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(Multicurrency--Cross Border)



                                      ISDA
                International Swap Dealers Association, Inc.(R)

                                MASTER AGREEMENT

                           dated as of July 21, 1997


TEXAS COMMERCE BANK
NATIONAL ASSOCIATION                  and     FRIEDMAN INDUSTRIES, INCORPORATED


have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Merger Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions. 

Accordingly, the parties agree as follows:--

1.      INTERPRETATION

(a)     DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.

(b)     INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation will prevail for the purpose of the relevant Transaction.

(c)     SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.

2.      OBLIGATIONS

(a)     GENERAL CONDITIONS. 

        (i)     Each party will make each payment or delivery specified in each
        Confirmation to be made by it, subject to the other provisions of this
        Agreement.

        (ii)    Payments under this Agreement will be made on the due date for
        value on that date in the place of the account specified in the relevant
        Confirmation or otherwise pursuant to this Agreement, in freely
        transferable funds and in the manner customary for payments in the
        required currency. Where settlement is by delivery (that is, other than
        by payment), such delivery will be made for receipt on the due date in
        the manner customary for the relevant obligation unless otherwise
        specified in the relevant Confirmation or elsewhere in this Agreement.

        (iii)   Each obligation of each party under Section 2(a)(i) is subject
        to (1) the condition precedent that no Event of Default or Potential
        Event of Default with respect to the other party has occurred and is
        continuing, (2) the condition precedent that no Early Termination Date
        in respect of the relevant Transaction has occurred or been effectively
        designated and (3) each other applicable condition precedent specified
        in this Agreement.   

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(b)     CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.

(c)     NETTING. If on any date amounts would otherwise be payable:--

        (i)     in the same currency; and

        (ii)    in respect of the same Transaction.

by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the
other party, replaced by an obligation upon the party by whom the larger
aggregate amount would have been payable to pay to the other party the excess
of the larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction.  The election may be
made in the Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii)
separately for different groups of Transactions from such date). This election
may be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and
receive payments or deliveries.

(d)     DEDUCTION OR WITHHOLDING FOR TAX.

        (i)     GROSS UP. All payments under this Agreement will be made without
        any deduction or withholding for or on account of any Tax unless such
        deduction or withholding is required by any applicable law, as modified
        by the practice of any relevant governmental revenue authority, then in
        effect. If a party is so required to deduct or withholding is required
        or receiving notice that such amount has been assessed against Y:

                (1)     promptly notify the other party ("Y") of such
                requirements;

                (2)     pay to the relevant authorities the full amount required
                to be deducted or withheld (including the full amount required
                to be deducted or withheld from any additional amount paid by X
                to Y under this Section 2(d) promptly under the earlier of
                determining that such deduction or withholding is required or
                receiving notice that such amount has been assessed against Y;
                        

                (3)     promptly forward to Y an official receipt (or a
                certified copy), or other documentation reasonably acceptable to
                Y, evidencing such payment to such authorities; and

                (4)     is such Tax is an Indemnified Tax, pay to Y, in
                addition to the payment to which Y is otherwise entitled under
                this Agreement, such additional amount as is necessary to ensure
                that the net amount actually received by Y (free and clear of
                Indemnifiable Taxes, whether assessed against X or Y) will equal
                the full amount Y would have received had no such deduction or
                withholding been required.  However, X will not be required to 
                pay additional amount to Y to the extent that it would not be
                required to be paid but for:--
        
                        (A)     the failure by Y to comply with or perform any
                        agreement contained in Section 4(a)(i), 4(a)(iii) or
                        4(d); or

                        (B)     the failure of a representation made by Y
                        pursuant to Section 3 (f) to be accurate and true
                        unless such failure would not have occurred but for (I)
                        any action taken by a taxing authority, or brought in a
                        court of competent jurisdiction, on or after the date on
                        which a Transaction is entered into (regardless of
                        whether such action is taken or brought with respect to
                        a party to this Agreement) or (II) a Change in Tax Law.





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        (ii)    LIABILITY. If:-

                (1)     X is required by any applicable law, as modified by the
                practice of any relevant governmental revenue authority, to make
                any deduction or withholding in respect of which X would not e
                required to pay an additional amount to Y under Section
                2(d)(i)(4):

                (2)     X does not so deduct or withhold; and
                
                (3)     a liability resulting from such Tax is assessed directly
                against X.

        then, except to the extent Y has satisfied or then satisfies the
        liability resulting from such Tax. Y will promptly pay to X the amount
        of such liability (including any related liability for interest, but
        including any related liability for penalties only if Y has failed to
        comply with or perform any agreement contained in Section 4(a)(i),
        4(a)(iii) or 4(d).

(e)     DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment obligation
will, to the extent permitted by law and subject to Section 6(c), be required
to pay interest (before as well as after judgment) on the overdue amount to the
other party on demand in the same currency as such overdue amount for the
period from (and including) the original due date for payment to (but
excluding) the date of actual payment, at the Default Rate. Such interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. If, prior to the occurrence or effective designation of any Early
Termination Date in respect of the relevant Transaction, a party defaults in
the performance of any obligation required to be settled by delivery, it will
compensate the other party on demand if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.

3.      REPRESENTATIONS

Each party represents to the other party (which representations will be deemed
to be repeated by each party on each party on each date on which a Transaction
is entered into and, in the case of the representations in Section 3(f), at all
times until the termination of this Agreement) that:-

(a)     BASIC REPRESENTATIONS.

        (i)     STATUS. It is duly organised and validly existing under the laws
        of the jurisdiction of its organisation or incorporation and, if
        relevant under such laws, in good standing;

        (ii)    POWERS. It has the power to execute this Agreement and any other
        documentation relating to this Agreement to which it is a party, to
        deliver this Agreement and any other documentation relating to this
        Agreement that it is required by this Agreement to deliver and to
        perform it obligations under this Agreement and any obligations it has
        under any Credit Support Document to which it is a party and has taken
        all necessary action to authorise such execution, delivery and
        performance;

        (iii)   NO VIOLATION OR CONFLICT. Such execution, delivery and
        performance do not violate or conflict with any law applicable to it,
        any provision of its constitutional documents, any order or judgment of
        any court or other agency of government applicable to it or any of its
        assets or any contractual restriction binding on or affecting it or any
        of its assets;

        (iv)    CONSENTS. All governmental and other consents that are required
        to have been obtained by it with respect to this Agreement or any Credit
        Support Document to which it is a party have been obtained and are in
        full force and effect and all conditions of any such consents have been
        complied with; and 

        (v)     OBLIGATIONS BINDING. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganisation, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)).


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(b)     ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.

(c)     ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.

(d)     ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.

(e)     PAYER TAX REPRESENTATION. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate and true.

(f)     PAYEE TAX REPRESENTATIONS. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is accurate
and true.

4.      AGREEMENTS

Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--

(a)     FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--

        (i)     any forms, documents or certificates relating to taxation
        specified in the Schedule or any Confirmation;

        (ii)    any other documents specified in the Schedule or any
        Confirmation; and

        (iii)   upon reasonable demand by such other party, any form or document
        that may be required or reasonably requested in writing in order to
        allow such other party or its Credit Support Provider to make a payment
        under this Agreement or any applicable Credit Support Document without
        any deduction or withholding for or on account of any Tax or with such
        deduction or withholding at a reduced rate (so long as the completion,
        execution or submission of such form or document would not materially
        prejudice the legal or commercial position of the party in receipt of
        such demand), with any such form or document to be accurate and
        completed in a manner reasonably satisfactory to such other party and to
        be executed and to be delivered with any reasonably required
        certification,

in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.

(b)     MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.

(c)     COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.

(d)     TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.

(e)     PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,


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organised, managed and controlled, or considered to have its seat, or in which
a branch or office through which it is acting for the purpose of this Agreement
is located ("Stamp Tax Jurisdiction") and will indemnify the other party
against any Stamp Tax levied or imposed upon the other party or in respect of
the other party's execution or performance of this Agreement by any such Stamp
Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.

5.      EVENTS OF DEFAULT AND TERMINATION EVENTS

(a)     EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:-

        (i)     FAILURE TO PAY OR DELIVER. Failure by the party to make, when
        due, any payment under this Agreement or delivery under Section 2(a)(i)
        or 2(e) required to be made by it if such failure is not remedied on or
        before the third Local Business Day after notice of such failure is
        given to the party;

        (ii)    BREACH OF AGREEMENT. Failure by the party to comply with or
        perform any agreement or obligation (other than an obligation to make
        any payment under this Agreement or delivery under Section 2(a)(i) or
        2(e) or to give notice of a Termination Event or any agreement or
        obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with
        or performed by the party in accordance with this Agreement if such
        failure is not remedied on or before the thirtieth day after notice of
        such failure is given to the party;

        (iii)   CREDIT SUPPORT DEFAULT.

                (1)     Failure by the party or any Credit Support Provider of
                such party to comply with or perform any agreement or obligation
                to be complied with or performed by it in accordance with any
                Credit Support Document if such failure is continuing after any
                applicable grace period has elapsed;

                (2)     the expiration or termination of such Credit Support
                Document or the failing or ceasing of such Credit Support
                Document to be in full force and effect for the purpose of this
                Agreement (in either case other than in accordance with its
                terms) prior to the satisfaction of all obligations of such
                party under each Transaction to which such Credit Support
                Document relates without the written consent of the other party;
                or

                (3)     the party or such Credit Support Provider disaffirms,
                disclaims, repudiates or rejects, in whole or in part, or
                challenges the validity of, such Credit Support Document;

        (iv)    MISREPRESENTATION. A representation (other than a
        representation under Section 3(e) or (f)) made or repeated or deemed to
        have been made or repeated by the party or any Credit Support Provider
        of such party in this Agreement or any Credit Support Document proves to
        have been incorrect or misleading in any material respect when made or
        repeated or deemed to have been made or repeated;

        (v)     DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
        Support Provider of such party or any applicable Specified Entity of
        such party (1) defaults under a Specified Transaction and, after giving
        effect to any applicable notice requirement or grace period, there
        occurs a liquidation of, an acceleration of obligations under, or an
        early termination of, that Specified Transaction, (2) defaults, after
        giving effect to any applicable notice requirement or grace period, in
        making any payment or delivery due on the last payment, delivery or
        exchange date of, or any payment on early termination of, a Specified
        Transaction (or such default continues for at least three Local Business
        Days if there is no applicable notice requirement or grace period) or
        (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a
        Specified Transaction (or such action is taken by any person or entity
        appointed or empowered to operate it or act on its behalf);

        (vi)    CROSS DEFAULT. If "Cross Default" is specified in the Schedule
        as applying to the party, the occurrence or existence of (1) a default,
        event of default or other similar condition or event (however 



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        described) in respect of such party, any Credit Support Provider of such
        party or any applicable Specified Entity of such party under one or more
        agreements or instruments relating to Specified Indebtedness of any of
        them (individually or collectively) in an aggregate amount of not less
        than the applicable Threshold Amount (as specified in the Schedule)
        which has resulted in such Specified Indebtedness becoming, or becoming
        capable at such time of being declared, due and payable under such
        agreements or instruments, before it would otherwise have been due and
        payable or (2) a default by such party, such Credit Support Provider or
        such Specified Entity (individually or collectively) in making one or
        more payments on the due date thereof in an aggregate amount of not less
        than the applicable Threshold Amount under such agreements or
        instruments (after giving effect to any applicable notice requirement or
        grace period);

        (vii)   BANKRUPTCY. The party, any Credit Support Provider of such party
        or any applicable Specified Entity of such party:-

                (1)     is dissolved (other than pursuant to a consolidation,
                amalgamation or merger); (2) becomes insolvent or is unable to
                pay its debts or fails or admits in writing its inability
                generally to pay its debts as they become due; (3) makes a
                general assignment, arrangement or composition with or for the
                benefit of its creditors; (4) institutes or has instituted
                against it a proceeding seeking a judgment of insolvency or
                bankruptcy or any other relief under any bankruptcy or
                insolvency law or other similar law affecting creditors' rights,
                or a petition is presented for its winding-up or liquidation,
                and, in the case of any such proceeding or petition instituted
                or presented against it, such proceeding or petition (A) results
                in a judgment of insolvency or bankruptcy or the entry of an
                order for relief or the making of an order for its winding-up or
                liquidation or (B) is not dismissed, discharged, stayed or
                restrained in each case within 30 days of the institution or
                presentation thereof; (5) has a resolution passed for its
                winding-up, official management or liquidation (other than
                pursuant to a consolidation, amalgamation or merger); (6) seeks
                or becomes subject to the appointment of an administrator,
                provisional liquidator, conservator, receiver, trustee,
                custodian or other similar official for it or for all or
                substantially all its assets; (7) has a secured party take
                possession of all or substantially all its assets or has a
                distress, execution, attachment, sequestration or other legal
                process levied, enforced or sued on or against all or
                substantially all its assets and such secured party maintains
                possession, or any such process is not dismissed, discharged,
                stayed or restrained, in each case within 30 days thereafter;
                (8) causes or is subject to any event with respect to it which,
                under the applicable laws of any jurisdiction, has an analogous
                effect to any of the events specified in clauses (1) to (7)
                (inclusive); or (9) takes any action in furtherance of, or
                indicating its consent to, approval of, or acquiescence in, any
                of the foregoing acts; or

        (viii)  MERGER WITHOUT ASSUMPTION. The party or any Credit Support
        Provider of such party consolidates or amalgamates with, or merges with
        or into, or transfers all or substantially all its assets to, another
        entity and, at the time of such consolidation, amalgamation, merger or
        transfer:-

                (1)     the resulting, surviving or transferee entity fails to
                assume all the obligations of such party or such Credit Support
                Provider under this Agreement or any Credit Support Document to
                which it or its predecessor was a party by operation of law or
                pursuant to an agreement reasonably satisfactory to the other
                party to this Agreement; or

                2)      the benefits of any Credit Support Document fail to 
                extend (without the consent of the other party) to the
                performance by such resulting, surviving or transferee entity of
                its obligations under this Agreement.

(b)     TERMINATION EVENTS. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event 



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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--

        (i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
        law after the date on which a Transaction is entered into, or due to the
        promulgation of, or any change in, the interpretation by any court,
        tribunal or regulatory authority with competent jurisdiction of any
        applicable law after such date, it becomes lawful (other than as a
        result of a breach by the party of Section 4(b)) for such party (which
        will be the Affected Party):--

                (1)     to perform any absolute or contingent obligation to make
                a payment or delivery or to receive a payment or delivery in
                respect of such Transaction or to comply with any other material
                provision of this Agreement relating to such Transaction; or

                (2)     to perform, or for any Credit Support Provider of such
                party to perform, any contingent or other obligation which the
                party (or such Credit Support Provider) has under any Credit
                Support Document relating to such Transaction; 

        (ii)    TAX EVENT. Due to (x) any action taken by a taxing authority, or
        brought in a court of competent jurisdiction, on or after the date on
        which a Transaction is entered into (regardless of whether such action
        is taken or brought with respect to a party to this Agreement) or (y) a
        Change in Tax Law, the party (which will be the Affected Party) will, or
        there is a substantial likelihood that it will, on the next succeeding
        Scheduled Payment Date (1) be required to pay to the other party an
        additional amount in respect of an Indemnifiable Tax under Section
        2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii)
        or 6(e)) or (2) receive a payment from which an amount is required to be
        deducted or withheld for or on account of a Tax (except in respect of
        interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount
        is required to be paid in respect of such Tax under Section 2(d)(i)(4)
        (other than by reason of Section 2(d)(i)(4)(A) or (B));

        (iii)   TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
        next succeeding Scheduled Payment Date will either (1) be required to
        pay an additional amount in respect of an Indemnifiable Tax under
        Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
        6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been
        deducted or withheld for or on account of any Indemnifiable Tax in
        respect of which the other party is not required to pay an additional
        amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either
        case as a result of a party consolidating or amalgamating with, or
        merging with or into, or transferring all or substantially all its
        assets to, another entity (which will be the Affected Party) where such
        action does not constitute an event described in Section 5(a)(viii);

        (iv)    CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
        specified in the Schedule as applying to the party, such party ("X"),
        any Credit Support Provider of X or any applicable Specified Entity of X
        consolidates or amalgamates with, or merges with or into, or transfers
        all or substantially all its assets to, another entity and such action
        does not constitute an event described in Section 5(a)(viii) but the
        creditworthiness of the resulting, surviving or transferee entity is
        materially weaker than that of X, such Credit Support Provider or such
        Specified Entity, as the case may be, immediately prior to such action
        (and, in such event, X or its successor or transferee, as appropriate,
        will be the Affected Party); or

        (v)     ADDITIONAL TERMINATION EVENT. If any "Additional Termination
        Event" is specified in the Schedule or any Confirmation as applying, the
        occurrence of such event (and, in such event, the Affected Party or
        Affected Parties shall be as specified for such Additional Termination
        Event in the Schedule or such Confirmation).

(c)     EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.


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6.      EARLY TERMINATION

(a)     RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred 
and is then continuing, the other party (the "Non-defaulting Party") may, 
by not more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect of
all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in Section 5(a)(vii)(1),
(3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the
presentation of the relevant petition upon the occurrence with respect to such
party of an Event of Default specified in Section 5(a)(vii)(4) or, to the
extent analogous thereto, (8).

(b)     RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.

        (i)     NOTICE. If a Termination Event occurs, an Affected Party will,
        promptly upon becoming aware of it, notify the other party, specifying
        the nature of that Termination Event and each Affected Transaction and
        will also give such other information about that Termination Event as
        the other party may reasonably require.

        (ii)    TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality
        under Section 5(b)(i)(1) or a Tax Event occurs and there is only one
        Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
        Party is the Affected Party, the Affected Party will, as a condition to
        its right to designate an Early Termination Date under Section 6(b)(iv),
        use all reasonable efforts (which will not require such party to incur a
        loss, excluding immaterial, incidental expenses) to transfer within 20
        days after it gives notice under Section 6(b)(i) all its rights and
        obligations under this Agreement in respect of the Affected Transactions
        to another of its Offices or Affiliates so that such Termination Event
        ceases to exist.

        If the Affected Party is not able to make such a transfer it will give
        notice to the other party to that effect within such 20 day period,
        whereupon the other party may effect such a transfer within 30 days
        after the notice is given under Section 6(b)(i).

        Any such transfer by a party under this Section 6(b)(ii) will be subject
        to and conditional upon the prior written consent of the other party,
        which consent will not be withheld if such other party's policies in
        effect at such time would permit it to enter into transactions with the
        transferee on the terms proposed.

        (iii)   TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1)
        or a Tax Event occurs and there are two Affected Parties, each party
        will use all reasonable efforts to reach agreement within 30 days after
        notice thereof is given under Section 6(b)(i) on action to avoid that
        Termination Event.

        (iv)    RIGHT TO TERMINATE. If:--

                (1)     a transfer under Section 6(b)(ii) or an agreement under
                Section 6(b)(iii), as the case may be, has not been effected
                with respect to all Affected Transactions within 30 days after
                an Affected Party gives notice under Section 6(b)(i); or

                (2)     an Illegality under Section 5(b)(i)(2), a Credit Event
                Upon Merger or an Additional Termination Event occurs, or a Tax
                Event Upon Merger occurs and the Burdened Party is not the
                Affected Party,

        either party in the case of an Illegality, the Burdened Party in the
        case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
        Event or an Additional Termination Event if there is more than one
        Affected Party, or the party which is not the Affected Party in the case
        of a Credit Event Upon Merger or an Additional Termination Event if
        there is only one Affected Party may, by not more than 20 days notice to
        the other party and provided that the relevant Termination Event is then


                                       8

<PAGE>   9
        continuing, designate a day not earlier than the day such notice is
        effective as an Early Termination Date in respect of all Affected 
        Transactions.

(c)     EFFECT OF DESIGNATION.

        (i)     If notice designating an Early Termination Date is given under
        Section 6(a) or (b), the Early Termination Date will occur on the date
        so designated, whether or not the relevant Event of Default or 
        Termination Event is then continuing.

        (ii)    Upon the occurrence or effective designation of an Early
        Termination Date, no further payments or deliveries under Section
        2(a)(i) or 2(e) in respect of the Terminated Transactions will be
        required to be made, but without prejudice to the other provisions of
        this Agreement. The amount, if any, payable in respect of an Early
        Termination Date shall be determined pursuant to Section 6(e).

(d)     CALCULATIONS.

        (i)     STATEMENT. On or as soon as reasonably practicable following the
        occurrence of an Early Termination Date, each party will make the
        calculations on its part, if any, contemplated by Section 6(e) and will
        provide to the other party a statement (1) showing, in reasonable
        detail, such calculations (including all relevant quotations and
        specifying any amount payable under Section 6(e)) and (2) giving details
        of the relevant account to which any amount payable to it is to be paid.
        In the absence of written confirmation from the source of a quotation
        obtained in determining a Market Quotation, the records of the party
        obtaining such quotation will be conclusive evidence of the existence
        and accuracy of such quotation.

        (ii)    PAYMENT DATE. An amount calculated as being due in respect of 
        any Early Termination Date under Section 6(e) will be payable on the day
        that notice of the amount payable is effective (in the case of an Early
        Termination Date which is designated or occurs as a result of an Event
        of Default) and on the day which is two Local Business Days after the
        day on which notice of the amount payable is effective (in the case of
        an Early Termination Date which is designated as a result of a
        Termination Event). Such amount will be paid together with (to the
        extent permitted under applicable law) interest thereon (before as well
        as after judgment) in the Termination Currency, from (and including) the
        relevant Early Termination date to (but excluding) the date such amount
        is paid, at the Applicable Rate. Such interest will be calculated on the
        basis of daily compounding and the actual number of days elapsed.

(e)     PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment
method, either the "First Method" or the "Second Method". If the parties fail
to designate a payment measure or payment method in the Schedule, it will be
deemed that "Market Quotation" or the "Second Method", as the case may be,
shall apply. The amount, if any, payable in respect of an Early Termination
Date and determined pursuant to this Section will be subject to any Set-off.

        (i)     EVENTS OF DEFAULT. If the Early Termination Date results from
        an Event of Default:--

                (1)     FIRST METHOD AND MARKET QUOTATION. If the First Method
                and Market Quotation apply, the Defaulting Party will pay to the
                Non-defaulting Party the excess, if a positive number, of (A)
                the sum of the Settlement Amount (determined by the
                Non-defaulting Party) in respect of the Terminated Transactions
                and the Termination Currency Equivalent of the Unpaid Amounts
                owing to the Non-defaulting Party over (B) the Termination
                Currency Equivalent of the Unpaid Amounts owing to the
                Defaulting Party.

                (2)     FIRST METHOD AND LOSS. If the First Method and Loss
                apply, the Defaulting Party will pay to the Non-defaulting
                Party, if a positive number, the Non-defaulting Party's Loss in
                respect of this Agreement.

                (3)     SECOND METHOD AND MARKET QUOTATION. If the Second Method
                and Market Quotation apply, an amount will be payable equal to
                (A) the sum of the Settlement Amount (determined by the 




                                       9

<PAGE>   10
                Non-defaulting Party) in respect of the Terminated Transactions
                and the Termination Currency Equivalent of the Unpaid Amounts
                owing to the Non-defaulting Party less (B) the Termination
                Currency Equivalent of the Unpaid Amounts owing to the
                Defaulting Party. If that amount is a positive number, the
                Defaulting Party will pay it to the Non-defaulting Party; if it
                is a negative number, the Non-defaulting Party will pay the
                absolute value of that amount to the Defaulting Party.

                (4)     SECOND METHOD AND LOSS. If the Second Method and Loss
                apply, an amount will be payable equal to the Non-defaulting
                Party's Loss in respect of this Agreement. If that amount is a
                positive number, the Defaulting Party will pay it to the
                Non-defaulting Party; if it is a negative number, the
                Non-defaulting Party will pay the absolute value of that amount
                to the Defaulting Party.

        (ii)    TERMINATION EVENTS. If the Early Termination Date results from a
        Termination Event: -

                (1)     ONE AFFECTED PARTY. If there is one Affected Party, the
                amount payable will be determined in accordance with Section
                6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
                if Loss applies, except that, in either case, references to the
                Defaulting Party and to the Non-defaulting Party will be deemed
                to be references to the Affected Party and the party which is
                not the Affected Party, respectively, and, if Loss applies and
                fewer than all the Transactions are being terminated, Loss shall
                be calculated in respect of all Terminated Transactions.

                (2)     TWO AFFECTED PARTIES.  If there are two Affected
                        Parties:-
  
                        (A)     if Market Quotation applies, each party will
                        determine a Settlement Amount in respect of the
                        Terminated Transactions, and an amount will be payable
                        equal to (I) the sum of (a) one-half of the difference
                        between the Settlement Amount of the party with the
                        higher Settlement Amount ("X") and the Settlement Amount
                        of the party wit the lower Settlement Amount ("Y") and
                        (b) the Termination Currency Equivalent of the Unpaid
                        Amounts owing to X less (II) the Termination Currency
                        Equivalent of the Unpaid Amounts owing to Y; and

                (3)     (B)     if Loss applies, each party will determine its
                        Loss in respect of this Agreement (or, if fewer than all
                        the Transactions are being terminated, in respect of all
                        Terminated Transactions) and an amount will be payable
                        equal to one-half of the difference between the Loss of
                        the party with the higher Loss ("X") and the Loss of the
                        party with the lower Loss ("Y").

                        If the amount payable is a positive number, Y will pay
                        it to X; if it is a negative number, X will pay the
                        absolute value of that amount to Y.

        (iii)   ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
        Termination Date occurs because "Automatic Early Termination" applies in
        respect of a party, the amount determined under this Section 6(e) will
        be subject to such adjustments as are appropriate and permitted by law
        to reflect any payments or deliveries made by one party to the other
        under this Agreement (and retained by such other party) during the
        period from the relevant Early Termination Date of the date for payment
        determined under Section 6(d)(ii).

        (iv)    PRE-ESTIMATE. The parties agree that if Market Quotation applies
        an amount recoverable under this Section 6(e) is a reasonable
        pre-estimate of loss and not a penalty. Such amount is payable for the
        loss of bargain and the loss of protection against future risks and
        except as otherwise provided in this Agreement neither party will be
        entitled to recover any additional damages as a consequence of such
        losses.

                                       10

<PAGE>   11
7.      TRANSFER

Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--

(a)     a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to
any other right or remedy under this Agreement); and

(b)     a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

8.      CONTRACTUAL CURRENCY

(a)     PAYMENT IN THE CONTRACTUAL CURRENCY.  Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable
law, any obligation to make payments under this Agreement in the Contractual
Currency will not be discharged or satisfied by any tender in any currency
other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in a
reasonable manner and in good faith in converting the currency so tendered into
the Contractual Currency, of the full amount in the Contractual Currency of all
amounts payable in respect of this Agreement. If for any reason the amount in
the Contractual Currency so received falls short of the amount in the
Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law,
immediately pay such additional amount in the Contractual Currency as may be
necessary to compensate for the shortfall. If for any reason the amount in the
Contractual Currency so received exceeds the amount in the Contractual Currency
payable in respect of this Agreement, the party receiving the payment will
refund promptly the amount of such excess.

(b)     JUDGMENTS.  To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is
rendered (i) for the payment of any amount owing in respect of this Agreement,
(ii) for the payment of any amount relating to any early termination in respect
of this Agreement or (iii) in respect of a judgment or order of another court
for the payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such
party. The term "rate of exchange" includes, without limitation, any premiums
and costs of exchange payable in connection with the purchase of or conversion
into the Contractual Currency.

(c)     SEPARATE INDEMNITIES.  To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the
party to which any payment is owed and will not be affected by judgment being
obtained or claim or proof being made for any other sums payable in respect of
this Agreement.

(d)     EVIDENCE OF LOSS.  For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.





                                       11
<PAGE>   12
 9.     MISCELLANEOUS

(a)     ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.

(b)     AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by
an exchange of telexes or electronic messages on an electronic messaging system.

(c)     SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.

(d)     REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.

(e)     COUNTERPARTS AND CONFIRMATIONS.

        (i)     This Agreement (and each amendment, modification and waiver in
        respect of it) may be executed and delivered in counterparts (including
        by facsimile transmission), each of which will be deemed an original.

        (ii)    The parties intend that they are legally bound by the terms of
        each Transaction from the moment they agree to those terms (whether
        orally or otherwise). A Confirmation shall be entered into as soon as
        practicable and may be executed and delivered in counterparts (including
        by facsimile transmission) or be created by an exchange of telexes or by
        an exchange of electronic messages on an electronic messaging system,
        which in each case will be sufficient for all purposes to evidence a
        binding supplement to this Agreement. The parties will specify therein
        or through another effective means that any such counterpart, telex or
        electronic message constitutes a Confirmation.

(f)     NO WAVIER OF RIGHTS. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.

(g)     HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.

10.     OFFICES; MULTIBRANCH PARTIES

(a)     If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.

(b)     Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.

(c)     If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a
Transaction will be specified in the relevant Confirmation.

11.     EXPENSES

A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document


                                       12

<PAGE>   13
to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.

12.     NOTICES

(a)     EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--

        (i)     if in writing and delivered in person or by courier, on the
        date it is delivered;

        (ii)    if sent by telex, on the date the recipient's answerback is
        received;

        (iii)   if sent by facsimile transmission, on the date that
        transmission is received by a responsible employee of the recipient in
        legible form (it being agreed that the burden of proving receipt will
        be on the sender and will not be met by a transmission report generated
        by the sender's facsimile machine);

        (iv)    if sent by certified or registered mail (airmail, if overseas)
        or the equivalent (return receipt requested), on the date that mail is
        delivered or its delivery is attempted; or

        (v)     if sent by electronic messaging system, on the date that
        electronic message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.

(b)     CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.

13.     GOVERNING LAW AND JURISDICTION

(a)     GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.

(b)     JURISDICTION. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:--

        (i)     submits to the jurisdiction of the English courts, if this
        Agreement is expressed to be governed by English law, or to the
        non-exclusive jurisdiction of the courts of the State of New York and
        the United States District Court located in the Borough of Manhattan in
        New York City, if this Agreement is expressed to be governed by the laws
        of the State of New York; and

        (ii)    waives any objection which it may have at any time to the laying
        of venue of any Proceedings brought in any such court, waives any claim
        that such Proceedings have been brought in an inconvenient forum and
        further waives the right to object, with respect to such Proceedings,
        that such court does not have any jurisdiction over such party.

Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.

(c)     SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any

                                       13
<PAGE>   14
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.

(d)     WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of
any court, (iii) relief by way of injunction, order for specific performance or
for recovery of property, (iv) attachment of its assets (whether before or
after judgment) and (v) execution or enforcement of any judgment to which it or
its revenues or assets might otherwise be entitled in any Proceedings in the
courts of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.

14.     DEFINITIONS

As used in this Agreement:--

"Additional Termination Event" has the meaning specified in Section 5(b).

"Affected Party" has the meaning specified in Section 5(b).

"Affected Transactions" means (a) with respect to any Termination Event
consisting of an illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.

"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.

"Applicable Rate" means:--

(a)     in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

(b)     in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;

(c)     in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and

(d)     in all other cases, the Termination Rate.

"Burdened Party" has the meaning specified in Section 5(b).

"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after the
date on which the relevant Transaction is entered into.

"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.

"Credit Event Upon Merger" has the meaning specified in Section 5(b).

"Credit Support Document" means any agreement or instrument that is specified
as such in this Agreement.

"Credit Support Provider" has the meaning specified in the Schedule.

"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.

                                       14
<PAGE>   15
"Defaulting Party" has the meaning specified in Section 6(a).

"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).

"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.

"Illegality" has the meaning specified in Section 5(b).

"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed
in respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such
recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of such
jurisdiction, or being or having been organised, present or engaged in a trade
or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding a
connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or a Credit Support Document).

"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority)
and "lawful" and "unlawful" will be construed accordingly.

"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for
performance with respect to such Specified Transaction.

"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating, liquidating,
obtaining or reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 11. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.

"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition
precedent) by the parties under Section 2(a)(i) in respect of such Terminated
Transaction or group of Terminated Transactions that would, but for the
occurrence of the relevant Early Termination Date, have


                                       15
<PAGE>   16
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as
of the same day and time (without regard to different time zones) on or as soon
as reasonably practicable after the relevant Early Termination Date. The day
and time as of which those quotations are to be obtained will be selected in
good faith by the party obliged to make a determination under Section 6(e),
and, if each party is so obliged, after consultation with the other. If more
than three quotations are provided, the Market Quotation will be the arithmetic
mean of the quotations, without regard to the quotations having the highest and
lowest values. If exactly three such quotations are provided, the Market
Quotation will be the quotation remaining after disregarding the highest and
lowest quotations. For this purpose, if more than one quotation has the same
highest value or lowest value, then one of such quotations shall be
disregarded. If fewer than three quotations are provided, it will be deemed
that the Market Quotation in respect of such Terminated Transaction or group of
Terminated Transactions cannot be determined.

"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.

"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).

"OFFICE" means a branch or office of a party, which may be such party's head or
home office.

"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.

"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or
to make an extension of credit and (b) to the extent practicable, from among
such dealers having an office in the same city.

"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organised, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.

"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.

"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.

"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--

(a)     the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and

(b)     such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.

"SPECIFIED ENTITY" has the meaning specified in the Schedule.




                                       16

<PAGE>   17
"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money.

"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.

"Stamp Tax" means any stamp, registration, documentation or similar tax.

"Tax" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto) that
is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation or
similar tax.

"Tax Event" has the meaning specified in Section 5(b).

"Tax Event Upon Merger" has the meaning specified in Section 5(b).

"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).

"Termination Currency" has the meaning specified in the Schedule.

"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a
rate for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
                                                  
"Termination Event" means an Illegality, a Tax Event Upon Merger or, if
specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.

"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.

"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under
Section 2(a)(i) which was (or would have been but for Section 2(a)(iii))
required to be settled by delivery to such party on or prior to such Early
Termination Date and which has not been so settled as at such Early Termination
Date, an amount equal to the fair market                                       




                                       17
<PAGE>   18
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding) such
Early Termination Date, at the Applicable Rate. Such amounts of interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligations referred to in clause (b)
above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.

IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION                      FRIEDMAN INDUSTRIES, INCORPORATED
---------------------------------         ---------------------------------
        (Name of Party)                             (Name of Party)

By: /s/ STEVE SHIPLEY                     By: /s/ BEN HARPER
    -----------------------------         ---------------------------------
    Name: Steve Shipley                   Name: Ben Harper
    Title: Vice President                 Title: Senior Vice President-Finance
    Date: 7/31/97                         Date: 7/29/97

                                       18
<PAGE>   19





 (MULTICURRENCY-CROSS BORDER)
                                                                  EXECUTION COPY



                        SCHEDULE TO THE MASTER AGREEMENT
                       DATED AS OF JULY 21, 1997 BETWEEN
              TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("PARTY A")
               AND FRIEDMAN INDUSTRIES, INCORPORATED ("PARTY B")


           PART 1:  TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS


         (a)     "SPECIFIED ENTITY" means, in relation to Party A, for the
purpose of:

                          SECTION 5(a)(v), none;

                          SECTION 5(a)(vi), none;

                          SECTION 5(a)(vii), none; and

                          SECTION 5(b)(iv), none;

         and, in relation to Party B, for the purpose of:

                          SECTION 5(a)(v), none;

                          SECTION 5(a)(vi), none;

                          SECTION 5(a)(vii), none; and

                          SECTION 5(b)(iv), none.

         (b)     "SPECIFIED TRANSACTION" will have the meaning specified in
Section 14.

         (c)     The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will not
apply to Party A.  The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will
apply to Party B.  In connection therewith, "SPECIFIED INDEBTEDNESS" will have
the meaning specified in Section 14, and "THRESHOLD AMOUNT" means USD$500,000.

                                       1

<PAGE>   20




         (d)     The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will apply to Party A and to Party B.

         (e)     The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a)
will not apply to Party A or Party B.

         (f)     PAYMENTS ON EARLY TERMINATION.  For the purpose of Section
6(e):

                 (i)      Loss  will apply.

                 (ii)     The Second Method will apply.

         (G)     "TERMINATION CURRENCY" means United States Dollars.



                          PART 2:  TAX REPRESENTATIONS

                                Not applicable.




                    PART 3:  AGREEMENT TO DELIVER DOCUMENTS

For the purpose of Sections 4(a)(i) and (iii) of this Agreement, each party
agrees to deliver the following documents, as applicable:

         (a)   Tax forms, documents or certificates to be delivered are:  none.

                 (b)      Other documents to be delivered are:


<TABLE>
<CAPTION>
PARTY REQUIRED                  FORM/                        DATE BY                     COVERED B
 TO DELIVER                   DOCUMENT/                    WHICH TO BE                  SECTION 3(d)
  DOCUMENT                   CERTIFICATE                    DELIVERED                  REPRESENTATION
  --------                   -----------                    ---------                  --------------
 <S>                    <C>                           <C>                                      <C>
 Party B                Opinion of counsel            Upon execution and delivery              No
                        satisfactory to Party A       of this Agreement
                        substantially in the form
                        of Exhibit I hereto
</TABLE>

                                      2
<PAGE>   21


<TABLE>
 <S>                    <C>                           <C>                                      <C>
 Party B                Certified copies of all       Upon execution and delivery              Yes
                        corporate authorizations      of this Agreement
                        and any other documents
                        with respect to the
                        execution, delivery and
                        performance of this
                        Agreement
</TABLE>

<TABLE>
 <S>                    <C>                           <C>                                     <C>
 Party B                Certificate of authority      Upon execution and delivery             Yes
                        and specimen signatures of    of this Agreement and
                        individuals executing this    thereafter upon request of
                        Agreement and                 Party A
                        Confirmations
</TABLE>



                             PART 4:  MISCELLANEOUS


         (a)     ADDRESS FOR NOTICES.  For the purpose of Section 12(a) of this
Agreement:

Address for notice or communications to Party A:

Any notice shall be delivered to the address or facsimile or telex number
specified below:

         Texas Commerce Bank National Association
         Attention: Derivatives Desk
         707 Travis
         Houston, Texas 77002
         Facsimile No.: (713) 216-6977

Address for notice or communications to Party B:

         Friedman Industries, Incorporated
         Attention:  Treasurer
         4001 Homestead Road
         Houston, Texas 77028
         Facsimile No.:   (713) 672-1256

         (b)       PROCESS AGENT.  For the purpose of Section 13(c):

                                      3
<PAGE>   22



       Party A appoints as its Process Agent:  Not applicable.
       Party B appoints as its Process Agent:  Not applicable.

         (c)     OFFICES.  The provisions of Section 10(a) will apply to this
Agreement.

         (d)     MULTIBRANCH PARTY.  For the purpose of Section 10 of this
Agreement:

         Party A is not a Multibranch Party.

         Party B is not a Multibranch Party.

         (e)     CALCULATION AGENT.  The Calculation Agent is Party A, unless
otherwise specified in a Confirmation in relation to the relevant Transaction.

         (f)     CREDIT SUPPORT DOCUMENT.  Details of any Credit Support
Document: There are no Credit Support Documents.

         (g)     CREDIT SUPPORT PROVIDER.  Credit Support Provider means:
there are no Credit Support Providers.

         (h)     GOVERNING LAW.  THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REFERENCE
TO CHOICE OF LAW DOCTRINE).

         (i)     NETTING OF PAYMENTS.  Subparagraph (ii) of Section 2(c) will
not apply to any Transaction unless specified in the relevant Confirmation.

         (j)     "AFFILIATE" will have the meaning specified in Section 14 of
this Agreement.

                                      4
<PAGE>   23




                           PART 5:  OTHER PROVISIONS


         (a)     SET-OFF. Any amount (the "Early Termination Amount") payable
to one party (the "Payee") by the other party (the "Payer") under Section 6(e),
in circumstances where there is a Defaulting Party or one Affected Party in the
case where a Termination Event under Section 5(b)(iv) has occurred, will, at
the option of the party ("X") other than the Defaulting Party or the Affected
Party (and without prior notice to the Defaulting Party or the Affected Party),
be reduced by its set-off against any amount(s) (the "Other Agreement Amount")
payable (whether at such time or in the future or upon the occurrence of a
contingency) by the Payee to the Payer (irrespective of the currency, place of
payment or booking office of the obligation) under any other agreement(s)
between the Payee and the Payer or instrument(s) or undertaking(s) issued or
executed by one party to, or in favor of, the other party (and the Other
Agreement Amount will be discharged promptly and in all respects to the extent
it is so set-off).  X will give notice to the other party of any set-off
effected under this section.

For this purpose, either the Early Termination Amount or the Other Agreement
Amount (or the relevant portion of such amounts) may be converted by X into the
currency in which the other is denominated at the rate of exchange at which
such party would be able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency.

If an obligation is unascertained, X may in good faith estimate that obligation
and set-off in respect of the estimate, subject to the relevant party
accounting to the other when the obligation is ascertained.

Nothing in this section shall be effective to create a charge or other security
interest.  This section shall be without prejudice and in addition to any right
of set-off, combination of accounts, lien or other right to which any party is
at any time otherwise entitled (whether by operation of  law, contract or
otherwise).

         (b)     EXCHANGE OF CONFIRMATIONS.  For each Transaction entered into
hereunder, Party A shall promptly send to Party B a Confirmation via facsimile
transmission.  Party B agrees to respond to such Confirmation within 10
Business Days, either confirming agreement thereto or requesting a correction
of any error(s) contained therein.  Failure by Party B to respond within such
period shall not affect the validity or enforceability of such Transaction and
shall be deemed to be an affirmation of the terms contained in such
Confirmation, absent manifest error.  The parties agree that any such exchange
of facsimile transmissions shall constitute a Confirmation for all purposes
hereunder.

         (c)     RELATIONSHIP BETWEEN PARTIES.  The following representation
shall be added as a new Section 3(g) of this Agreement:

         "(g)    RELATIONSHIP BETWEEN PARTIES.  Absent a written agreement to
the contrary:

                                      5
<PAGE>   24



                 (i)      It is not relying on any advice (whether written or
                 oral) of the other party regarding any Transaction, other than
                 the representations expressly made by that other party in this
                 Agreement and in the Confirmation in respect of that
                 Transaction;

                 (ii)     In respect of each Transaction under this Agreement,

                          (1)  it has the capacity to evaluate (internally or
                          through independent professional advice) that
                          Transaction and has made its own decision to enter
                          into that Transaction;

                          (2)  It understands the terms, conditions and risks
                          of that Transaction and is willing to accept those
                          terms and conditions and to assume (financially and
                          otherwise) those risks; and

                          (3)  the other party (a) is not acting as a fiduciary
                          or financial, investment or commodity trading advisor
                          for it; (b) has not given to it (directly or
                          indirectly through any other person) any assurance,
                          guaranty or representation whatsoever as to the
                          merits (either legal, regulatory, tax, financial,
                          accounting or otherwise) of that Transaction or any
                          documentation related thereto; and (c) has not
                          committed to unwind that Transaction."

         (d)     WAIVER OF RIGHT TO TRIAL BY JURY.  Each party recognizes that,
in matters related to this Agreement or any Transaction, either party may be
entitled to a trial in which matters of fact are determined by a jury (as
opposed to a trial in which such matters are determined by a judge).  By
execution of this Agreement, each party will give up its respective rights to
trial by jury, and each party has carefully considered the consequences of
signing this Agreement and has consulted with its respective attorneys.  Each
party acknowledges that this waiver is entered into to avoid delays, minimize
trial expense, and streamline the legal proceedings in order to accomplish a
quick resolution of claims arising under or in conjunction with this Agreement
or any Transaction.  TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH PARTY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING UNDER, OR IN CONNECTION
WITH, THIS AGREEMENT OR ANY TRANSACTION HEREUNDER.

         (e)     FURTHER REPRESENTATIONS.  Each party represents to the other
party that it is an "eligible swap participant" as such term is defined in Part
35 of Chapter I of Title 17 of the Code of Federal Regulations, promulgated by
the Commodity Futures Trading Commission, entitled "Exemption of Swap
Agreements".

         (f)     JURISDICTION.  Section 13(b) of this Agreement  is hereby
restated as follows:

                 (b)      JURISDICTION.  WITH RESPECT TO ANY CLAIM ARISING OUT
OF THIS AGREEMENT, (A) EACH PARTY IRREVOCABLY SUBMITS TO THE

                                      6
<PAGE>   25


NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE UNITED
STATES DISTRICT COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS; AND (B) EACH
PARTY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM, AND IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT
TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH
COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.

         (g)     TELEPHONIC RECORDING.  Each party (i) consents to the
recording of the telephone conversations of trading and marketing personnel of
the parties and their Affiliates in connection with this Agreement or any
potential Transaction and (ii) agrees to obtain any necessary consent of, and
give notice of such recording to, such personnel of it and its Affiliates.


         (h)     USURY NOT INTENDED; SAVINGS PROVISIONS.  Notwithstanding any
provision to the contrary contained in this Agreement, it is expressly provided
that in no case or event shall the aggregate of any amounts accrued or paid
pursuant to this Agreement which under applicable laws are or may be deemed to
constitute interest ever exceed the maximum nonusurious interest rate permitted
by applicable Texas or federal laws, whichever permit the higher rate.  In this
connection, Party A and Party B stipulate and agree that it is their common and
overriding intent to contract in strict compliance with applicable usury laws.
In furtherance thereof, none of the terms of this Agreement shall ever be
construed to create a contract to pay, as consideration for the use,
forbearance or detention of money, interest at a rate in excess of the maximum
rate permitted by applicable laws.  Neither party shall ever be liable for
interest in excess of the maximum rate permitted by applicable laws.  If, for
any reason whatsoever, such interest paid or received during the full term of
the applicable indebtedness produces a rate which exceeds the maximum rate
permitted by applicable laws, the receiving party shall credit against the
principal of such indebtedness (or, if such indebtedness shall have been paid
in full, shall refund to the payor of such interest) such portion of said
interest as shall be necessary to cause the interest paid to produce a rate
equal to the maximum rate permitted by applicable laws.  All sums paid or
agreed to be paid for the use, forbearance or detention of money shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of the applicable indebtedness,
so that the interest rate is uniform throughout the full term of such
indebtedness.  The provisions of this paragraph shall control all agreements,
whether now or hereafter existing and whether written or oral, between Party A
and Party B.

                                      7
<PAGE>   26

         (i)     ENTIRE AGREEMENT.

                 THIS WRITTEN MASTER AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

                 THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.


         (j)     "LETTER AGREEMENT" means the Amended and Restated Letter
Agreement, dated as of April 1, 1995, between Party A and Party B, as further
amended, supplemented or otherwise modified from time to time; provided that if
the obligations under the Letter Agreement are paid in full or the Letter
Agreement is otherwise terminated or cancelled, Letter Agreement means the
Letter Agreement as it existed immediately prior to such event.  Capitalized
terms defined therein and not otherwise defined herein shall have the meanings
assigned in the Letter Agreement.

         (k)     FURTHER AGREEMENTS OF PARTY B.  Party B agrees with Party A
that Party B will comply with each of the covenants set forth in Section 4 of
the Letter Agreement.

         (l)     ADDITIONAL EVENT OF DEFAULT.  With respect to Party B, it
shall constitute an Event of Default under this Agreement if there shall occur
any Event of Default under the Letter Agreement (other than an Event of Default
under Section 5(b) of the Letter Agreement, it being understood that an Event
of Default under Section 5(b) of the Letter Agreement will not constitute an
Event of Default under this Agreement).

         (m)     FURTHER REPRESENTATION OF PARTY B.  Party B represents and
warrants to Party A (which representation will be deemed to be repeated by
Party B on each date on which a Transaction is entered into) that each of the
representations and warranties made by Party B in Section 3 of the Letter
Agreement would be true and correct if made as of the date hereof, and, on the
date hereof, no Event of Default under the Letter Agreement has occurred and is
continuing.

ACCEPTED AND AGREED:

TEXAS COMMERCE BANK                     FRIEDMAN INDUSTRIES,
NATIONAL ASSOCIATION                    INCORPORATED


By:  /s/ STEVE SHIPLEY                  By: /s/ BEN HARPER
     -----------------------                ------------------------
     Name: Steve Shipley                    Name: Ben Harper
     Title: Vice President                  Title: Senior Vice President-Finance


                                       8