery Day after the notice is deposited in the mail. “Delivery Day” means a
day other than a Saturday, a Sunday or any other day on which national banking
associations are authorized to be closed. Any party may change its address for
purposes of the receipt of notices and demands by giving notice of the change in
the manner provided in this provision.

 

  8.2

Statements. The Bank may from time to time provide the Borrower with account
statements or invoices with respect to any of the Liabilities (“Statements”).
The Bank is under no duty or obligation to provide Statements, which, if
provided, will be solely for the Borrower’s convenience. Statements may contain
estimates of the amounts owed during the relevant billing period, whether of
principal, interest, fees or other Liabilities. If the Borrower pays the

 

12

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  full amount indicated on a Statement on or before the due date indicated on
such Statement, the Borrower shall not be in default of payment with respect to
the billing period indicated on such Statement; provided, that acceptance by the
Bank of any payment that is less than the total amount actually due at that time
(including but not limited to any past due amounts) shall not constitute a
waiver of the Bank’s right to receive payment in full at another time.

 

  8.3 No Waiver. No delay on the part of the Bank in the exercise of any right
or remedy waives that right or remedy. No single or partial exercise by the Bank
of any right or remedy precludes any other future exercise of it or the exercise
of any other right or remedy. The making of an advance during the existence of
any default or subsequent to the occurrence of a default or when all conditions
precedent have not been met shall not constitute a waiver of the default or
condition precedent. No waiver or indulgence by the Bank of any default is
effective unless it is in writing and signed by the Bank, nor shall a waiver on
one occasion bar or waive that right on any future occasion.

 

  8.4 Integration; Severability. This agreement, the Notes, and the other
Related Documents embody the entire agreement and understanding between the
Borrower and the Bank and supersede all prior agreements and understandings
relating to their subject matter. If any one or more of the obligations of the
Borrower under this agreement, the Notes, or the other Related Documents or any
provision thereof is held to be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Borrower and the remaining provisions shall not in any way be
affected or impaired; and the invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of such
obligations or provisions in any other jurisdiction.

 

  8.5 Joint and Several Liability. Each party executing this agreement as the
Borrower is individually, jointly and severally liable under this agreement.

 

  8.6 Governing Law and Venue. This agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to its
laws of conflicts). The Borrower agrees that any legal action or proceeding with
respect to any of its obligations under this agreement may be brought by the
Bank in any state or federal court located in the State of Texas, as the Bank in
its sole discretion may elect. By the execution and delivery of this agreement,
the Borrower submits to and accepts, for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of those courts.
The Borrower waives any claim that the State of Texas is not a convenient forum
or the proper venue for any such suit, action or proceeding.

 

  8.7 Survival of Representations and Warranties. The Borrower understands and
agrees that in extending the Credit Facilities, the Bank is relying on all
representations, warranties, and covenants made by the Borrower in this
agreement or in any certificate or other instrument delivered by the Borrower to
the Bank under this agreement or in any of the other Related Documents. The
Borrower further agrees that regardless of any investigation made by the Bank,
all such representations, warranties and covenants will survive the making of
the Credit Facilities and delivery to the Bank of this agreement, shall be
continuing in nature, and shall remain in full force and effect until such time
as the Liabilities shall be paid in full.

 

  8.8 Non-Liability of the Bank. The relationship between the Borrower on one
hand and the Bank on the other hand shall be solely that of borrower and lender.
The Bank shall have no fiduciary responsibilities to the Borrower. The Bank
undertakes no responsibility to the Borrower to review or inform the Borrower of
any matter in connection with any phase of the Borrower’s business or
operations.

 

  8.9

Indemnification of the Bank. The Borrower agrees to indemnify, defend and hold
the Bank, its parent companies, Subsidiaries, Affiliates, their respective
successors and assigns and each of their respective shareholders, directors,
officers, employees and agents (collectively, the “Indemnified Persons”)
harmless from any and against any and all loss, liability, obligation, damage,
penalty, judgment, claim, deficiency, expense, interest, penalties, attorneys’
fees (including the fees and expenses of any attorneys engaged by the
Indemnified Person) and amounts paid in settlement (“Claims”) to which any
Indemnified Person may become subject arising out of or relating to the Credit
Facilities, the Liabilities under this agreement or any other Related Documents
or the Collateral, including any

 

13

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  Claims resulting from any Indemnified Person’s own negligence, except to the
limited extent that the Claims are proximately caused by the Indemnified
Person’s gross negligence or willful misconduct. The indemnification provided
for in this paragraph shall survive the termination of this agreement and shall
not be affected by the presence, absence or amount of or the payment or
nonpayment of any claim under, any insurance.

 

  8.10 Counterparts. This agreement may be executed in multiple counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts, taken together, shall constitute one and the same agreement.

 

  8.11 Advice of Counsel. The Borrower acknowledges that it has been advised by
counsel, or had the opportunity to be advised by counsel, in the negotiation,
execution and delivery of this agreement and any other Related Documents.

 

  8.12 Recovery of Additional Costs. If the imposition of or any change in any
Legal Requirement, or the interpretation or application of any thereof by any
court or administrative or governmental authority (including any request or
policy not having the force of law) shall impose, modify, or make applicable any
taxes (except federal, state, or local income or franchise taxes imposed on the
Bank), reserve requirements, liquidity requirements, capital adequacy
requirements, Federal Deposit Insurance Corporation (FDIC) deposit insurance
premiums or assessments, or other obligations which would (A) increase the cost
to the Bank for extending, maintaining or funding the Credit Facilities,
(B) reduce the amounts payable to the Bank under the Credit Facilities, or
(C) reduce the rate of return on the Bank’s capital as a consequence of the
Bank’s obligations with respect to the Credit Facilities, then the Borrower
agrees to pay the Bank such additional amounts as will compensate the Bank
therefor, within five (5) days after the Bank’s written demand for such payment.
The Bank’s demand shall be accompanied by an explanation of such imposition or
charge and a calculation in reasonable detail of the additional amounts payable
by the Borrower, which explanation and calculations shall be conclusive in the
absence of manifest error.

 

  8.13 Expenses. To the extent not prohibited by applicable Legal Requirements
and whether or not the transactions contemplated by this agreement are
consummated, the Borrower is liable to the Bank and agrees to pay on demand all
reasonable costs and expenses of every kind incurred (or charged by internal
allocation) in connection with the negotiation, preparation, execution, filing,
recording, amendment, modification, supplementing and waiver of this agreement
and the Related Documents, the making, servicing and collection of the Credit
Facilities and the realization on any Collateral and any other amounts owed
under this agreement or the Related Documents, including without limitation
reasonable attorneys’ fees and court costs. These costs and expenses include
without limitation any costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding involving any Obligor,
Pledgor, or Property of any Obligor, Pledgor, or Collateral. The obligations of
the Borrower under this section shall survive the termination of this agreement.

 

  8.14 Reinstatement. The Borrower agrees that to the extent any payment or
transfer is received by the Bank in connection with the Liabilities, and all or
any part of the payment or transfer is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid or transferred by
the Bank or paid or transferred over to a trustee, receiver or any other entity,
whether under any proceeding or otherwise (any of those payments or transfers is
hereinafter referred to as a “Preferential Payment”), then this agreement and
the Notes shall continue to be effective or shall be reinstated, as the case may
be, even if all those Liabilities have been paid in full and whether or not the
Bank is in possession of the Notes and whether any of the Notes has been marked,
paid, released or cancelled, or returned to the Borrower and, to the extent of
the payment, repayment or other transfer by the Bank, the Liabilities or part
intended to be satisfied by the Preferential Payment shall be revived and
continued in full force and effect as if the Preferential Payment had not been
made. The obligations of the Borrower under this section shall survive the
termination of this agreement.

 

  8.15

Assignments. The Borrower agrees that the Bank and its Affiliates may at any
time work together and share any information about the Borrower and its
Affiliates and their relationships with the Bank or any of its Affiliates or
their successors, with and among the

 

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  Bank or any of its Affiliates or their successors, or any purchaser or
potential purchaser of any of the Notes or the other Liabilities, or any
representative of any of the parties described in this sentence. The Borrower
agrees that the Bank may at any time sell, assign or transfer one or more
interests or participations in all or any part of its rights and obligations in
the Notes to one or more purchasers whether or not related to the Bank.

 

  8.16  Waivers. To the maximum extent not prohibited by applicable Legal
Requirements, each Obligor waives (a) any right to receive notice of the
following matters before the Bank enforces any of its rights: (i) any demand,
diligence, presentment, dishonor and protest, or (ii) any action that the Bank
takes regarding any Person, any Collateral, or any of the Liabilities, that it
might be entitled to by law or under any other agreement; (b) any right to
require the Bank to proceed against the Borrower, any other Obligor or any
Collateral, or pursue any remedy in the Bank’s power to pursue; (c) any defense
based on any claim that any Obligor’s obligations exceed or are more burdensome
than those of the Borrower; (d) the benefit of any statute of limitations
affecting liability of any Obligor or the enforcement hereof; (e) any defense
arising by reason of any disability or other defense of the Borrower or by
reason of the cessation from any cause whatsoever (other than payment in full)
of the obligation of the Borrower for the Liabilities; and (f) any defense based
on or arising out of any defense that the Borrower may have to the payment or
performance of the Liabilities or any portion thereof. Each Obligor consents to
any extension or postponement of time of its payment without limit as to the
number or period, to any substitution, exchange or release of all or any part of
any Collateral, to the addition of any other party, and to the release or
discharge of, or suspension of any rights and remedies against, any Obligor. The
Bank may waive or delay enforcing any of its rights without losing them. Any
waiver affects only the specific terms and time period stated in the waiver. No
modification or waiver of any provision of the Notes is effective unless it is
in writing and signed by the Person against whom it is being enforced. To the
extent not prohibited by any Legal Requirement, each Obligor waives (a) all of
its rights under Rule 31, Texas Rules of Civil Procedure, Chapter 43 of the
Texas Civil Practice and Remedies Code, and Section 17.001 of the Texas Civil
Practice and Remedies Code; (b) to the extent it is subject to the Texas Revised
Partnership Act (“TRPA”) or Section 152.306 of the Texas Business Organizations
Code (“BOC”), compliance by the Bank with Section 3.05(d) of TRPA and
Section 152.306(b) of BOC; and (c) if the Liabilities are secured by an interest
in real Property, all of its rights under Sections 51.003, 51.004, and 51.005 of
the Texas Property Code (as amended from time to time).

 

  8.17  Time is of the Essence. Time is of the essence under this agreement and
in the performance of every term, covenant and obligation contained herein.

 

  8.18

 Confidentiality. The Bank agrees that it will treat information provided by the
Borrower or its representatives to the Bank (the “Information”) as confidential;
provided, however, that the Bank may disclose the Information (a) to its
Affiliates and its and its Affiliates’ directors, employees, officers, auditors,
consultants, agents, counsel and advisors (such Affiliates and such Persons
collectively, “Representatives”), it being understood that its Representatives
shall be informed by the Bank of the confidential nature of such Information and
be instructed to comply with the terms of this section to the same extent as is
required of the Bank hereunder; (b) in response to a subpoena or other legal
process, or as may otherwise be required by law, order or regulation, or upon
the request or demand of any governmental or regulatory agency or authority
having jurisdiction over the Bank or its Representatives or to defend or
prosecute a claim brought against or by the Bank and/or its Representatives;
(c) to actual and prospective assignees, actual and prospective participants,
and actual and prospective swap counterparties, provided that all such
participants, assignees or swap counterparties execute an agreement with the
Bank containing provisions substantially the same as those contained in this
section; (d) to holders of Equity Interests in the Borrower, other than holders
of any Equity Interest in a publicly traded company; (e) to any Obligor; and
(f) with the Borrower’s consent. The restrictions contained in this section
shall not apply to Information which (a) is or becomes generally available to
the public other than as a result of a disclosure by the Bank or its
Representatives in breach of this section, or (b) becomes available to the Bank
or its Representatives from a source, other than the Borrower or one of its
agents, who is not known to the Bank or its Representatives to be bound by any

 

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  obligations of confidentiality to the Borrower, or (c) was known to the Bank
or its Representatives prior to its disclosure to the Bank or its
Representatives by the Borrower or one of its agents or was independently
developed by the Bank or its Representatives, or (d) was or is, after the date
hereof, disclosed (or required to be disclosed) by the Borrower to the Bank or
any of its Representatives under or in connection with any existing financing
relationship between the Borrower and the Bank or any of its Representatives,
the disclosure of which shall be governed by the agreements executed in
connection with such financing relationship. Any Person required to maintain the
confidentiality of the Information as provided in this section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

 

9. USA PATRIOT ACT NOTIFICATION. The following notification is provided to the
Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each Person that opens an account, including any
deposit account, treasury management account, loan, other extension of credit,
or other financial services product. What this means for the Borrower: When the
Borrower opens an account, if it is an individual the Bank will ask for its
name, taxpayer identification number, residential address, date of birth, and
other information that will allow the Bank to identify it, and, if it is not an
individual the Bank will ask for its name, taxpayer identification number,
business address, and other information that will allow the Bank to identify it.
The Bank may also ask, if the Borrower is an individual, to see its driver’s
license or other identifying documents, and if it is not an individual, to see
its Organizational Documents or other identifying documents.

 

10. WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM
THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.

 

11. JURY WAIVER. TO THE MAXIMUM EXTENT NOT PROHIBITED BY APPLICABLE LAW, THE
BORROWER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN
THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT
OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE
BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.

THIS AGREEMENT AND THE OTHER WRITTEN RELATED 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.

 

16

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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

Address(es) for Notices:       Borrower: 19747 Highway 59 North, Ste. 200    
Friedman Industries, Incorporated Houston, TX 77338       Attn:  

    Alex LaRue

    By:  

/s/    ALEX LARUE

       

Alex LaRue            VP-Secretary & Treasurer

        Printed Name                                         
                         Title      
Date Signed: 5/5/2015                                                Attn:  

    William E. Crow

    By:  

/s/    WILLIAM E. CROW

       

William E. Crow                                Pres/CEO

        Printed Name                                         
                         Title       Date Signed:
5/5/2015                                                        Address for
Notices:       Bank: 712 Main Street     JPMorgan Chase Bank, N.A. Houston, TX
77002-3201       Attn:  

    Bryan Bayliss

    By:  

/s/    BRYAN BAYLISS

       

Bryan Bayliss                          Authorized Officer

        Printed Name                                         
                               Title       Date
Signed: 5/8/2015                                                        

 

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