-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TCCxFzs4uIGrXrJJ6WJzHPvwPIBlfQibTDpYkZGiyeS+6GU7b39XnOFiHSuqg2Rb otx6trIvw+VuGZv9f1dR1g== 0000899243-97-000976.txt : 19970520 0000899243-97-000976.hdr.sgml : 19970520 ACCESSION NUMBER: 0000899243-97-000976 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC /TX/ CENTRAL INDEX KEY: 0000795662 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 760185186 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10059 FILM NUMBER: 97606162 BUSINESS ADDRESS: STREET 1: 1200 SMITH ST, SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: 1200 SMITH ST SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC /TX/ DATE OF NAME CHANGE: 19961218 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC DATE OF NAME CHANGE: 19960828 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICAL INC CENTRAL INDEX KEY: 0001014669 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 760502785 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-04343-01 FILM NUMBER: 97606163 BUSINESS ADDRESS: STREET 1: 1200 SMITH STREET STREET 2: SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: C/O STERLING GROUP INC STREET 2: EIGHT GREENWAY PLAZA, SUITE 702 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: STX CHEMICALS CORP DATE OF NAME CHANGE: 19960516 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ---------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10059 STERLING CHEMICALS HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0185186 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1200 SMITH STREET, SUITE 1900 HOUSTON, TEXAS 77002-4312 (713) 650-3700 (ADDRESS OF PRINCIPAL EXECUTIVE (REGISTRANT'S TELEPHONE NUMBER, OFFICES) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE COMMISSION FILE NUMBER 333-04343-01 STERLING CHEMICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0502785 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1200 SMITH STREET, SUITE 1900 HOUSTON, TEXAS 77002-4312 (713) 650-3700 (ADDRESS OF PRINCIPAL EXECUTIVE (REGISTRANT'S TELEPHONE NUMBER, OFFICES) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Sterling Chemicals, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with the reduced disclosure format provided for by General Instruction H(2) of Form 10-Q. ---------------- Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of May 9, 1997, Sterling Chemicals Holdings, Inc. had 11,974,171 shares of common stock outstanding. As of such date, the aggregate market value of such common stock held by nonaffiliates, based upon the last sales price of these shares as reported on the OTC Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc., was approximately $141 million. As of May 9, 1997, all outstanding equity securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals Holdings, Inc. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- This combined Form 10-Q is separately filed by Holdings and Chemicals (each as defined herein). Information contained herein relating to Chemicals is filed by Holdings and separately by Chemicals on its own behalf. Certain capitalized terms used in this Form 10-Q are defined in the Notes to Condensed Consolidated Financial Statements, included herein. PART I.--FINANCIAL INFORMATION ITEM 1.--FINANCIAL STATEMENTS 2 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
MARCH 31, SEPTEMBER 1997 30, 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents.... $ 6,280 $ 5,609 Accounts receivable.......... 159,653 133,399 Inventories.................. 75,819 53,720 Prepaid expenses............. 16,746 10,226 Deferred income taxes........ 6,616 6,064 --------- --------- Total current assets......... 265,114 209,018 Property, plant and equipment, net........................... 439,565 365,765 Other assets................... 127,166 114,901 --------- --------- Total assets............... $ 831,845 $ 689,684 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable............. $ 70,372 $ 66,562 Accrued liabilities.......... 63,608 53,898 Current portion of long-term debt........................ 22,015 11,625 --------- --------- Total current liabilities.. 155,995 132,085 Long-term debt................. 808,576 714,632 Deferred income taxes.......... 47,226 46,933 Deferred credits and other liabilities................... 89,643 68,473 Common stock held by ESOP...... 7,688 6,500 Less: unearned compensation.... (6,620) (6,500) Redeemable preferred stock..... 10,162 -- Commitments and contingencies Stockholders' equity (deficiency in assets): Common stock, $.01 par value, 20,000,000 shares authorized, 11,333,000 shares issued; 11,326,000 outstanding at March 31, 1997; and 10,599,000 shares issued and outstanding at September 30, 1996.......... 113 106 Additional paid-in capital... (551,271) (560,077) Retained earnings.......... 291,480 306,656 Accumulated translation adjustment................ (21,061) (19,124) --------- --------- (280,739) (272,439) Treasury stock, at cost, 7,000 shares at March 31, 1997...................... (86) -- --------- --------- Total stockholders' equity (deficiency in assets)...................(280,825) (272,439) --------- --------- Total liabilities and stockholders' equity (deficiency in assets)............... $ 831,845 $ 689,684 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED ENDED MARCH 31, MARCH 31, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Revenues................................. $239,763 $190,879 $426,689 $382,421 Cost of goods sold....................... 222,936 161,481 394,779 323,628 -------- -------- -------- -------- Gross profit............................. 16,827 29,398 31,910 58,793 Selling, general, and administrative expenses................................ 7,223 8,298 13,349 16,108 Stock appreciation rights expense........ -- 6,447 -- 6,658 Other expense............................ -- 3,550 -- 3,550 Interest and debt related expenses, net of interest income...................... 20,850 1,601 39,474 3,210 -------- -------- -------- -------- Income (loss) before income taxes........ (11,246) 9,502 (20,913) 29,267 Provision (benefit) for income taxes..... (3,435) 3,075 (5,904) 10,053 -------- -------- -------- -------- Net income (loss)........................ (7,811) 6,427 (15,009) 19,214 Preferred stock dividend................. 162 -- 162 -- -------- -------- -------- -------- Net income (loss) attributable to common stockholders............................ $ (7,973) $ 6,427 $(15,171) $ 19,214 ======== ======== ======== ======== Net income (loss) per common share....... $ (0.72) $ 0.12 $ (1.40) $ 0.35 ======== ======== ======== ======== Weighted average shares outstanding...... 11,118 55,690 10,860 55,682
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, ------------------ 1997 1996 -------- -------- Cash flows from operating activities: Cash received from customers.............................. $441,473 $422,542 Miscellaneous cash receipts............................... 9,368 11,044 Cash paid to suppliers and employees...................... (414,540) (404,391) Interest paid............................................. (28,579) (3,280) Interest received......................................... 266 538 Income taxes paid (refunded).............................. 1,433 (10,303) -------- -------- Net cash provided by operating activities................... 9,421 16,150 -------- -------- Cash flows from investing activities: Capital expenditures...................................... (25,154) (48,996) Purchase of assets-acrylic fibers business................ (88,200) -- Proceeds-sale of assets................................... 16 -- -------- -------- Cash used in investing activities........................... (113,338) (48,996) Cash flows from financing activities: Proceeds from long-term debt.............................. 146,900 38,000 Repayment of long-term debt............................... (50,072) (34,392) Issuance of common stock.................................. 12,339 -- Purchase of treasury stock................................ (613) -- Other..................................................... (3,889) (289) -------- -------- Net cash provided by financing activities................... 104,665 3,319 -------- -------- Effect of exchange rate on cash............................. (77) (94) -------- -------- Net increase (decrease) in cash and cash equivalents........ 671 (29,621) Cash and cash equivalents--beginning of period.............. 5,609 30,882 -------- -------- Cash and cash equivalents--end of period.................... $ 6,280 $ 1,261 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED) (IN THOUSANDS) (UNAUDITED) RECONCILIATION OF NET INCOME (LOSS) TO CASH PROVIDED BY OPERATING ACTIVITIES
SIX MONTHS ENDED MARCH 31, ----------------- 1997 1996 -------- ------- Net income (loss).......................................... $(15,009) $19,214 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................ 25,164 21,188 Loss on disposal of assets............................... 7 3,329 Deferred tax expense..................................... 3,124 1,600 Accrued compensation..................................... -- 6,850 Unearned compensation.................................... 1,067 -- Discount note amortization............................... 7,507 -- Change in: Accounts receivable...................................... (30,299) (15,570) Inventories.............................................. 1,201 8,960 Prepaid expenses......................................... (6,241) (912) Other assets............................................. (7,317) (5,589) Accounts payable......................................... 6,999 (10,727) Accrued liabilities...................................... 7,149 (18,829) Interest payable......................................... 6,783 705 Taxes payable............................................ (1,234) (840) Other liabilities........................................ 10,520 6,771 -------- ------- Net cash provided by operating activities.................. $ 9,421 $16,150 ======== =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MARCH SEPTEMBER 30, 31, 1997 1996 -------- ------------- ASSETS Current assets: Cash and cash equivalents............................ $ 6,280 $ 5,581 Accounts receivable.................................. 167,209 135,635 Inventories.......................................... 75,819 53,720 Prepaid expenses..................................... 14,739 10,226 Deferred income taxes................................ 6,616 6,064 -------- -------- Total current assets............................... 270,663 211,226 Property, plant and equipment, net..................... 439,565 365,765 Other assets........................................... 120,972 108,460 -------- -------- Total assets..................................... $831,200 $685,451 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable..................................... $ 70,372 $ 66,562 Accrued liabilities.................................. 63,603 55,740 Current portion of long-term debt.................... 22,015 11,625 -------- -------- Total current liabilities.......................... 155,990 133,927 Long-term debt......................................... 709,312 619,875 Deferred income taxes.................................. 50,433 47,478 Deferred credits and other liabilities................. 89,643 68,473 Common stock held by ESOP.............................. 7,688 6,500 Less: unearned compensation............................ (6,620) (6,500) Commitments and contingencies Stockholder's equity (deficiency in assets): Common stock, $.01 par value......................... -- -- Additional paid-in capital........................... (146,538) (165,352) Retained earnings (deficit).......................... (7,647) 174 Accumulated translation adjustment................... (21,061) (19,124) -------- -------- Total stockholder's equity (deficiency in assets).. (175,246) (184,302) -------- -------- Total liabilities and stockholder's equity (deficiency in assets).......................... $831,200 $685,451 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 7 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED ENDED MARCH 31, MARCH 31, 1997(1) 1997 ------------ ---------- Revenues............................................... $239,763 $426,689 Cost of goods sold..................................... 222,936 394,779 -------- -------- Gross profit........................................... 16,827 31,910 Selling, general and administrative expenses........... 7,012 12,783 Interest and debt related expenses..................... 17,011 31,812 Interest income from parent............................ -- (1,788) -------- -------- Loss before income taxes............................... (7,196) (10,897) Benefit for income taxes............................... (2,553) (3,076) -------- -------- Net Loss............................................... $ (4,643) $ (7,821) ======== ========
- -------- (1) See Note 1 of Notes to Condensed Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities other than those related to merger activities. The accompanying notes are an integral part of the condensed consolidated financial statements. 8 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1997 ---------- Cash flows from operating activities: Cash received from customers....................................... $441,473 Miscellaneous cash receipts........................................ 9,412 Cash paid to suppliers and employees............................... (415,150) Interest paid...................................................... (28,579) Interest received.................................................. 261 Income taxes paid.................................................. 1,433 -------- Net cash provided by operating activities............................ 8,850 -------- Cash flows from investing activities: Capital expenditures............................................... (25,154) Purchase of assets-fibers business................................. (88,200) Proceeds from sale of assets....................................... 16 -------- Net cash used in investing activities................................ (113,338) Cash flows from financing activities: Proceeds from long-term debt....................................... 146,900 Repayment of long-term debt........................................ (50,072) Intercompany financing............................................. 3,000 Contributions from parent.......................................... 8,604 Other.............................................................. (3,168) -------- Net cash used in financing activities................................ 105,264 -------- Effect of exchange rate on cash...................................... (77) -------- Net change in cash and cash equivalents.............................. 699 Cash and cash equivalents--beginning of period....................... 5,581 -------- Cash and cash equivalents--end of period............................. $ 6,280 ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 9 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED (IN THOUSANDS) (UNAUDITED) RECONCILIATION OF NET LOSS TO CASH PROVIDED BY OPERATING ACTIVITIES
SIX MONTHS ENDED MARCH 31, 1997(1) ---------- Net loss........................................................... $(7,821) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.................................... 25,002 Loss on disposal of assets....................................... 7 Deferred tax expense............................................. 5,787 Unearned compensation............................................ 1,067 Change in: Accounts receivable.............................................. (34,753) Inventories...................................................... 1,201 Prepaid expenses................................................. (4,234) Other assets..................................................... (7,844) Accounts payable................................................. 7,361 Accrued liabilities.............................................. 7,063 Interest payable................................................. 8,570 Taxes payable.................................................... (3,076) Other liabilities................................................ 10,520 ------- Net cash provided by operating activities.......................... $ 8,850 =======
- -------- (1) See Note 1 of Notes to Condensed Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities other than those related to merger activities. The accompanying notes are an integral part of the condensed consolidated financial statements. 10 STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS) 1. MERGER ACTIVITIES Sterling Chemicals, Inc. (prior to the Merger, "Sterling") and STX Acquisition Corp. ("STX Acquisition"), a Delaware corporation formed in April 1996 by an investor group led by The Sterling Group, Inc. ("TSG") and The Unicorn Group L.L.C. ("Unicorn"), entered into an Amended and Restated Agreement and Plan of Merger dated April 24, 1996 (the "Merger Agreement"). On August 20, 1996, the Merger Agreement was approved by a majority of the shares outstanding, and on August 21, 1996, STX Acquisition merged with and into Sterling, changing its name to Sterling Chemicals Holdings, Inc. ("Holdings"), and continuing as the surviving corporation (the "Merger"). In connection with the Merger, Holdings transferred all of its operating assets and liabilities excluding its 13 1/2% Senior Secured Discount Notes Due 2008 (the "13 1/2% Notes") to a wholly owned subsidiary, STX Chemicals Corp., which at the time of the Merger changed its name to Sterling Chemicals, Inc. (after the Merger, "Chemicals"). Holdings has no direct subsidiaries other than Chemicals. As used herein, the term "Company" refers to Sterling and its subsidiaries prior to the consummation of the Merger and, following the Merger, to Holdings and its subsidiaries, including Chemicals. Each share of Sterling's common stock outstanding immediately prior to the Merger was converted (at the election of the holder thereof) into either $12.00 cash or the right to retain such shares ("Rollover Shares"), with the aggregate number of Rollover Shares limited to 5.0 million. As a result of the Merger, on August 21, 1996, the former STX Acquisition stockholders held approximately 5.3 million shares (49%), stockholders with Rollover Shares held approximately 5.0 million shares (46%), and the Company's newly formed Employee Stock Ownership Plan (the "ESOP") held approximately 542,000 shares (5%) of the outstanding shares of Holdings' common stock, par value $0.01 per share ("Holdings Common Stock"). The Merger was financed by the proceeds of bank term loans of $356.5 million, including an ESOP term loan of $6.5 million, amounts drawn against a revolving credit facility of $6.4 million each pursuant to a new credit agreement (the " Original Credit Agreement"), an offering by Chemicals of $275.0 million of Chemicals' 11 3/4% Senior Subordinated Notes Due 2006 (the "11 3/4% Notes"), an offering of $191.8 million (initial proceeds of $100 million) representing 191,751 Units, with each unit consisting of one 13 1/2% Note and one Warrant to purchase three shares of Holdings Common Stock for $0.01 per share beginning in August 1997, equity raised by STX Acquisition of approximately $70.7 million, and cash on hand of $10.3 million. These proceeds were used to redeem Sterling's common stock other than Rollover Shares ($608.3 million), purchase other equity interests (primarily stock appreciation rights ("SARs")) ($14.6 million), repay debt outstanding prior to the Merger ($142.7 million), loan monies to the new ESOP ($6.5 million), and pay fees and expenses ($46.8 million). The Company has accounted for the Merger and related financing (collectively the "1996 Recapitalization") as a series of debt and equity transactions representing a recapitalization. Accordingly, the historical basis of the Company's assets and liabilities have not been impacted by the 1996 Recapitalization. 2. BASIS OF PRESENTATION: In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of the Company and Chemicals as of March 31, 1997 and their consolidated results of operations and cash flows for the applicable three-month and six-month periods ended March 31, 1997 and 1996. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results 11 to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be, and are assumed to have been, read in conjunction with the consolidated financial statements and notes included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year ended September 30, 1996 (the "Annual Report"). The condensed consolidated balance sheets as of September 30, 1996 included herein have been derived from the audited consolidated balance sheets as of September 30, 1996 included in the Annual Report. The condensed consolidated financial statements as of and for the three-month and six-month periods ended March 31, 1997 included herein have been subjected to a review by Deloitte & Touche LLP, the Company's independent public accountants, whose reports are included herein. Certain amounts reported in the financial statements for the prior periods have been reclassified to conform with the current financial statement presentation with no effect on net income or stockholders' equity. 3. INVENTORIES:
MARCH 31, SEPTEMBER 30, 1997 1996 --------- ------------- Inventories consisted of the following: Finished products....................................... $47,163 $31,868 Raw materials........................................... 13,189 9,499 Inventories under exchange agreements................... (2,965) 722 Stores and supplies..................................... 18,432 11,631 ------- ------- $75,819 $53,720 ======= =======
4. LONG-TERM DEBT:
MARCH SEPTEMBER 30, 31, 1997 1996 -------- ------------- Long-term debt consisted of the following: Revolving credit facilities............................. $ 21,640 $ -- Term Loans.............................................. 426,000 350,000 ESOP term loan.......................................... 5,688 6,500 11 3/4% Notes........................................... 275,000 275,000 13 1/2% Notes........................................... 102,263 94,757 -------- -------- Total debt outstanding................................ 830,591 726,257 Less: Current maturities.................................... (22,015) (11,625) -------- -------- Total long-term debt.................................... $808,576 $714,632 ======== ========
As part of the 1996 Recapitalization, Chemicals entered into the Original Credit Agreement with Texas Commerce Bank National Association, as agent bank for a syndicate of lenders, and Credit Suisse First Boston and Chase Securities, Inc. as co-arrangers. Funding under the Original Credit Agreement occurred August 21, 1996, upon the consummation of the Merger. The Original Credit Agreement provides for facilities consisting of a six and one-half year revolving credit facility providing for up to $100 million (subject to a monthly borrowing base calculation) in revolving loans (the "Revolver"), a term loan facility consisting of a six and one-half year $200 million Tranche A term loan and an eight-year $150 million Tranche B term loan (the "Original Term Loans"), and a four-year $6.5 million ESOP Term Loan (the "ESOP Loan"). On January 31, 1997, the Company acquired (the "AFB Acquisition") the acrylic fibers business (the "AFB") of Cytec Industries Inc. ("Cytec") (See Note 7). In connection with the AFB Acquisition, Chemicals entered into a credit agreement (the "New Credit Agreement" and together with the Original Credit Agreement, the "Senior Credit Agreements") with Texas Commerce Bank National Association, as agent bank for a 12 syndicate of lenders, and Credit Suisse First Boston and Chase Securities Inc. as co-arrangers. Funding under the New Credit Agreement occurred January 31, 1997, upon consummation of the AFB Acquisition. The New Credit Agreement provides for a term loan facility consisting of a $31 million Tranche A term loan due March 31, 2003 and a $50 million Tranche B term loan due September 30, 2004 (the "New Term Loans" and together with the Original Term Loans, the "Term Loans"). The Term Loans, the ESOP Loan and the Revolver borrowings bear interest, at Chemicals' option, at an annual rate of either the Eurodollar Rate or the Base Rate plus an Applicable Margin ranging from 0% to 3% depending upon the Company's Leverage Ratio (as defined in the Original Credit Agreement). The "Base Rate" is equal to the greater of the Prime Rate as announced from time to time by the agent bank, the "Federal Funds Effective Rate" plus 1/2% or the "Base CD Rate" plus 1% (as such terms are defined in the Senior Credit Agreements). The Original Credit Agreement also requires Chemicals to pay a commitment fee in the amounts of 3/8% or 1/2% of the unused commitment under the Revolver depending on the Company's Leverage Ratio. On April 7, 1997, Chemicals completed a private offering (the "11 1/4% Notes Offering") of $150,000,000 of 11 1/4% Senior Subordinated Notes Due 2007 (the "11 1/4% Notes"). The 11 1/4% Notes are unsecured senior subordinated obligations of Chemicals, ranking subordinate in right of payment to all existing and future senior debt of Chemicals, but pari passu with the 11 3/4% Notes and all future senior subordinated indebtedness. The proceeds of the 11 1/4% Notes Offering were used to prepay outstanding indebtedness under the Term Loans. In connection with such prepayments, Chemicals and the requisite lenders under the Senior Credit Agreements effected amendments to the Senior Credit Agreements ("the Amendments"). Among other things, the Amendments (i) permitted and provided for the issuance of the 11 1/4% Notes, (ii) adjusted the method of the application of voluntary prepayments to allow the proceeds of the 11 1/4% Notes Offering to be applied in a manner that significantly reduced required principal payments, particularly over the next three years, (iii) amended certain financial covenants to make them somewhat less restrictive, including amendments to ratios specified in the Amendments, (iv) increased the commitment under the Revolver by $25 million to $125 million and (v) included a new financial covenant with respect to the maintenance of a specified Senior Debt Leverage Ratio. 5. COMMITMENTS AND CONTINGENCIES: Product Contracts The Company has certain long-term agreements that provide for the dedication of 100% of the Company's production of acetic acid, plasticizers, tertiary butylamine, and sodium cyanide, each to one customer. The Company also has various sales and conversion agreements that dedicate significant portions of the Company's production of styrene monomer, acrylonitrile, and methanol, the Company's major petrochemical products, to various customers. These agreements generally provide for cost recovery plus an agreed margin or element of profit based upon market price. Environmental Regulations The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits which are required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. New laws or permit requirements and conditions may affect the Company's operations, products, or waste disposal. Past or future operations may result in claims or liabilities. Expenditures could be required to upgrade waste water collection, pretreatment, or disposal systems or for other matters related to production, transportation and disposal of materials classified as hazardous or toxic. 13 Legal Proceedings Ammonia Release Lawsuits. A description of the ammonia release lawsuit is found under "Legal Proceedings" in Note 7 of the "Notes To Consolidated Financial Statements" of the Annual Report and is incorporated herein by reference. As discussed therein, approximately 2,600 of the plaintiffs agreed to submit their damage claims to binding arbitration. Each of the plaintiffs who agreed to participate in the arbitration waived any right of recovery for punitive or exemplary damages. Pursuant to the agreement to arbitrate, a two- week evidentiary proceeding was conducted in July 1996 before a three-judge panel to determine the amount of damages. On May 1, 1997, the three-judge panel awarded the plaintiffs an amount of damages which was well within the limits of the Company's insurance coverages and will not have a material adverse impact on the financial position, results of operations, or cash flows of the Company. The Company continues to vigorously defend against the claims of the plaintiffs who did not participate in the July 1996 arbitration. Other Lawsuits. The Company is subject to various other claims and legal actions that arise in the ordinary course of its business. Litigation Contingency In accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," and Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the Company has made estimates of the reasonably possible range of its liability with regard to outstanding litigation for which it may incur liability. In addition, liabilities have been accrued based on the estimated probable loss from such litigation. These estimates are based on management's judgments using currently available information as well as consultation with the Company's insurance carriers and outside legal counsel. A number of the claims in these litigation matters are covered by the Company's insurance policies. The Company therefore has also made estimates of its probable recoveries under these insurance policies based on its understanding of these policies, discussions with its insurers and consultation with outside legal counsel, in addition to management's judgments. Based on the foregoing, as of March 31, 1997, the Company has accrued approximately $21.3 million as its estimate of aggregate contingent liability for these matters, and has also recorded aggregate receivables from its insurers of approximately $20.6 million. At March 31, 1997, management estimates that the aggregate reasonably possible range of loss for all litigation combined, in addition to the amount accrued, is from $0 to $20 million. The Company believes that this additional reasonably possible loss is substantially covered by insurance. While the Company has based its estimates on its evaluation of available information to date and the other matters described above, much of the litigation is in its early stages and it is impossible to predict with certainty the ultimate outcome. The Company will adjust its estimates as necessary as additional information is developed and evaluated. However, the Company believes that the final resolution of these contingencies will not have a material adverse impact on the financial position, results of operations, or cash flows of the Company. The timing of probable insurance recoveries, and additional accruals or payment of liabilities, if any, are not expected to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. 6. NEW ACCOUNTING STANDARDS: The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes new accounting standards for measuring the impairment of long- lived assets. The Company adopted this Statement in the first quarter of fiscal 1997. The adoption of this Statement did not have a material adverse effect on the Company's financial position, results of operations, or cash flows. 14 The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. Under SFAS No. 123, companies are permitted to either adopt this new standard and record expenses for stock options and other stock-based employee compensation plans based on their fair value at date of grant, or continue to apply its current accounting policy under Accounting Principles Board ("APB") Opinion No. 25 and increase its footnote disclosure. In the first quarter of fiscal 1997, the Company elected to continue to apply APB Opinion No. 25, and will increase its footnote disclosure to include the pro forma impact on net income and earnings per share of the application of the fair value based method of accounting. The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," in February 1997. SFAS No. 128, which is effective for periods ending after December 15, 1997, establishes standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 replaces the presentation of primary EPS previously prescribed by APB No. 15 with a presentation of basic EPS, which is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The statement also requires dual presentation of basic and diluted EPS. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB No. 15. Pro forma basic and diluted EPS for all historical periods presented, assuming that SFAS No. 128 was effective at the beginning of each such historical period, would not be materially different from what has been presented using APB No. 15. 7. BUSINESS ACQUISITIONS: On January 31, 1997, the Company acquired the AFB from Cytec. The AFB, now owned by two wholly owned subsidiaries of the Company (collectively "Sterling Fibers"), recorded sales of approximately $139 million in calendar year 1996 and consists of an acrylic fibers plant located near Pensacola, Florida and several associated marketing and research offices. Sterling Fibers is one of two acrylic fibers manufacturers in the United States. Cytec will supply acrylonitrile to Sterling Fibers through the continuation of a five-year supply agreement ending in 2002. The acquisition was financed through the incurrence of $81 million of term debt under the New Credit Agreement with substantially the same lenders as those under the Original Credit Agreement, the issuance of $10 million (liquidation value) of Series A "pay in kind" mandatory redeemable preferred stock ("Series A Preferred") to Cytec, and the sale of $10 million of Holdings Common Stock in a private placement. The Company used the purchase method to account for the acquisition, and operating results of Sterling Fibers beginning February 1, 1997 are included with those of the Company. The following table presents the unaudited pro forma results of operations of the Company as if the AFB Acquisition had occurred on October 1, 1995. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the AFB Acquisition been made at the beginning of fiscal year 1996 or of results which may occur in the future.
PRO FORMA PRO FORMA SIX MONTHS SIX MONTHS ENDED ENDED MARCH 31, MARCH 31, 1997 1996 ---------- ---------- IN THOUSANDS EXCEPT PER SHARE AMOUNTS Revenues.................................................. $471,159 $446,121 Net Income (loss) attributable to common stockholders..... (16,662) 20,680 Net income (loss) per common share........................ $ (1.46) $ 0.37 Weighted average shares................................... 11,381 56,515
15 8. EMPLOYEE BENEFITS: Omnibus Stock Awards and Incentive Plan In April 1997, the Board of Directors, upon recommendation of the Compensation Committee, but subject to shareholder approval at the next stockholders meeting, approved the establishment of the Omnibus Stock Awards and Incentive Plan (the "Omnibus Plan"). Under the Omnibus Plan, the Company may grant to key employees, incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards, and phantom stock awards. The terms and amounts of the awards will be determined by the Compensation Committee of the Board of Directors. One million shares of the Company's stock are reserved for issuance under the Omnibus Plan. In the event of a change of control of the Company or an initial public offering of Holdings Common Stock, all awards will immediately vest and become exercisable. Nonqualified Stock Option Plan for Non-Employee Directors Also in April 1997, the Board of Directors, upon recommendation of the Compensation Committee, approved the establishment of the Nonqualified Stock Option Plan for Non-Employee Directors (the "Nonqualified Plan"). Each non- employee director of the Company will participate in the Nonqualified Plan. Each eligible director on the date of adoption of the Nonqualified Plan will be granted an option to acquire 2,000 shares of Holdings Common Stock (4,000 shares for the Vice-Chairman), and each eligible director who is serving on the Board of Directors on each subsequent October 1st will automatically be granted an option to acquire 1,000 shares of Holdings Common Stock (2,000 shares for the Vice-Chairman). All options will expire ten years from date of grant. All options will be granted at the fair market value on the date of grant. A total of 160,000 shares of Holdings Common Stock are reserved for issuance under the Nonqualified Plan. Profit Sharing and Bonus Plan In January 1997, the Board of Directors, upon recommendation of the Compensation Committee, approved the establishment of a Profit Sharing Plan that is designed to benefit all qualified employees, and a Bonus Plan that is expected to provide for bonuses to certain key employees based on the Company's annual financial performance. 9. WEIGHTED AVERAGE SHARES(1): The weighted average shares outstanding used in the calculation of earnings per share is calculated below: Total Shares outstanding as of 3/31/97................. 11,967,000 Unallocated shares held by ESOP........................ 557,000 Total shares outstanding Less: unallocated shares held by ESOP at 3/31/97...... 11,410,000 ----------
THREE SIX WEIGHTED AVERAGE EFFECT OF: MONTHS MONTHS --------------------------- ---------- ---------- 44,000 shares acquired by ESOP......................... -- 21 7,000 treasury shares acquired......................... 6 3 84,000 allocated shares held by ESOP................... (38) (53) 778,000 newly issued shares............................ (260) (521) Weighted average shares outstanding for the three and six-month periods ended March 31, 1997................ 11,118,000 10,860,000
- -------- (1) Weighted average shares outstanding excludes warrants equal to 575,000 shares which were antidilutive for the three and six-month period ending March 31, 1997. 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sterling Chemicals Holdings, Inc. and subsidiaries (the "Company") as of March 31, 1997, and the related condensed consolidated statements of operations and cash flows for the three-month and six-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of September 30, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated December 6, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1996 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Houston, Texas May 13, 1997 17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholder of Sterling Chemicals, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sterling Chemicals, Inc. and subsidiaries ("Chemicals") as of March 31, 1997, and the related condensed consolidated statements of operations and cash flows for the three-month and six-month periods then ended. These financial statements are the responsibility of Chemicals' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Chemicals as of September 30, 1996, and the related consolidated statement of operations, stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated December 6, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1996 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Houston, Texas May 13, 1997 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain capitalized terms used herein have the meanings assigned to them in the Notes To Condensed Consolidated Financial Statements. OVERVIEW Holdings is a holding company whose only material asset is its investment in Chemicals. Holdings' only material liability is its obligation to repay the 13 1/2% Notes issued in connection with the Merger. Chemicals and its subsidiaries own substantially all of the consolidated operating assets and are obligated for substantially all liabilities of the Company other than the 13 1/2% Notes. The Merger that occurred on August 21, 1996 and related financings were accounted for as a recapitalization, with no change in the basis of the assets and liabilities of Chemicals. Other than the additional interest expense associated with the 13 1/2% Notes and the preferred stock dividend associated with the Series A Preferred issued to Cytec, the results of operations for the Company are essentially the same as those for Chemicals. Accordingly, the discussion that follows is applicable to both entities, except as specifically noted. A separate discussion of the results of operations for Chemicals for the three-month and six-month periods ended March 31, 1997 would not, in the opinion of the Company, provide any additional meaningful information. RECENT DEVELOPMENTS On April 7, 1997, Chemicals completed its private offering of $150,000,000 of 11 1/4% Notes. The 11 1/4% Notes are unsecured senior subordinated obligations of Chemicals, ranking subordinate in right of payment to all existing and future senior debt of Chemicals, but pari passu with the 11 3/4% Notes and all future senior subordinated indebtedness. The proceeds of the 11 1/4% Notes Offering were used to prepay outstanding indebtedness under the Term Loans. In connection with such prepayments, Chemicals and the requisite lenders under the Senior Credit Agreements effected the Amendments. Among other things, the Amendments (i) permitted and provided for the issuance of the 11 1/4% Notes, (ii) adjusted the method of the application of voluntary prepayments to allow the proceeds of the 11 1/4% Notes Offering to be applied in a manner that significantly reduced required principal payments, particularly over the next three years, (iii) amended certain financial covenants to make them somewhat less restrictive, including amendments to specific ratios specified in the Amendments, (iv) increased the commitment under the Revolver by $25 million to $125 million, and (v) included a new financial covenant with respect to the maintenance of a specified Senior Debt Leverage Ratio (as defined in the Amendments). On January 31, 1997, the Company acquired the AFB from Cytec. The AFB, now owned and operated by Sterling Fibers, recorded sales of approximately $139 million in calendar year 1996 and consists of an acrylic fibers plant located near Pensacola, Florida and several associated marketing and research offices. Sterling Fibers is one of two acrylic fibers manufacturers in the United States. Cytec will supply acrylonitrile to Sterling Fibers through the continuation of a five-year supply agreement ending in 2002. The total consideration paid for the acquisition was $101 million, which was financed through the incurrence of $81 million of New Term Loans, the issuance to Cytec of 100,000 shares of Series A Preferred with an aggregate $10 million liquidation value, and the sale of 833,334 shares of Holdings Common Stock for a total of $10 million. The Company used the purchase method of accounting to account for the acquisition, and operating results of Sterling Fibers beginning February 1, 1997 are included with those of the Company. RESULTS OF OPERATIONS Consolidated revenues increased for the three and six month periods ending March 31, 1997 compared to the same period in fiscal 1996. The primary reasons for these increased revenues were increased volumes for 19 sodium chlorate, due in part to the startup of the Company's new sodium chlorate plant in Valdosta, Georgia, revenues from the Company's new methanol unit at the Texas City, Texas plant, two months of operations from the recently acquired AFB and increased sales volumes of acrylonitrile. Consolidated net income (loss) was lower due to lower petrochemical margins (primarily styrene), along with an increase of interest expense to $20.9 million and $39.5 million for the three and six month periods of 1997, respectively, compared to $1.6 million and $3.2 million for the same periods last year. Revenues for the second quarter of fiscal 1997 were approximately $240 million compared to revenues of approximately $191 million for the second quarter of fiscal 1996, an increase of nearly 26%. A net loss of $7.8 million or $0.72 per share was recorded for the second quarter of fiscal 1997 compared to net income of $6.4 million or $0.12 per share for the second quarter of fiscal 1996. Revenues for the first six months of fiscal 1997 were approximately $427 million compared to revenues of approximately $382 million for the first six months of fiscal 1996, an increase of nearly 12%. A net loss of $15.0 million or $1.40 per share was recorded for the first six months of fiscal 1997 compared to net income of $19.2 million or $0.35 per share for the first six months of fiscal 1996. Petrochemicals The new methanol unit and higher acrylonitrile sales volumes were principally responsible for the revenue increase in the three-month period of 1997 compared to 1996. Methanol was also a significant contributor to the increased six-month revenues. The Company's petrochemical business recorded operating losses of $4.1 million and $6.6 million, respectively, for the three and six month periods of 1997 compared to earnings of $4.0 million and $14.7 million, respectively, for the same periods of fiscal 1996. The decrease in operating earnings for the second quarter was primarily due to significantly lower styrene margins, and the decrease in the six month period was primarily due to both significantly lower styrene margins and lower acrylonitrile margins. Styrene. Styrene revenues increased nearly 1% to approximately $89 million in the second quarter of fiscal 1997 and approximately 2% to about $165 million for the first six months of fiscal 1997 compared to the same periods in fiscal 1996. Styrene sales prices decreased moderately from the same fiscal 1996 periods because of weaker market conditions, particularly in the export market. Average sales prices for both the second quarter and first six months of fiscal 1997 decreased by approximately 1% from the same periods a year ago. Sales volumes for both the three-month and six-month periods showed only marginal changes when compared to the same period last year. The prices of styrene's major raw materials, benzene and ethylene, were substantially higher during the second quarter and first six months of fiscal 1997 compared to the same periods in fiscal 1996. Benzene prices were approximately 21% and 26% higher, and ethylene prices were approximately 41% and 30% higher, for the respective 1997 periods compared to 1996. These price escalations contributed significantly to the decline in styrene margins as market conditions did not allow for sufficient styrene price increases to compensate for these rising costs. Acrylonitrile. Acrylonitrile revenues for the three month period ended March 31, 1997 increased approximately 40% to $42 million compared to the corresponding period in fiscal 1996. This increase was partly due to a 53% rise in sales volumes for the period, and partly due to the fact that the acrylonitrile unit was shut down for most of March 1996 for scheduled maintenance and the upgrade of its distributive control system. Acrylonitrile revenue for the first six months of fiscal 1997, however, decreased by nearly 10%, the result of a 20% decrease in the average acrylonitrile sales price realized by the Company. Sales volumes for the six month period showed a 12% increase when compared to the same period last year. 20 The prices of acrylonitrile's major raw materials, propylene and ammonia, were approximately 36% and 11% higher, respectively, in the second fiscal quarter and approximately 20% and 17% higher, respectively, for the first six months of fiscal 1997 than in the corresponding periods in fiscal 1996. These increases contributed to the decline in acrylonitrile margins. Methanol. In August 1996, the Company completed construction of its methanol unit at its Texas City, Texas plant as part of its capital program. During the demonstration period, problems in the unit's reformer burners developed. The burners were replaced during a three week shutdown in October 1996 and the methanol unit resumed production at projected capacities in late October 1996. Methanol revenues in the second fiscal quarter of 1997 were negatively impacted by a two week shutdown for compressor repairs. Methanol revenues for the period was $17.6 million, bringing the total revenues for the first six months of fiscal 1997 to approximately $32 million. Sales volumes for the three and six month periods of fiscal 1997 were approximately 34 million and 64 million gallons, respectively. Margins improved significantly late in the second quarter as the price of natural gas (the primary raw material for methanol) declined significantly from January and February levels without a corresponding drop in the price of methanol. The methanol unit was under construction during the corresponding periods of 1996. Other Petrochemical Products. Revenues from the Company's other petrochemical products (including acetic acid, plasticizers, tertiary butylamine, and sodium cyanide) in the second quarter of fiscal 1997 were approximately $26 million, a decrease of about 20% when compared to the same period last year. Revenues for the six-month period ended March 31, 1997 were down approximately 22% to about $54 million when compared to the same 1996 period. The decrease in revenues reflects a reduction in sodium cyanide revenues resulting from lower demand, and a decline in acetic acid revenues resulting from a procedural change in the billings to BP Chemicals Inc. ("BP"). Methanol used in the production of acetic acid was billed to BP as part of the total cost of production prior to the startup of the Company's methanol unit and included in acetic acid revenues. These methanol sales are now being billed separately. Pulp Chemicals Revenues from the Company's pulp chemical business increased 12% to $42 million and 11% to $85 million for the second quarter and first six months of fiscal 1997, respectively, when compared to the same periods last year. The increase in revenues was primarily due to an increase in sales volumes of sodium chlorate of approximately 19% and 9%, respectively, when compared to the corresponding three and six month periods of 1996. The increase in sales volumes in the second quarter was aided by the startup of the new sodium chlorate facility in Valdosta, Georgia in December 1996. Average sales prices for sodium chlorate declined approximately 5% in the second quarter of fiscal 1997 compared to the corresponding period in 1996. Average sodium chlorate sales prices for the first six months of 1997 were approximately the same as the corresponding period in 1996. Royalty revenues from installed generator technology increased 8% in the second fiscal quarter and 4% in the first six months of fiscal 1997 compared to the corresponding periods of 1996. Operating earnings for the pulp chemicals business were $13.3 million for the second quarter of fiscal 1997 compared to $7.1 million during the corresponding period of 1996. Operating earnings for the pulp chemicals business were $24.4 million for the first six months of fiscal 1997 compared to $17.8 million for the corresponding period in 1996. The increase for the three month and six month periods was primarily due to increased sales volumes of sodium chlorate and higher royalty revenues. In addition, the Company recorded $3.1 million of expenses associated with stock appreciation rights for its pulp chemicals employees during the corresponding six months of fiscal 1996. Fibers For the two-month period from February 1, 1997 to March 31, 1997, Sterling Fibers recorded revenues and operating earnings of $23.4 million and $0.8 million, respectively. Because the Company did not acquire the assets constituting the AFB prior to January 31, 1997, there are no corresponding results for prior periods. 21 Selling, General, and Administrative Expenses Selling, general, and administrative expenses for the first six months of fiscal 1997 were approximately $13 million compared to approximately $16 million in the first six months of fiscal 1996. The improvement is due primarily to a sales tax refund accrual of $1 million plus lower employee profit sharing and other overheads totaling approximately $2 million. Interest and Debt Related Expense Interest and debt related expenses for the three and six month periods ending March 31, 1997 were $20.9 million and $39.5 million, respectively, compared to $1.6 million and $3.2 million, respectively, for the corresponding periods in 1996. This increase is primarily due to the additional debt incurred in the 1996 Recapitalization and the AFB Acquisition. LIQUIDITY AND CAPITAL RESOURCES Debt Structure On August 21, 1996, the Company completed the 1996 Recapitalization, significantly increasing the Company's leverage and cash requirements for debt service related to the Original Credit Agreement, the 13 1/2% Notes and the 11 3/4% Notes. In connection with the AFB Acquisition, Chemicals entered into the New Credit Agreement with Texas Commerce Bank National Association, as agent bank for a syndicate of lenders, and Credit Suisse First Boston and Chase Securities Inc. as co-arrangers. Funding under the New Credit Agreement occurred January 31, 1997, upon consummation of the AFB Acquisition. The New Credit Agreement provides for a term loan facility consisting of a $31 million Tranche A term loan due March 31, 2003 and a $50 million Tranche B term loan due September 30, 2004. At March 31, 1997, the Company's long-term debt (including current maturities) was $831 million. On April 7, 1997, Chemicals completed the 11 1/4% Notes Offering. The 11 1/4% Notes are unsecured senior subordinated obligations of Chemicals, ranking subordinate in right of payment to all existing and future senior debt of Chemicals, but pari passu with the 11 3/4% Notes and all future senior subordinated indebtedness. The Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes, should it need to do so, will be affected by the covenants in its various debt agreements and by cash requirements for debt service. The Senior Credit Agreements and the indentures governing the 11 1/4% Notes, the 11 3/4% Notes and the 13 1/2% Notes (the "Indentures") contain numerous financial and operational covenants, including, without limitation, restrictions on the Company's ability to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions, and refinance existing indebtedness, as well as the obligation of the Company to maintain certain financial ratios. The 11 1/4% Notes Offering was permitted under the Indentures as a Refinancing of Debt outstanding under the Senior Credit Agreements. At the time of the AFB Acquisition, the Company negotiated an amendment to the Original Credit Agreement to permit the AFB Acquisition and to make certain financial covenants, including the Leverage Ratio covenant applicable through the end of fiscal 1997, somewhat less restrictive. The Amendments to the Senior Credit Agreements, which became effective upon consummation of the 11 1/4% Notes Offering and the partial repayment of the Term Loans with the proceeds thereof and were made retroactive to March 31, 1997, further made certain of the financial covenants therein less restrictive, including the Leverage Ratio covenant, among other things. Such modifications did not, however, lessen the restrictions under the Indentures on the Company's ability to incur additional debt. The Company may, however, consummate additional acquisitions under the Indentures if the pro forma effect of such an acquisition has sufficient positive impact on certain financial ratios. The Senior Credit Agreements also require that certain amounts of Excess Cash Flow (as defined therein) be used to prepay amounts outstanding under the Term Loans. The first such mandatory prepayment is not required to be made until January 1998. 22 The Company's ability to comply with the terms of its various debt agreements (including its ability to comply with such covenants) and to meet its debt service obligations will depend on its future performance. The Company was in compliance with its financial covenants (as amended) in effect as of March 31, 1997. The Company intends to meet its liquidity needs for operating activities and capital expenditures (other than acquisitions) through internally generated funds and, to the extent necessary, borrowings under the Revolver. As of March 31, 1997, Chemicals had drawn approximately $21.6 million under the Revolver and issued approximately $1 million in letters of credit under the Revolver, thereby reducing the available commitment under the Revolver at such time to approximately $77.4 million (compared to an available commitment thereunder as of December 31, 1996 of $96 million). As part of the Amendments, on April 7, 1997, the total commitment under the Revolver was increased by $25 million to $125 million. The Company believes that such sources of funds will be sufficient to permit the Company to meet its liquidity needs during fiscal 1997. The Senior Credit Agreements and the indentures for the 11 3/4% Notes and the 11 1/4% Notes contain provisions which restrict the payment of advances, loans, and dividends from Chemicals to Holdings. The most restrictive of those covenants limit such payments during fiscal 1997 to approximately $1.6 million plus any amounts due to Holdings from Chemicals under an intercompany tax sharing agreement. Such restriction is not expected to limit Holdings' ability to meet its obligations in fiscal 1997. Working Capital Working capital of the Company was $109 million at March 31, 1997, up from $77 million atSeptember 30, 1996. The addition of the AFB contributed approximately $29 million to total working capital for the period and was the primary contributor to the overall increase of $32 million. Cash Flow Net cash provided by operations was $9.4 million during the first six months of fiscal 1997 compared to $16.2 million for the corresponding period in fiscal 1996. The decrease was primarily attributable to higher payments for interest and lower operating earnings. Capital Expenditures The Company's capital expenditures for the first six months of fiscal 1997 were $25.1 million compared to $49.0 million in the same period last year. The capital expenditures in the first six months of fiscal 1997 were primarily related to the construction of the Valdosta, Georgia sodium chlorate plant, along with the distributive control system upgrade at the Company's acrylonitrile unit. During the remainder of fiscal 1997, the Company expects to make an additional $10 to 15 million of capital expenditures primarily for process modernization in styrene and acrylonitrile and routine safety, environmental, and replacement capital in the Company's petrochemical, pulp chemical, and fibers businesses. The Company expects to fund its remaining fiscal 1997 capital expenditures from operating cash flow, plus borrowings under the Revolver, if needed. LEGAL PROCEEDINGS The information under "Legal Proceedings" in the Notes to Condensed Consolidated Financial Statements herein is hereby incorporated by reference. 23 PART II--OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES In connection with the acquisition of the AFB from Cytec on January 31, 1997, Holdings issued to Cytec 100,000 shares of Series A "pay in kind" mandatory redeemable preferred stock with an aggregate liquidation value of $10 million and sold 833,334 shares of Holdings Common Stock for a total of $10 million. Of such shares of Holdings Common Stock, 1,698 were sold pursuant to Regulation S to employees of the Company who are not residents of the United States and the remaining shares were sold pursuant to a private placement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on January 22, 1997, at which time the Company's nine nominees for directors were elected and the appointment of Deloitte & Touche LLP as the independent auditors of the financial statements of the Company for the fiscal year ended September 30, 1997 was ratified. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The following exhibits are filed as part of this Form 10-Q.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.1 --Indenture among Sterling Chemicals, Inc. and Fleet National Bank, Trustee, dated as of April 1, 1997. 4.2 --Registration Rights Agreement, dated as of April 1, 1997, among Sterling Chemicals, Inc., as issuer, and Credit Suisse First Boston Corporation and Chase Securities Inc. 4.3 --Credit Agreement among Sterling Chemicals, Inc. and Texas Commerce Bank, individually and as Administrative Agent, Credit Suisse First Boston, individually and as Documentation Agent, and the other lenders named therein, dated January 31, 1997. 4.4 --Second Amendment to Credit Agreement, dated as of March 31, 1997, amending the Credit Agreement of Sterling Chemicals, Inc. dated June 21, 1996. 4.5 --First Amendment to Credit Agreement, dated as of March 31, 1997, amending the Credit Agreement of Sterling Chemicals, Inc. dated January 31, 1997. 11.1 --Earnings Per Share Calculation. 27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc. 27.2 --Financial Data Schedule of Sterling Chemicals, Inc.
(b) Reports on Form 8-K: On March 24, 1997, the Company filed a current Report on Form 8-K, reporting under Items 5 and 7. 24 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. (Registrants) Date: May 15, 1997 /s/ Robert W. Roten ------------------------------------- Robert W. Roten President and Chief Executive Officer (Principal Executive Officer) Date: May 15, 1997 /s/ Jim P. Wise ------------------------------------- Jim P. Wise Vice President--Finance and Chief Financial Officer (Principal Financial Officer) 25 EX-4.1 2 EXHIBIT 4.1 EXHIBIT 4.1 ================================================================================ STERLING CHEMICALS, INC. $150,000,000 11 1/4% SENIOR SUBORDINATED NOTES DUE 2007 _________________ INDENTURE Dated as of April 7, 1997 _________________ FLEET NATIONAL BANK Trustee ================================================================================ CROSS-REFERENCE TABLE TRUST INDENTURE ACT SECTION INDENTURE SECTION 310 (a)(1)............................... 8.10 (a)(2)............................... 8.10 (a)(3)............................... N/A (a)(4)............................... N/A (a)(5)............................... 8.10 (b).................................. 8.10 (c).................................. N/A 311 (a).................................. 8.11 (b).................................. 8.11 (c).................................. N/A 312 (a).................................. 2.05 (b).................................. 12.03 (c).................................. 12.03 313 (a).................................. 11.02 (b)(i)............................... 11.02 (b)(2)............................... 8.06 (c).................................. 8.06; 11.02 (d).................................. 8.06 314 (a).................................. 8.03; 11.02 (b).................................. 11.03 (c)(1)............................... 12.04 (c)(2)............................... 12.04 (c)(3)............................... N/A (d).................................. 11.02; 11.03 (e).................................. 12.05 (f).................................. N/A 315 (a).................................. 8.01 (b).................................. 8.05; 12.02 (c).................................. 8.01 (d).................................. 8.01 (e).................................. 7.11 316 (a)(1)(A)............................ 7.05 (a)(1)(B)............................ 7.04 (a)(2)............................... N/A (b).................................. 7.07 317 (a)(1)............................... 7.08 (a)(2)............................... 7.09 (b).................................. 2.04 318 (a).................................. 12.01 (b).................................. N/A (c).................................. 12.01 Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. i TABLE OF CONTENTS Page PARTIES............................................................... 1 RECITALS OF STERLING.................................................. 1 ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions...................................... 1 Section 1.02. Other Definitions................................ 16 Section 1.03. Incorporation by Reference of Trust Indenture Act 16 Section 1.04. Rules of Construction............................ 17 ARTICLE II THE NOTES Section 2.01. Form and Dating.................................. 17 Section 2.02. Execution and Authentication..................... 18 Section 2.03. Registrar and Paying Agent....................... 19 Section 2.04. Paying Agent to Hold Money In Trust.............. 20 Section 2.05. Lists of Holders of Notes........................ 20 Section 2.06. Transfer and Exchange............................ 20 Section 2.07. Replacement Notes................................ 25 Section 2.08. Outstanding Notes................................ 25 Section 2.09. Temporary Notes and Certificated Notes........... 26 Section 2.10. Cancellation..................................... 26 Section 2.11. Defaulted Interest............................... 27 Section 2.12. CUSIP Number..................................... 27 ARTICLE III REDEMPTION Section 3.01. Notices to Trustee............................... 27 Section 3.02. Selection of Notes to be Redeemed................ 27 Section 3.03. Notice of Redemption............................. 28 Section 3.04. Effect of Notice of Redemption................... 28 Section 3.05. Deposit of Redemption Price...................... 29 Section 3.06. Notes Redeemed in Part........................... 29 - ------------------------ Note: This Table of Contents shall not, for any reason, be deemed to be part of the Indenture. i ARTICLE IV CHANGE OF CONTROL ARTICLE V COVENANTS Page Section 5.01. Payment of Principal, Premium and Interest....... 31 Section 5.02. Maintenance of Office or Agency.................. 31 Section 5.03. SEC Reports...................................... 31 Section 5.04. Limitation On Debt............................... 32 Section 5.05. Limitation On Restricted Payments................ 33 Section 5.06. Limitation On Restrictions On Distributions from Restricted Subsidiaries.......................... 37 Section 5.07. Limitation On Sales of Assets and Subsidiary Stock............................................ 38 Section 5.08. Limitation On Transactions with Affiliates....... 40 Section 5.09. Limitation On the Sale or Issuance of Capital Stock of Restricted Subsidiaries................. 41 Section 5.10. Compliance Certificates.......................... 41 Section 5.11. Further Instruments and Acts..................... 41 ARTICLE VI SUCCESSORS Section 6.01. When Sterling May Merge or Transfer Assets....... 42 Section 6.02. Successor Company Substituted.................... 42 ARTICLE VII DEFAULTS AND REMEDIES Section 7.01. Events of Default................................ 43 Section 7.02. Acceleration..................................... 44 Section 7.03. Other Remedies................................... 44 Section 7.04. Waiver of Past Defaults.......................... 45 Section 7.05. Control by Majority.............................. 45 Section 7.06. Limitation On Suits.............................. 45 Section 7.07. Unconditional Right of Holders of Notes to Receive Payment.................................. 46 Section 7.08. Collection Suit by Trustee....................... 46 Section 7.09. Trustee May File Proofs of Claim................. 46 Section 7.10. Priorities....................................... 46 Section 7.11. Undertaking for Costs............................ 47 Section 7.12. Waiver of Stay, Extension and Usury Laws......... 47 ii Page ARTICLE VIII TRUSTEE Section 8.01. Duties of Trustee................................ 47 Section 8.02. Rights of Trustee................................ 48 Section 8.03. Individual Rights of Trustee..................... 49 Section 8.04. Trustee's Disclaimer............................. 49 Section 8.05. Notice of Default................................ 49 Section 8.06. Reports by Trustee to Holders of Notes........... 49 Section 8.07. Compensation and Indemnity....................... 50 Section 8.08. Replacement of Trustee........................... 50 Section 8.09. Successor Trustee by Merger, Etc................. 51 Section 8.10. Eligibility; Disqualification.................... 52 Section 8.11. Preferential Collection of Claims Against Sterling......................................... 52 ARTICLE IX DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Liability on Notes; Defeasance...... 52 Section 9.02. Conditions to Defeasance......................... 53 Section 9.03. Application of Trust Money....................... 54 Section 9.04. Repayment to Sterling............................ 54 Section 9.05. Indemnity for Government Obligations............. 54 Section 9.06. Reinstatement.................................... 54 ARTICLE X AMENDMENT, SUPPLEMENT AND WAIVER Section 10.01. Without Consent of Holders of Notes............. 55 Section 10.02. With Consent of Holders of Notes................ 56 Section 10.03. Compliance with Trust Indenture Act............. 57 Section 10.04. Revocation and Effect of Consents and Waivers... 57 Section 10.05. Notation On or Exchange of Notes................ 57 Section 10.06. Trustee to Sign Amendments, Etc................. 57 Section 10.07. Payment for Consents............................ 58 ARTICLE XI SUBORDINATION OF NOTES Section 11.01. Notes Subordinate to Senior Debt; Notes Pari Passu with Senior Subordinated Debt.............. 58 Section 11.02. Payment Over of Proceeds Upon Dissolution, Etc... 58 Section 11.03. No Payment When Senior Debt in Default........... 59 Section 11.04. Payment Permitted If No Default.................. 60 iii Page Section 11.05. Subrogation to Rights of Holders of Senior Debt.. 60 Section 11.06. Provisions Solely to Define Relative Rights...... 61 Section 11.07. Trustee to Effectuate Subordination.............. 61 Section 11.08. No Waiver of Subordination Provisions............ 61 Section 11.09. Notice to Trustee................................ 62 Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent................................ 62 Section 11.11. Trustee Not Fiduciary for Holders of Senior Debt. 63 Section 11.12. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights................. 63 Section 11.13. Article XI Applicable to Paying Agents........... 63 Section 11.14. Trust Moneys Not Subordinated.................... 63 ARTICLE XII MISCELLANEOUS Section 12.01. Trust Indenture Act Controls..................... 63 Section 12.02. Notices.......................................... 64 Section 12.03. Communication by Holders of Notes with Other Holders of Notes................................. 65 Section 12.04. Certificate and Opinion as to Conditions Precedent........................................ 65 Section 12.05. Statements Required in Certificate or Opinion.... 65 Section 12.06. Rules by Trustee and Agents...................... 65 Section 12.07. No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders........ 66 Section 12.08. Governing Law.................................... 66 Section 12.09. No Adverse Interpretation of Other Agreements.... 66 Section 12.10. Successors....................................... 66 Section 12.11. Severability..................................... 66 Section 12.12. Counterpart Originals............................ 66 Section 12.13. Table of Contents, Headings, Etc................. 66 EXHIBIT A--Form of Initial Note EXHIBIT B--Form of Exchange Note iv INDENTURE, dated as of April 7, 1997, between Sterling Chemicals, Inc. ("Sterling"), a corporation duly organized and existing under the laws of the State of Delaware, and Fleet National Bank, a national banking association duly organized and existing under the laws of the United States of America, as trustee (the "Trustee"). RECITALS OF STERLING Sterling has duly authorized the execution and delivery of this Indenture to provide for the issuance of up to $150,000,000 aggregate principal amount of Sterlings' 11 1/4% Senior Subordinated Notes Due 2007 issuable as provided in this Indenture. All things necessary to make this Indenture a valid agreement of Sterling, in accordance with its terms, have been done, and Sterling has done all things necessary to make the Notes, when executed by Sterling and authenticated and delivered by the Trustee hereunder and duly issued by Sterling, the valid obligations of Sterling as hereinafter provided. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Affiliate" means with respect to any specified Person any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Section 5.07 and Section 5.08 only, the term "Affiliate" shall also mean any beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of Sterling or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner in accordance with the first sentence of this definition. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by Sterling or any of its Restricted Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction, for gross proceeds in excess of $2.0 million, other than (i) a disposition by a Restricted Subsidiary to Sterling or by Sterling or a Restricted Subsidiary to a Wholly Owned Subsidiary; (ii) a disposition of property or assets (other than shares of Capital Stock of a Restricted Subsidiary and which do not constitute all or substantially all of the assets of any division or line of business of Sterling or any Restricted Subsidiary) at fair market value in the ordinary course of business; (iii) for purposes of Section 5.07 only, a disposition that constitutes a Restricted Payment or a Permitted Investment permitted pursuant to Section 5.05; (iv) the disposition of all or substantially all of the assets of Sterling permitted pursuant to Section 6.01; and (v) the disposition of assets in exchange for other assets that satisfy the requirement for replacement assets pursuant to Section 5.07(a)(ii)(2). "Attributable Debt" means, in respect of a Sale/Leaseback Transaction, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Debt or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment, by (ii) the sum of all such payments. "Bankruptcy Law" means title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of Sterling or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means each day which is not a Legal Holiday. "Canadian Facility" means a revolving loan and letter of credit facility for loans and letters of credit in Canadian dollars or U.S. dollars to or for the account of Sterling Pulp Chemicals, Ltd., a Wholly Owned Subsidiary of Sterling. "Capital Lease Obligations" means with respect to any Person any obligation which is required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP; the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" means with respect to any Person any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in such Person (however designated), including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Code" means the U.S. Internal Revenue Code of 1986, as amended. 2 "Commodity Agreement" means any commodity future contract, commodity option or other similar agreement or arrangement (limited in amount to underlying exposure, and not for speculative purposes) entered into by Sterling or any Restricted Subsidiary that is designed to protect Sterling or any Restricted Subsidiary against fluctuations in the price of commodities used by Sterling or a Restricted Subsidiary as raw materials in the ordinary course of business. "Consolidated EBITDA Coverage Ratio" means, as of any date of determination, the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if Sterling or any Restricted Subsidiary has Incurred any Debt since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Debt as if such Debt had been Incurred on the first day of such period and the discharge of any other Debt repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Debt as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period Sterling or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period, and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Debt of Sterling or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to Sterling and its continuing Restricted Subsidiaries in connection with such Asset Dispositions for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Debt of such Restricted Subsidiary to the extent Sterling and its continuing Restricted Subsidiaries are no longer liable for such Debt after such sale), (3) if since the beginning of such period Sterling or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Debt) as if such Investment or acquisition occurred on the first day of such period, and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into Sterling or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (2) or (3) above if made by Sterling or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Debt Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of Sterling. If any Debt bears a floating rate of interest and is being given pro forma effect, the interest of such Debt shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Debt if such Interest Rate Agreement has a remaining term in excess of 12 months). 3 "Consolidated Interest Expense" means, for any period, the total interest expense of Sterling and its consolidated Restricted Subsidiaries, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capital Lease Obligations; (ii) amortization of debt discount and debt issuance cost; (iii) capitalized interest; (iv) non-cash interest payments; (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (vi) net costs under Interest Rate Agreements (including amortization of fees); (vii) Preferred Stock dividends in respect of all Redeemable Stock of Sterling and all Preferred Stock of Restricted Subsidiaries held by Persons other than Sterling or a Wholly Owned Subsidiary; (viii) interest incurred in connection with Investments in discontinued operations; (ix) interest actually paid by Sterling or any of its Restricted Subsidiaries under any Guarantee of Debt or other obligation of any other Person; and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than Sterling or any Restricted Subsidiary) in connection with Debt Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of Sterling and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income (i) any net income of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the exclusion contained in clause (iv) below, Sterling's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to Sterling or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below), and (B) Sterling's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income to the extent of any cash actually contributed by Sterling or a Restricted Subsidiary to such Person during such period; (ii) any net income (or loss) of any Person acquired by Sterling or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary to the extent such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to Sterling, except that (A) subject to the exclusion contained in clause (iv) below, Sterling's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to Sterling or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause), and (B) Sterling's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain or loss realized upon the sale or other disposition of any assets of Sterling or its consolidated Subsidiaries (including pursuant to any sale-and- leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of Section 5.05 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to Sterling or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted pursuant to Section 5.05(a)(iv)(3)(E). 4 "Consolidated Net Worth" means with respect to any Person the total of the amounts shown on the balance sheet of such Person and its consolidated subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of such Person, plus (ii) paid-in capital or capital surplus relating to such Capital Stock, plus (iii) any retained earnings or earned surplus, less (A) any accumulated deficit, (B) any amounts attributable to Redeemable Stock, and (C) any amounts attributable to Exchangeable Stock. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 or such other address as to which the Trustee may give notice to Sterling. "Credit Agreements" means (i) the agreement, dated June 21, 1996, among Sterling, as borrower, Texas Commerce Bank National Association, as administrative agent, and the other lenders party thereto, and their respective successors and assigns, and (ii) the agreement dated January 31, 1997, among Sterling, as borrower, Texas Commerce Bank National Association, as administrative agent, and the other lenders party thereto and their respective successors and assigns, in each case, as the same may be amended, supplemented, waived and otherwise modified from time to time in accordance with the terms thereof. "Currency Agreement" means with respect to any Person any foreign exchange contract, currency swap agreement or other similar agreement (limited in amount to underlying exposure, and not for speculative purposes) to which such Person is a party or a beneficiary. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Debt" means with respect to any Person, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all Redeemable Stock of such Person and, with respect to any Subsidiary of such Person, all Preferred Stock other than pay-in-kind dividends in the form of Preferred Stock (the amount of Debt represented thereby shall equal the greater of its liquidation preference and the redemption, repayment or other repurchase obligations with respect thereto, but excluding any accrued dividends); (vi) all Hedging Obligations of such Person; (vii) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or 5 otherwise, including by means of any Guarantee; and (viii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured. The amount of Debt of any Person at any date shall be the outstanding balance of such date of all unconditional obligations as described above and the maximum liability upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided, however, that the amount outstanding at any time of any Debt Incurred with original issue discount is the face amount of such Debt less the remaining unamortized portion of the original issue discount of such Debt at such time as determined in conformity with GAAP. "Default" means any event that is, after notice or with the passage of time or both would be, an Event of Default. "Depository" means The Depository Trust Company, its nominees and their respective successors. "Designated Senior Debt" means the Debt under the Credit Agreements and any bank credit facility refinancing such debt. "Discount Notes" means $191,751,000 aggregate principal amount at maturity of 13 1/2% Senior Secured Discount Notes Due 2008 of Holdings issued pursuant to the Discount Notes Indenture. "Discount Notes Indenture" means that certain Indenture, dated as of August 15, 1996, among Holdings and Fleet National Bank, as Trustee, relating to the Discount Notes, as the same may be amended or supplemented in accordance with its terms. "EBITDA" means for any period the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (i) all income tax expense of Sterling; (ii) depreciation expense; (iii) amortization expense; (iv) an amount equal to any extraordinary gain or loss realized in connection with an Asset Disposition; (v) the impact of accruals for periods prior to the Issue Date for Sterling's Stock Appreciation Rights Plan; and (vi) all other non-cash items reducing such Consolidated Net Income (excluding any non-cash item to the extent it represents an accrual of, or reserve for, cash disbursements for any subsequent period) less all non-cash items increasing such Consolidated Net Income (such amount calculated pursuant to this clause (vi) not to be less than zero), in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of Sterling shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended or otherwise paid to Sterling by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Subsidiary or its stockholders. 6 "Equity Private Placement" means the private placement of shares of common stock of STX Acquisition Corp. (which shares were converted into shares of common stock of Holdings) in connection with the recapitalization of Sterling consummated on August 21, 1996. "ESOP" means the employee stock ownership plan of Sterling. "ESOP Loan" means the loan from Sterling to the ESOP of $6.5 million in connection with the formation of the ESOP. "ESOP Loan Provisions" means the provisions of the Credit Agreement pursuant to which lenders thereunder have committed to make ESOP loans available to Sterling. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Exchange Notes" means the 11 1/4% Senior Subordinated Notes Due 2007 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to the Registration Rights Agreement. "Exchangeable Stock" means any Capital Stock which is exchangeable or convertible into another security (other than Capital Stock of Sterling which is neither Exchangeable Stock nor Redeemable Stock). "Existing Subordinated Notes" means $275,000,000 in original principal amount of Sterling's 11 3/4 Senior Subordinated Notes Due 2006 issued August 21, 1996. "Existing Subordinated Notes Indenture" means that certain Indenture, dated as of August 15, 1996, between Sterling and Fleet National Bank, as Trustee, relating to the Existing Subordinated Notes. "Foreign Asset Sale" means an Asset Disposition in respect of Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described in Section 936 of the Code to the extent that the proceeds of such Asset Disposition are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the United States or any state thereof or the District of Columbia. "Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a jurisdiction other than the United States or a State thereof or the District of Columbia and with respect to which more than 66-2/3% of any of its sales, earnings or assets (determined on a consolidated basis in accordance with GAAP) are located in, generated from or derived from operations located in territories or jurisdictions outside the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth (i) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; (ii) statements and pronouncements of the Financial Accounting Standards Board; (iii) in such other statements by such other entity as approved by a significant segment of the accounting profession; and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. 7 "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or (ii) entered into for purposes of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business or guarantees of obligations of a Subsidiary in the ordinary course of business if such obligations do not constitute Debt of such Subsidiary. The term "Guarantee" used as a verb shall have a corresponding meaning. "Hedging Obligations" means with respect to any Person the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement (limited in amount to underlying exposure, and not for speculative purposes). "Holder" means the Person in whose name a Note is registered on the Note Register. "Holdings" means Sterling Chemicals Holdings, Inc., a Delaware corporation. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Debt or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed to be the Incurrence of Debt. "Indenture" means this Indenture, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or investment banking firm that, in the reasonable good faith judgment of the Board of Directors, is qualified to perform the task for which such firm has been engaged and is independent with respect to Sterling and its Affiliates. "Initial Notes" means the 11 1/4% Senior Subordinated Notes Due 2007 issued under this Indenture on or about the date hereof. "Initial Purchasers" means Credit Suisse First Boston Corporation and Chase Securities Inc. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement (limited in amount to underlying exposure, and not for speculative purposes) designed to protect Sterling or any Restricted Subsidiary against fluctuations in interest rates. 8 "Investment" means with respect to any Person any loan or advance to, any acquisition of Capital Stock, equity interest, obligation or other security of, or capital contribution or other investment in, or any other credit extension to (including by way of Guarantee of any Debt of), such Person. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and Section 5.05 of this Indenture, (i) "Investment" shall include the portion (proportionate to Sterling's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of Sterling at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that if such designation is made in connection with the acquisition of such Subsidiary or the assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the consideration paid in connection with such acquisition; provided, further, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, Sterling shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) Sterling's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to Sterling's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Investment Grade Rating" means a rating of BBB- or higher by S&P and Baa3 or higher by Moody's or the equivalent of such rating by S&P and Moody's or by any other Rating Agencies selected as provided in the definition of Rating Agency. "Issue Date" means the date on which the Initial Notes are originally issued. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, in the city of the Corporate Trust Office of the Trustee or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Moody's" means Moody's Investor Service, Inc. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to such properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, title and recording expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition; (ii) all payments made on any Debt which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition; (iii) all distributions and other payments required to be 9 made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition; and (iv) the deduction of appropriate amounts provided by the sellers as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by Sterling or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds" means with respect to any issuance or sale of Capital Stock, the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-Convertible Capital Stock" means, with respect to any corporation, any non-convertible Capital Stock of such corporation and any Capital Stock of such corporation convertible solely into non-convertible common stock of such corporation; provided, however, that Non-Convertible Capital Stock shall not include any Redeemable Stock or Exchangeable Stock. "Notes" means the Initial Notes, the Exchange Notes and the Private Exchange Notes, treated as a single class. "Notes Custodian" means the custodian with respect to a Global Note (as appointed by the Depository), or any successor person thereto and shall initially be the Trustee. "Officer" means with respect to any Person the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, Controller, Secretary or any Vice- President of such Person. "Officers' Certificate" means a certificate signed on behalf of Sterling by two Officers of Sterling, one of whom must be the principal executive officer, principal financial officer, treasurer or principal accounting officer of Sterling. "Opinion of Counsel" means a written opinion from legal counsel, who may be an employee of or counsel to Sterling or the Trustee. "Permitted Holders" means (i) the purchasers in the Equity Private Placement; (ii) any Person who on the date of issuance of the Notes is an officer, director, stockholder, employee or consultant of The Sterling Group, Inc., or The Unicorn Group, L.L.C.; (iii) each of Frank J. Hevrdejs, William C. Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon Cain; (iv) any Permitted Transferee with respect to any Person covered by the preceding clauses (i) through (iii) hereof; (v) the ESOP; or (vi) any savings or investment plan sponsored by Sterling or Holdings. "Permitted Investment" means an Investment by Sterling or any Restricted Subsidiary in (i) a Wholly Owned Subsidiary or a Person that will, upon the making of such Investment, become a Wholly Owned Subsidiary; (ii) Temporary Cash Investments; (iii) receivables owing to Sterling or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iv) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to Sterling or any Restricted Subsidiary or in satisfaction of judgments; (v) 10 any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to Section 5.07; (vi) Investments by Sterling or a Restricted Subsidiary in a Person to the extent the consideration for such Investment consists of shares of Capital Stock of Sterling or Holdings (other than Redeemable Stock of Sterling); (vii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (viii) loans or advances to employees or to a trust for the benefit of such employees that are made in the ordinary course of business of Sterling or such Restricted Subsidiary; (ix) the ESOP Loan; (x) another Person if as a result of such Investment such Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, Sterling or a Restricted Subsidiary; provided that such Person's primary business is reasonably related to the business of Sterling and its Restricted Subsidiaries; and (xi) Investments in Unrestricted Subsidiaries or joint ventures (whether in corporate or partnership form or otherwise), in either case in entities engaged in businesses reasonably related to the business of Sterling and its Restricted Subsidiaries, in an aggregate amount not to exceed $10 million; provided, however, that the amount available for Investments pursuant to this clause (xi) shall be reduced pursuant to Section 5.05(a)(iv)(3)(G). "Permitted Transferee" means with respect to any Person (i) in the case of an entity, any Affiliate of such Person; and (ii) in the case of an individual, any person related by lineal or collateral consanguinity to such individual or to the spouse of such individual (adopted persons shall be considered the natural born child of their adoptive parents; lineal consanguinity is the relationship that exists between persons of whom one is descended (or ascended) in direct line from the other, as between son, father, grandfather, great-grandfather; and collateral consanguinity is that relationship that exists between persons who have the same ancestors, but do not descend (or ascend) from the other, as between uncle and nephew, or cousin and cousin), in each case to whom such Person has transferred common stock of Holdings. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Private Exchange" means the offer by Sterling, pursuant to the Registration Rights Agreement, to the Initial Purchasers to issue and deliver to the Initial Purchasers, in exchange for the Initial Notes held by the Initial Purchasers as part of their initial distribution, a like aggregate principal amount of Private Exchange Notes. "Private Exchange Notes" means the 11 1/4% Senior Subordinated Notes Due 2007 to be issued pursuant to this Indenture in connection with a Private Exchange effected pursuant to the Registration Rights Agreement. "Public Equity Offering" means an underwritten primary public offering of common stock of Holdings pursuant to an effective registration statement under the Securities Act. 11 "Public Market" means any time after (i) a Public Equity Offering has been consummated; and (ii) at least 15% of the total issued and outstanding common stock of Holdings has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "Rating Agency" means S&P and Moody's, or if S&P or Moody's or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by Sterling (as certified by a resolution of the Board of Directors) which shall be substituted for S&P or Moody's or both, as the case may be. "Redeemable Stock" means any Capital Stock that by its terms or otherwise is required to be redeemed on or prior to the Stated Maturity of the Notes or is redeemable at the option of a Holder thereof at any time on or prior to the Stated Maturity of the Notes. "Refinance" means, with respect to any Debt, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Debt" means Debt that Refinances any Debt of Sterling or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Indenture including Debt that Refinances Refinancing Debt; provided, however, that (i) such Refinancing Debt has a Stated Maturity no earlier than the Stated Maturity of the Debt being Refinanced; (ii) such Refinancing Debt has an Average Life at the time such Refinancing Debt is Incurred that is equal to or greater than the Average Life of the Debt being Refinanced; (iii) such Refinancing Debt has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Debt being Refinanced; and (iv) with respect to any Refinancing Debt of Debt other than Senior Debt, such Refinancing Debt shall rank no more senior, and shall be at least as subordinated, in right of payment to the Notes as the Debt being so extended, renewed, refunded or refinanced; provided, further, however, that Refinancing Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of Sterling, or (y) Debt of Sterling or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary. "Registered Exchange Offer" means an offer by Sterling, pursuant to the Registration Rights Agreement, to certain Holders of Initial Notes, to issue and deliver to such Holders, in exchange for the Initial Notes, a like aggregate principal amount of Exchange Notes registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement dated April 1, 1997 among Sterling and the Initial Purchasers. "Responsible Officer" means, when used with respect to the Trustee, any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers. "Restricted Subsidiary" means any Subsidiary of Sterling that is not an Unrestricted Subsidiary. 12 "Revolving Credit Provisions" means the provisions of the Credit Agreements pursuant to which lenders thereunder have committed to make available to Sterling, a revolving credit facility, including the Canadian Facility. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby Sterling or a Restricted Subsidiary transfers such property to a Person and Sterling or a Restricted Subsidiary leases it from such Person. "SEC" means the U.S. Securities and Exchange Commission. "Secured Debt" means any Debt of Sterling secured by a Lien. "Securities Act" means the U.S. Securities Act of 1933, as amended. "Senior Debt" means (i) Debt of Sterling, whether outstanding on the Issue Date or thereafter Incurred; and (ii) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Sterling whether or not such interest is an allowable claim in any such proceeding) in respect of (A) indebtedness of Sterling for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which Sterling is responsible or liable unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Notes; provided, however, that Senior Debt shall not include (1) any obligation of Sterling to Holdings or any subsidiary of Holdings, (2) any liability for Federal, state, local or other taxes owed or owing by Sterling, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any Debt of Sterling (and any accrued and unpaid interest in respect thereof) which is subordinate or junior in any respect to any other Debt or other obligation of Sterling, (5) that portion of any Debt which at the time of Incurrence is Incurred in violation of this Indenture, (6) Debt owed, due, or guaranteed on behalf of, any director, officer or employee of Sterling or any Subsidiary (including, without limitation, amounts owed for compensation), and (7) Debt which when Incurred and without respect to any election under Section 1111(b) of Title 11 United States Code, is without recourse to Sterling. "Senior Subordinated Debt" means the Notes, the Existing Subordinated Notes and any other Debt of Sterling that specifically provides that such Debt is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Debt or other obligation of Sterling which is not Senior Debt. "Shelf Registration Statement" means the registration statement issued by Sterling in connection with the offer and sale of Initial Notes or Private Exchange Notes, pursuant to the Registration Rights Agreement. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" of Sterling as such term is defined in Rule 1-02 of Regulation S-X, promulgated by the SEC. "S&P" means Standard & Poor's Ratings Group. 13 "Stated Maturity" means with respect to any security the date specified in such security as the fixed date on which the principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Debt of Sterling (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Notes. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) Sterling; (ii) Sterling and one or more Subsidiaries; or (iii) one or more Subsidiaries. "Tangible Property" means all land, buildings, machinery and equipment and leasehold interests and improvements which would be reflected on a balance sheet of Sterling prepared in accordance with GAAP, excluding (i) all rights, contracts and other intangible assets of any nature whatsoever; and (ii) all inventories and other current assets. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof; (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 270 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above; (iv) investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of Sterling or Holdings) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-l" (or higher) according to Moody's or "A-1" (or higher) according to S&P; (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's; (vi) participations (for a tenor of not more than 90 days) in loans to Persons having short-term credit ratings of at least "A-1" and "P-1" by S&P and Moody's, respectively; (vii) with respect to any Foreign Subsidiary organized in Canada, commercial paper of Canadian companies rated R-1 High or the equivalent thereof by Dominion Bond Rating Services with maturities of less than one year; and (viii) with respect to Foreign Subsidiaries not organized in Canada, government obligations of another country whose debt securities are rated by S&P and/or Moody's "A-1" or "P-1", or the equivalent thereof 14 (if a short-term debt rating is provided by either) or at least "AA" or "AA2", or the equivalent thereof (if a long-term unsecured debt rating is provided by either), in each case, with maturities of less than 12 months. "Term Loan Provisions" means the provisions of the Credit Agreements pursuant to which lenders thereunder have committed to make term loans available to Sterling. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transfer Restricted Notes" means Definitive Notes and Notes that bear or are required to bear the legend set forth in Section 2.06(d). "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture, and thereafter such term shall mean such successor serving hereunder. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Unrestricted Subsidiary" means (i) any Subsidiary of Sterling that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of Sterling (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries own any Capital Stock or Debt of, or holds any Lien on any property of, Sterling or any other Subsidiary of Sterling that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less, or (B) if such Subsidiary has assets of greater than $1,000, such designation would be permitted pursuant to Section 5.05; and provided, further, however, that (1) no Subsidiary of Sterling that is a Restricted Subsidiary on the Issue Date (other than a Restricted Subsidiary with total assets of $1,000 or less on the Issue Date) may be designated an Unrestricted Subsidiary, and (2) no Subsidiary holding, directly or indirectly, any assets (other than assets totaling $1,000 or less which constituted the only assets of a Restricted Subsidiary on the Issue Date) held by Sterling or a Restricted Subsidiary on the Issue Date may be designated an Unrestricted Subsidiary. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) if such Unrestricted Subsidiary at such time has Debt, Sterling could Incur $1.00 of additional Debt pursuant to Section 5.04(a), and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be by Sterling to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by Sterling or another Wholly Owned 15 Subsidiary; provided, however, that a Foreign Subsidiary shall be a Wholly Owned Subsidiary if more than 90% of the Capital Stock and Voting Stock thereof is owned by Sterling or another Wholly Owned Subsidiary. Section 1.02. Other Definitions. Defined in Term Article/Section ----- --------------- "Affiliate Transaction"....... Section 5.08 "Agent Members"............... Section 2.01 "blockage period"............. Section 11.03 "Change of Control"........... Article IV "covenant defeasance"......... Section 9.01 "Default Amount".............. Section 7.02 "Definitive Notes"............ Section 2.01 "Event of Default"............ Section 7.01 "Global Note"................. Section 2.01 "IAI"......................... Section 2.01 "legal defeasance"............ Section 9.01 "Note Register"............... Section 2.03 "Notes Payment"............... Section 11.02 "parent corporation".......... Article IV "Paying Agent"................ Section 2.03 "Payment Default"............. Section 7.01 "Proceeding".................. Section 11.02 "Purchase Agreement".......... Section 2.01 "QIB"......................... Section 2.01 "Registrar"................... Section 2.03 "Regulation S"................ Section 2.01 "Restricted Payment".......... Section 5.05 "Rule 144A"................... Section 2.01 "Senior Nonmonetary Default".. Section 11.03 "Senior Payment Default"...... Section 11.03 "specified corporation"....... Article IV "Successor Company"........... Section 6.01 Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: (i) "indenture securities" means the Notes; (ii) "indenture security holder" means a Noteholder; (iii) "indenture to be qualified" means this Indenture; 16 (iv) "indenture trustee" or "institutional trustee" means the Trustee; (v) "obligor" upon the Notes means Sterling and any successor obligor upon the Notes. All other terms used in this Indenture that are (i) defined by the TIA; (ii) defined by TIA reference to another statute; or (iii) defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (iii) the word "or" shall not be deemed to be exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; and (v) provisions apply to successive events and transactions. ARTICLE II THE NOTES Section 2.01. Form and Dating. The Initial Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Exchange Notes, the Private Exchange Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B, which is hereby incorporated by reference and expressly made a part of this Indenture. The Notes may have such notations, legends or endorsements approved as to form by Sterling and required, as applicable, by law, stock exchange rule, agreements to which Sterling is subject and/or usage. Each Note shall be dated the date of its authentication. The Notes shall be issuable only in denominations of $1,000 and integral multiples thereof. The terms of the Notes set forth in Exhibit A and Exhibit B are part of the terms of this Indenture. The Initial Notes are being offered and sold by Sterling pursuant to a Purchase Agreement, dated April 1, 1997, among Sterling and the Initial Purchasers (the "Purchase Agreement"). (a) Global Notes. Initial Notes offered and sold to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) (a "QIB") in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act 17 ("Regulation S"), in each case as provided in the Purchase Agreement, shall be issued initially in the form of one permanent global Note in definitive, fully registered form without interest coupons (the "Global Note") with the global Note legend and restricted Note legend set forth in Exhibit A hereto, which shall be deposited on behalf of the purchasers of the Initial Notes represented thereby with the Trustee, as custodian for the Depository (or with such other custodian as the Depository may direct), and registered in the name of the Depository or a nominee of the Depository, duly executed by Sterling and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.01(b) shall apply only to the Global Note deposited with or on behalf of the Depository. Sterling shall execute and the Trustee shall, in accordance with this Section 2.01(b), authenticate and deliver initially one Global Note that (i) shall be registered in the name of the Depository or the nominee of the Depository and (ii) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instructions or held by the Trustee as custodian for the Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to the Global Note held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Note, and the Depository may be treated by Sterling, the Trustee and any agent of Sterling or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Sterling, the Trustee or any agent of Sterling or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in the Global Note. (c) Certificated Notes. Except as provided in this Section or Section 2.06 or 2.09, owners of beneficial interests in the Global Note will not be entitled to receive physical delivery of certificated Notes. Purchasers of Initial Notes who are institutional "accredited investors" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (each an "IAI") and who are not QIBs and did not purchase Initial Notes sold in reliance on Regulation S will receive certificated Initial Notes bearing the restricted securities legend set forth in Exhibit A hereto (such securities as held by an IAI are herein referred to as "Definitive Notes"); provided, however, that upon transfer of such certificated Initial Notes to a QIB or in reliance on Regulation S such certificated Initial Notes will, unless the Global Note has previously been exchanged, be exchanged for an interest in the Global Note pursuant to the provisions of Section 2.06. Definitive Notes will bear the restricted securities legend set forth on Exhibit A unless removed in accordance with Section 2.06(d). 18 Section 2.02. Execution and Authentication. Two Officers of Sterling shall sign the Notes for Sterling by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time such Note is authenticated such Note shall be valid nevertheless. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that a Note has been authenticated in accordance with the terms of this Indenture. The Trustee, upon a written order of Sterling signed by two Officers of Sterling, shall authenticate and deliver (1) Initial Notes for original issue in an aggregate principal amount of $150,000,000, and (2) Exchange Notes or Private Exchange Notes for issue only in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to the Registration Rights Agreement, for a like principal amount of Initial Notes, in each case upon a written order of Sterling signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of Sterling. Such order shall specify the amount of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes, Exchange Notes or Private Exchange Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $150,000,000 except as provided in Section 2.07. The Trustee may appoint an authenticating agent acceptable to Sterling to authenticate the Notes. Unless limited by the terms of such appointment, any such authenticating agent may authenticate the Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such authenticating agent of the Trustee. An authenticating agent has the same rights as an Agent to deal with Sterling or an Affiliate of Sterling. Section 2.03. Registrar and Paying Agent. Sterling shall maintain (i) an office or agency where the Notes may be presented for registration of transfer or for exchange (including any co- registrar, the "Registrar"); and (ii) an office or agency where the Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Holders of Notes and of the transfer and exchange of such Notes (the "Note Register"). Sterling may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" shall include any such additional paying agent. Sterling may change any Paying Agent, Registrar or co- registrar without prior notice to any Holder of a Note. Sterling shall notify the Trustee and the Trustee shall notify the Holders of the Notes of the name and address of any Agent not a party to this Indenture. Sterling or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. Sterling shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. Any such agency agreement shall implement the provisions of this Indenture that relate to such Agent. If Sterling fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, as appropriate, and shall be entitled to appropriate compensation in accordance with Section 8.07. 19 Sterling initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes. Section 2.04. Paying Agent to Hold Money In Trust. On or prior to each due date of the principal of, premium, if any, and interest on any Note, Sterling shall deposit with the Paying Agent a sum sufficient to pay such principal, premium, if any, and interest when so becoming due. Sterling shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders of the Notes or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes, and shall notify the Trustee of any Default by Sterling in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. Sterling at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than Sterling) shall have no further liability for the money delivered to the Trustee. If Sterling acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders of the Notes all money held by it as Paying Agent. Section 2.05. Lists of Holders of Notes. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders of Notes. If the Trustee is not the Registrar, Sterling shall furnish to the Trustee at least three Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes, including the aggregate principal amount of Notes held by each such Holder of Notes. Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Definitive Notes. Definitive Notes shall be issued in registered form and shall be transferable only upon the surrender of Definitive Notes for registration of transfer. When Definitive Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Definitive Notes of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Definitive Notes presented or surrendered for registration of transfer or exchange: (i) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing; and (ii) are being transferred or exchanged pursuant to an effective registration statement under the Securities Act, pursuant to Section 2.06(b) or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Notes are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a 20 certification from such Holder to that effect (in the form set forth on the reverse of the Note); or (B) if such Definitive Notes are being transferred to Sterling a certification to that effect (in the form set forth on the reverse of the Note); or (C) if such Definitive Notes are being transferred pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act: (i) a certificate to that effect (in the form set forth on the reverse of the Note), and (ii) if Sterling or Registrar so requests, evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend set forth in Section 2.06(d)(i). (b) Restrictions on Transfer of a Definitive Note for a Beneficial Interest in the Global Note. A Definitive Note may not be exchanged for a beneficial interest in the Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) certification, in the form set forth on the reverse of the Note, that such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act or to a non-U.S. person in accordance with Rule 904 under the Securities Act; and (ii) written instructions directing the Trustee to make, or to direct the Notes Custodian to make, an adjustment on its books and records with respect to such Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, then the Trustee shall cancel such Definitive Note and cause, or direct the Notes Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Notes Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Note is then outstanding, Sterling shall issue and the Trustee shall authenticate, upon written order of Sterling in the form of an Officers' Certificate, a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. (i) The transfer and exchange of the Global Note or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor, if applicable. (ii) Notwithstanding any other provisions of this Indenture (other than the provisions set forth in Section 2.09), the Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. 21 (iii) In the event that the Global Note is exchanged for Notes in definitive form pursuant to Section 2.09, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Notes, such Notes may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.06 (including the certification requirements set forth on the reverse of the Initial Notes intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by Sterling. (d) Legend. (i) Except as permitted by the following paragraphs (ii) and (iii) each Note certificate evidencing the Global Note and the Definitive Notes (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND UNDER APPLICABLE STATE SECURITIES LAWS, AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (i) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." When set forth on a Definitive Note, the legend will include the following additional words: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." 22 (ii) Upon any sale or transfer of a Transfer Restricted Note (including any Transfer Restricted Note represented by the Global Note) pursuant to Rule 144 under the Securities Act: (A) in the case of any Transfer Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a certificated Note that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Note; (B) in the case of any Transfer Restricted Note that is represented by the Global Note, the Registrar shall permit the Holder thereof to request the issuance of a certificated Note that does not bear the legend set forth above and rescind any restrictions on the transfer of such Transfer Restricted Note, if the sale or exchange was made in reliance on Rule 144 and the Holder certifies to that effect in writing to the Registrar (such certification to be in the form set forth on the reverse of the Note). (iii) After a transfer of any Initial Notes or Private Exchange Notes during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Notes or Private Exchange Notes, as the case may be, all requirements pertaining to legends on such Initial Note or such Private Exchange Note will cease to apply, the requirements requiring any such Initial Note or such Private Exchange Note issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Note or Private Exchange Note without legends will be available to the transferee of the Holder of such Initial Notes or Private Exchange Notes or upon receipt of directions to transfer such Holder's interest in the Global Note, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Exchange Notes in exchange for their Initial Notes, all requirements pertaining to such Initial Notes that Initial Notes issued to certain Holders be issued in global form will cease to apply and certificated Initial Notes with the restricted securities legend set forth in Exhibit A hereto will be available to Holders of such Initial Notes that do not exchange their Initial Notes and Exchange Notes in certificated form will be available to Holders that exchange such Initial Notes in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Private Exchange Notes in exchange for their Initial Notes, all requirements pertaining to such Initial Notes that Initial Notes issued to certain holders be issued in global form will still apply, and Private Exchange Notes in global form with the restricted securities legend set forth in Exhibit A hereto will be available to Holders that exchange such Initial Notes in such Private Exchange. (e) Cancellation or Adjustment of Global Note. At such time as all beneficial interests in the Global Note have either been exchanged for certificated Notes, redeemed, repurchased or canceled, such Global Note shall be returned to the Depository for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for certificated Notes, redeemed, repurchased or 23 canceled, the principal amount of Notes represented by such Global Note shall be reduced and an adjustment shall be made by the Trustee or the Notes Custodian to reflect such reduction on the books and records of the Notes Custodian for such Global Note with respect to such Global Note. (f) Obligations with Respect to Transfers and Exchanges of Notes. (i) To permit registration of transfers and exchanges, Sterling shall execute and the Trustee shall authenticate certificated Notes, Definitive Notes and the Global Note at the Registrar's or co-registrar's request. (ii) Sterling may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section 2.06. (iii) Sterling shall not be required to make and the Registrar or co-registrar need not register transfers or exchanges of certificated or Definitive Notes selected for redemption (except, in the case of any Definitive Note to be redeemed in part, the portion thereof not to be redeemed), or any Notes for a period of 15 days before a selection of Notes to be redeemed or 15 days before an interest payment date. (iv) Prior to the due presentation for registration of transfer of any Note, Sterling, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of Sterling, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange. (g) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner in the Global Note, a member of, or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of the Global Note). The rights of beneficial owners in the Global Note shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. 24 The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants, members or beneficial owners in the Global Note) other than to make any required delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or Sterling and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, Sterling shall issue and the Trustee shall authenticate a replacement Note if Sterling's and the Trustee's reasonable requirements for the replacements of Notes are met. If required by the Trustee or Sterling, an indemnity bond shall be supplied by the Holder that is sufficient in the judgment of the Trustee and Sterling to protect Sterling, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Note is replaced. Every replacement Note shall be an obligation of Sterling. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee, except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. A Note does not cease to be outstanding because Sterling, a Subsidiary of Sterling or an Affiliate of Sterling holds such Note. If a Note is replaced pursuant to Section 2.07, it shall cease to be outstanding unless the Trustee receives proof satisfactory to it that such replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Notes (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Holders of Notes on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) shall cease to be outstanding and interest thereon shall cease to accrue. 25 Section 2.09. Temporary Notes and Certificated Notes. (a) Until definitive Notes are ready for delivery, Sterling may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have such variations as Sterling and the Trustee consider appropriate for temporary Notes. Without unreasonable delay, Sterling shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. (b) The Global Note deposited with the Depository or with the Trustee as custodian for the Depository pursuant to Section 2.01 shall be transferred to the beneficial owners thereof in the form of certificated Notes in an aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note, only if such transfer complies with Section 2.06 and (i) the Depository notifies Sterling that it is unwilling or unable to continue as Depository for such Global Note or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act and a successor depository is not appointed by Sterling within 90 days of such notice, (ii) an Event of Default has occurred and is continuing or (iii) Sterling, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Notes under this Indenture. (c) Any Global Note that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depository to the Trustee to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Note, an equal aggregate principal amount of Initial Notes of authorized denominations. Any portion of the Global Note transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depository shall direct. Any Initial Note delivered in exchange for an interest in the Global Note shall, except as otherwise provided by Section 2.06(d), bear the restricted securities legend set forth in Exhibit A hereto. (d) Subject to the provisions of Section 2.09(c), the registered Holder of the Global Note may grant proxies and otherwise authorize any person, including agent members, participants and persons that may hold interests through agent members, to take any action which a Holder is entitled to take under this Indenture or the Notes. (e) In the event of the occurrence of any of the events specified in Section 2.09(b), Sterling will promptly make available to the Trustee a reasonable supply of certificated Notes in definitive, fully registered form without interest coupons. Section 2.10. Cancellation. Sterling at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation, and shall destroy such canceled Notes (subject to the record retention requirement of the Exchange Act), and, upon the request of Sterling, deliver a certificate of such destruction to Sterling, unless Sterling directs canceled Notes to be returned to them. Sterling may not issue new Notes to replace Notes it has redeemed, paid or delivered to the Trustee for cancellation. 26 Section 2.11. Defaulted Interest. If Sterling defaults in a payment of interest on the Notes, Sterling shall pay such defaulted interest in any lawful manner. Sterling may pay such defaulted interest to the Persons who are Holders of the Notes on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the payment date, in each case at the rate provided in the Notes. Sterling shall fix or cause to be fixed any such special record date and payment date, and, at least 15 days prior to the special record date, Sterling shall mail or cause to be mailed to each Holder of a Note a notice that states such special record date, such related payment date and the amount of any such defaulted interest to be paid to Holders of the Notes. Section 2.12. CUSIP Number. Sterling in issuing the Notes may use a "CUSIP" number, and, if Sterling shall do so, the Trustee shall use such CUSIP number in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in such notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. Sterling will notify the Trustee of any change in a CUSIP number. ARTICLE III REDEMPTION Section 3.01. Notices to Trustee. If Sterling elects to redeem Notes pursuant to paragraph 5 of the Notes, Sterling shall notify the Trustee in writing of the redemption date, the principal amount of Notes to be redeemed and the paragraph of the Notes pursuant to which the redemption will occur. Sterling shall give each notice to the Trustee provided for in this Section 3.01 at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from Sterling to the effect that such redemption will comply with the conditions herein. If fewer than all of the Notes are to be redeemed, the record date relating to such redemption shall be selected by Sterling and given to the Trustee, which record date shall not be less than 15 days after the date of notice to the Trustee. Section 3.02. Selection of Notes to be Redeemed. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed pro rata, unless otherwise required by law or regulation (including regulation of The Depository Trust Company). The Trustee shall make the selection from outstanding Notes not previously called for redemption. The Trustee may select for redemption portions of the principal of Notes that have denominations larger than $1,000. Notes and portions of Notes the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for 27 redemption. The Trustee shall notify Sterling promptly of the Notes or portions of Notes to be redeemed. Section 3.03. Notice of Redemption. Sterling shall at least 30 days but not more than 60 days before a redemption date mail or cause to be mailed, by first class-mail, a notice of redemption to each Holder of Notes of which are to be redeemed. The notice shall identify the Notes to be redeemed and shall state: (i) the redemption date; (ii) the redemption price, (iii) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed, and that after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued; (iv) the name and address of the Paying Agent; (v) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (vi) that, unless Sterling defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Notes called for redemption ceases to accrue on and after the redemption date; (vii) the paragraph of the Notes and/or the Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (viii) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At Sterling's request, at least five Business Days prior to the date upon which such notice is to be mailed unless the Trustee consents to a shorter period, the Trustee shall give the notice of redemption in Sterling's name and at Sterling's expense. In such event, Sterling shall provide the Trustee with the information required by this Section 3.03. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption shall become due and payable on the redemption date and at the redemption price stated in such notice of redemption. Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price stated in such notice of redemption, plus accrued interest to the redemption date. Failure to give notice to a Holder of a Note or any defect in any notice shall not affect the validity of any notice to any other Holder of a Note. 28 Section 3.05. Deposit of Redemption Price. On or prior to any redemption date, Sterling shall deposit with the Paying Agent (or, if Sterling or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to Sterling any money deposited with the Trustee or the Paying Agent by Sterling in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed on that date other than Notes or portions of Notes called for redemption which have been delivered by Sterling to the Trustee for cancellation. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, Sterling shall issue and the Trustee shall authenticate for the Holder of the Notes (at the expense of Sterling) a new Note equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE IV CHANGE OF CONTROL (a) Upon the occurrence of a Change of Control (as defined below), each Holder of a Note shall have the right to require Sterling to repurchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest (if any) to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). (b) The occurrence of any of the following events shall constitute a "Change of Control" under this Indenture: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of Holdings; provided that the Permitted Holders "beneficially own" (as defined above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of Holdings than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of Holdings (for the purposes of this clause (i), (A) such other Person shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation"), if such other Person "beneficially owns" (as defined above), directly or indirectly, more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders "beneficially own" (as defined above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of such parent corporation, and (B) the 29 Permitted Holders shall be deemed to beneficially own any Voting Stock of a specified corporation held by any parent corporation so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Holdings or Sterling (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of Holdings or Sterling, as the case may be, was approved by a majority of the directors of Holdings or Sterling, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Holdings or Sterling, as the case may be, then in office; (iii) the merger or consolidation of Holdings or Sterling with or into another Person or the merger of another Person (other than a Permitted Holder) with or into Holdings or Sterling, or the sale or transfer in one or a series of transactions of all or substantially all the assets of Holdings or Sterling to another Person (other than a Permitted Holder), and, in the case only of any such merger or consolidation, the securities of Holdings or Sterling that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of Holdings or Sterling are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation; or (iv) for so long as a holding company ownership structure is maintained over Sterling, Holdings shall hold less than a majority of the Capital Stock of Sterling (other than Preferred Stock of Sterling issued in accordance with the terms of this Indenture) or less than a majority of the Voting Stock of Sterling. (c) Within 30 days following any Change of Control, Sterling shall mail a notice to each Holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such Holder has the right to require Sterling to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); (ii) the material circumstances and facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization, each after giving effect to such Change of Control); (iii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed in the event of a Change of Control); and (iv) the instructions determined by Sterling, consistent with the covenant described hereunder, that a Holder must follow in order to have its Notes purchased. (d) Sterling shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Article IV. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Article IV, Sterling shall comply 30 with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Article IV by virtue thereof. ARTICLE V COVENANTS Section 5.01. Payment of Principal, Premium and Interest. Sterling shall duly and punctually pay the principal of (and premium, if any) and interest on the Notes in accordance with the terms of this Indenture and the Notes. Section 5.02. Maintenance of Office or Agency. Sterling shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon Sterling in respect of the Notes and this Indenture may be served. Sterling shall give prompt written notice to the Trustee of the location, and any change in such location, of such office or agency. If at any time Sterling shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. Sterling also from time to time may designate one or more additional offices or agencies where the Notes may be presented or surrendered for any or all such purposes and from time to time may rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve Sterling of its obligation to maintain an office or agency for such purposes. Sterling shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 5.03. SEC Reports. So long as any of the Notes remain outstanding, Sterling shall cause copies of all quarterly and annual financial reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which Sterling is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, including without limitation, Forms 8-K, 10-Q and 10-K, to be filed with the Trustee and mailed to the Holders at their addresses appearing in the Note Register maintained by the Registrar, in each case, within 5 Business Days of filing with the SEC. If Sterling is not subject to the requirements of such Section 13 or 15(d) of the Exchange Act, Sterling shall nevertheless continue to file with the SEC, in conformity with Section 13 or Section 15(d) of the Exchange Act, and provide the Trustee and Holders of Notes with such annual and quarterly reports (without exhibits in the case of documents provided to the Trustee and Holders of Notes) and such information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which are specified in Section 13 or Section 15(d) of the Exchange Act, including without limitation, Forms 8-K, 10-Q and 10-K. Sterling shall also comply with the provisions of TIA Section 314(a). 31 Section 5.04. Limitation On Debt. (a) Sterling shall not Incur, and shall not permit any Restricted Subsidiary to Incur, directly or indirectly, any Debt unless the Consolidated EBITDA Coverage Ratio at the date of such Incurrence exceeds 1.75 to 1.0 if such Debt is Incurred on or prior to August 15, 1998, or 2.0 to 1.0 if such Debt is Incurred thereafter. (b) Notwithstanding the foregoing paragraph (a), Sterling and its Restricted Subsidiaries may Incur the following Debt: (i) Debt Incurred pursuant to the Revolving Credit Provisions of the Credit Agreements or any other revolving credit facility which, when taken together with all letters of credit and the principal amount of all other Debt Incurred pursuant to this clause (i), does not exceed the greater of $100 million and the sum of (x) 65% of the gross book value of the inventory of Sterling and its Restricted Subsidiaries, and (y) 85% of the gross book value of the accounts receivable of Sterling and its Restricted Subsidiaries; (ii) Debt Incurred pursuant to the Term Loan Provisions of the Credit Agreements or any indenture or term loan provisions of any other credit or loan agreement which, when taken together with the principal amount of all other Debt Incurred pursuant to this clause (ii), does not exceed $350 million outstanding at any one time less the aggregate amount of all principal repayments of any such Debt actually made after the Issue Date (other than any such principal repayments made as a result of the Refinancing of any such Debt); (iii) Debt Incurred pursuant to the ESOP Loan Provisions of the Credit Agreements in an aggregate principal amount not to exceed $6.5 million outstanding at any one time less the aggregate amount of all principal repayments of any such Debt actually made after the Issue Date (other than any such principal repayments made as a result of the Refinancing of any such Debt); (iv) Debt of Sterling owed to and held by a Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock that results in such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any transfer of such Debt (other than to a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the issuance of such Debt by Sterling; (v) Debt of a Restricted Subsidiary incurred and outstanding on or prior to the date on which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by Sterling (other than Debt issued in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by Sterling); (vi) the Existing Subordinated Notes and the Notes; (vii) Debt outstanding on the Issue Date (other than Debt described in clause (i), clause (ii), clause (iii), clause (iv), clause (v) or clause (vi); 32 (viii) Refinancing Debt in respect of Debt Incurred pursuant to paragraph (a) or pursuant to clause (vi) or clause (vii) or this clause (viii); (ix) Hedging Obligations; provided, that with respect to Interest Rate Agreements and Currency Agreements (if such Currency Agreements relate to Debt), only to the extent directly related to Debt permitted to be Incurred by Sterling pursuant to this Indenture; and (x) Debt in an aggregate principal amount which, together with all other Debt of Sterling and the Restricted Subsidiaries then outstanding (other than Debt permitted by clauses (i) through (ix) of this paragraph (b) or paragraph (a) above) does not exceed $25 million. For purposes of determining compliance with this paragraph (b), (i) in the event that an item of Debt meets the criteria of more than one of the types of Debt described in paragraph (b), Sterling, in its sole discretion, will classify such item of Debt and only be required to include the amount and type of such Debt in one of the clauses of paragraph (b); and (ii) an item of Debt may be divided and classified in more than one of the types of Debt in paragraph (b). (c) Notwithstanding paragraph (a) and paragraph (b) above, Sterling shall not Incur any Debt if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations unless such Debt shall be subordinated to the Notes to at least the same extent as such Subordinated Obligations. (d) Notwithstanding paragraph (a) and paragraph (b) above, (i) Sterling shall not Incur any Debt if such Debt is subordinated or junior in ranking to any Senior Debt, unless such Debt is Senior Subordinated Debt or is expressly subordinated in right of payment to Senior Subordinated Debt; and (ii) Sterling shall not issue any Secured Debt which is not Senior Debt unless contemporaneously therewith effective provision is made to secure the Notes equally and ratably with such Secured Debt for so long as such Secured Debt is secured by a Lien. Section 5.05. Limitation On Restricted Payments. (a) Sterling shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to: (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving Sterling) or similar payment to the direct or indirect holders of its Capital Stock (except dividends or distributions payable solely in its Non-Convertible Capital Stock or in options, warrants or other rights to purchase its Non-Convertible Capital Stock and except dividends or distributions payable to Sterling or a Restricted Subsidiary), and other than pro rata dividends or other distributions made by a Restricted Subsidiary of Sterling that is not a Wholly Owned Subsidiary to minority shareholders (or owners of an equivalent interest in the case of a Restricted Subsidiary that is an entity other than a corporation); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of Sterling, any direct or indirect parent of Sterling or a Restricted Subsidiary (other than such Capital Stock owned by Sterling or any Wholly Owned Subsidiary); 33 (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (iv) make any Investment in any Person (other than a Permitted Investment) (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment"), if at the time Sterling or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) Sterling, after giving pro forma effect to such Restricted Payment, would not be permitted to Incur an additional $1.00 of Debt pursuant to Section 5.04(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter during which the Existing Subordinated Notes were originally issued to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); provided, however, that if the Notes achieve an Investment Grade Rating during any fiscal quarter, the percentage for such fiscal quarter (and for any other fiscal quarter where, on the first day of such fiscal quarter, the Notes shall have an Investment Grade Rating) will be 100% of Consolidated Net Income during such fiscal quarter; provided, further, however, that if such Restricted Payment is to be made in reliance upon an additional amount permitted pursuant to the immediately preceding proviso, the Notes must have an Investment Grade Rating at the time such Restricted Payment is declared or, if not declared, made; (B) the aggregate Net Cash Proceeds received by Sterling from the issue or sale of its Capital Stock (other than Redeemable Stock or Exchangeable Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary or an employee stock ownership plan or similar trust); (C) the aggregate Net Cash Proceeds received by Sterling from the issue or sale of its Capital Stock (other than Redeemable Stock or Exchangeable Stock) to an employee stock ownership plan subsequent to the Issue Date; provided, however, that if such employee stock ownership plan issues any Debt, such aggregate amount shall be limited to an amount equal to any increase in the Consolidated Net Worth of Sterling resulting from principal repayments made by such employee stock ownership plan with respect to Debt issued by it to finance the purchase of such Capital Stock; (D) the amount by which Debt of Sterling is reduced on Sterling's balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date, of any Debt of Sterling convertible or exchangeable for Capital Stock (other than Redeemable Stock or Exchangeable Stock) of Sterling (less the amount of any cash, or other property, distributed by Sterling upon such conversion or exchange); (E) an amount equal to the sum of (x) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to Sterling or any Restricted Subsidiary from Unrestricted Subsidiaries, and (y) the portion (proportionate to Sterling's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by Sterling or any Restricted Subsidiary in 34 such Unrestricted Subsidiary; (F) to the extent not covered in sub-clauses (A) through (E) of this clause (iv)(3), the aggregate net cash proceeds received after the date of the Existing Subordinated Notes Indenture by Sterling as capital contributions (other than from any of its Restricted Subsidiaries); and (G) $5 million; provided, however, that, to the extent used, such $5 million shall reduce the amount available for Investments pursuant to clause (xii) of the definition of "Permitted Investments"; and provided, further, however, that the amounts available under this sub-clause (G) and under clause (xi) of the definition of "Permitted Investments" shall in no event exceed $10 million in the aggregate. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of Sterling made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of Sterling (other than Redeemable Stock or Exchangeable Stock of Sterling and other than Capital Stock of Sterling issued or sold to a Subsidiary or an employee stock ownership plan); provided, however, that (1) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments, and (2) the Net Cash Proceeds from such sale shall be excluded from clause (iv)(3)(B) and clause (iv)(3)(C) of paragraph (a) above; (ii) any purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations of Sterling made by exchange for, or out of the proceeds of the substantially concurrent sale of, Debt of Sterling which is permitted to be Incurred pursuant to Section 5.04; provided, however, that such purchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (iii) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under Section 5.07; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iv) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this provision; provided, however, that at the time of declaration of such dividend, no other Default shall have occurred and be continuing (or would result therefrom); and provided, further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (v) the declaration or payment of any dividend on shares of Sterling's common stock so long as (1) Sterling would be permitted immediately after giving pro forma effect to such declaration or payment to Incur an additional $1.00 of Debt pursuant to Section 5.04(a), (2) such declaration or payment is made immediately prior to a date on which cash interest is required to be paid on the Discount Notes, and (3) the full amount of such payment is applied by Holdings on such date as payment of such cash interest on the Discount Notes; provided that such dividend shall be included in the calculation of the amount of Restricted Payments; (vi) payments to the ESOP on behalf of the employees of Holdings or its Subsidiaries; provided, however, that all such payments by Sterling and its Subsidiaries 35 may not exceed, during any fiscal year, 10% of the aggregate compensation expense during such fiscal year attributable to employees of Holdings and its Subsidiaries who are eligible to participate in the ESOP; (vii) a payment to Holdings to pay its operating and administrative expenses, including, without limitation, directors fees, legal and audit expenses, SEC compliance expenses, and corporate franchise and other taxes, in an amount not to exceed the greater of $2.0 million per fiscal year and 0.2% of revenues of Sterling for the preceding fiscal year; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; (viii) a payment by Sterling to Holdings or to the ESOP or directly by Sterling to be used to repurchase common stock of Holdings distributed to participants and beneficiaries of the ESOP as required by and in accordance with the ESOP as in effect on the Issue Date and Section 409(h)(1)(B) of the Code and the regulations thereunder; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; (ix) a payment by Sterling to Holdings or the ESOP, or directly by Sterling, to be used to repurchase, redeem, acquire or retire for value any Capital Stock of Holdings pursuant to any stockholder's agreement, management equity subscription plan or agreement, stock option plan or agreement or employee benefit plan in effect as of the Issue Date or such employee plan or agreement or employee benefit plan as may be adopted by Sterling or Holdings from time to time; provided, however, that the aggregate price paid for all Capital Stock repurchased, redeemed, acquired or retired by Sterling or on behalf of Holdings or Sterling shall not exceed $5 million in any fiscal year; provided, further, however, that such amount, to the extent related to the ESOP, shall be excluded in the calculation of Restricted Payments; (x) a payment to Holdings pursuant to the tax sharing agreement as the same may be amended from time to time in a manner not materially adverse to Sterling; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; (xi) any payment to Holdings to permit Holdings to make payments for advisory services owed pursuant to the engagement letter dated as of April 23, 1996, by and between STX Acquisition Corp. and The Sterling Group, Inc.; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; and (xii) a payment to Holdings to permit Holdings to comply with the terms of the Discount Notes Indenture relating to the application of proceeds from an Asset Disposition (relating to the sale or disposition of property by Sterling) as defined in such Discount Notes Indenture; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments. 36 Section 5.06. Limitation On Restrictions On Distributions from Restricted Subsidiaries. Sterling shall not, and shall not permit any Restricted Subsidiary to, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (i) pay dividends or make any other distributions on its Capital Stock or pay any Debt or other obligation owed to Sterling, (ii) make any loans or advances to Sterling or (iii) transfer any of its property or assets to Sterling, except: (1) any encumbrance or restriction pursuant to an agreement in effect on the Issue Date or pursuant to the issuance of the Notes; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Debt Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by Sterling (other than Debt Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by Sterling) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Debt Incurred pursuant to an agreement referred to in clause (iii)(1) or clause (iii)(2) or contained in any amendment to an agreement referred to in clause (iii)(1) or clause (iii)(2); provided, however, that the encumbrances and restrictions contained in any of such refinancing agreement or amendment are no less favorable to the Holders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such agreements; (4) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or other customary non-assignment provisions in contracts (other than contracts that constitute Debt) entered into the ordinary course of business to the extent such provisions restrict the transfer of the assets subject to such contracts; (5) in the case of this clause (iii), restrictions contained in security agreements or mortgages securing Debt of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (6) encumbrances or restrictions imposed by operation of applicable law; and (7) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or 37 substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition. Section 5.07. Limitation On Sales of Assets and Subsidiary Stock. (a) Sterling shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless (i) Sterling or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by Sterling or such Restricted Subsidiary is in the form of cash or cash equivalents, and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by Sterling (or such Restricted Subsidiary, as the case may be): (1) FIRST, to the extent Sterling elects (or is required by the terms of any Senior Debt), to prepay, repay or purchase Senior Debt or Debt (other than any Redeemable Stock) of a Wholly Owned Subsidiary (in each case other than Debt owed to Sterling or an Affiliate of Sterling or Holdings) within 180 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (2) SECOND, to the extent of the balance of such Net Available Cash after application in accordance with clause (ii)(1) above, at Sterling's election to the investment by Sterling, any Wholly Owned Subsidiary or the Restricted Subsidiary making such Asset Disposition in assets to replace the assets that were the subject of such Asset Disposition or an asset that (as determined by the Board of Directors) will be used in the business of Sterling, the Wholly Owned Subsidiaries or the Restricted Subsidiary making such Asset Disposition existing on the date of original issuance of the Notes or in businesses reasonably related thereto, in each case within the later of one year from the date of such Asset Disposition or the receipt of such Net Available Cash; (3) THIRD, to the extent of the balance of such Net Available Cash after application in accordance with clause (ii)(1) and clause (ii)(2), to make an offer to purchase Notes (and any other Senior Subordinated Debt of Sterling designated by Sterling) pursuant to and subject to the conditions contained in this Indenture; and (4) FOURTH, to the extent of the balance of such Net Available Cash after application in accordance with clause (ii)(1), clause (ii)(2) and clause (ii)(3), to (A) the acquisition by Sterling, any Wholly Owned Subsidiary or the Restricted Subsidiary making such Asset Disposition of Tangible Property, or (B) the prepayment, repayment or purchase of Debt (other than any Redeemable Stock) of Sterling or Debt of any Restricted Subsidiary (in either case other than Debt owed to Sterling or an Affiliate of Sterling), in each case within one year from the later of the receipt of such Net Available Cash and the date the offer described in paragraph (b) below is consummated; provided, however, that in connection with any prepayment, repayment or purchase of Debt pursuant to clause (ii)(1), clause (ii)(3) or clause (ii)(4) of this paragraph (a), Sterling shall cause 38 the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this paragraph, Sterling and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $20 million. Pending application of Net Available Cash pursuant to this paragraph, such Net Available Cash shall be invested in Temporary Cash Investments. For the purposes of this Section 5.07, the following are deemed to be cash or cash equivalents: (x) the express assumption of Debt of Sterling or any Restricted Subsidiary and the release of Sterling or such Restricted Subsidiary from all liability on such Debt in connection with such Asset Disposition, and (y) securities received by Sterling or any Restricted Subsidiary from the transferee that are converted by Sterling or such Restricted Subsidiary into cash within 90 days of the receipt of such securities. The 85% limitation referred to in the previous paragraph shall not apply to any Asset Disposition in which the cash portion of the consideration received therefor, determined in accordance with the previous sentence, is equal to or greater than what the after-tax proceeds would have been had such Asset Disposition complied with such 85% limitation. (b) In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Subordinated Debt) pursuant to clause (a)(ii)(3) above, Sterling will be required to purchase Notes tendered pursuant to an offer by Sterling for the Notes (and other Senior Subordinated Debt) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Debt, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Debt) in accordance with the procedures (including prorating in the event of oversubscription) set forth in this Indenture. If the aggregate purchase price of Notes (and any other Senior Subordinated Debt) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, Sterling will be required to apply the remaining Net Available Cash in accordance with clause (a)(ii)(4) above. Sterling shall not be required to make such an offer to purchase Notes (and other Senior Subordinated Debt) pursuant to this Section 5.07 if the Net Available Cash available therefor is less than $10 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Disposition). To the extent that any or all of the Net Available Cash of any Foreign Asset Sale is prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Available Cash so affected shall not be required to be applied at the time provided above, but may be retained by the applicable Restricted Subsidiary (and invested in accordance with the last sentence of the first paragraph of paragraph (a) above) so long, but only so long, as the applicable local law will not permit repatriation to the United States. Sterling shall agree to cause the applicable Restricted Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation. Once such repatriation of any of such affected Net Available Cash is permitted under the applicable local law, such repatriation shall be immediately effected and such repatriated Net Available Cash will be applied in the manner described in this Section 5.07. (c) Sterling shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Section 5.07. To the extent that the provisions of any 39 securities laws or regulations conflict with provisions of this Section 5.07, Sterling shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. Section 5.08. Limitation On Transactions with Affiliates. (a) Sterling shall not, and shall not permit any Restricted Subsidiary to, conduct any business or enter into any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of Holdings or Sterling (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are (1) set forth in writing, and (2) as favorable to Sterling or such Restricted Subsidiary as terms that would be obtainable at the time for a comparable transaction or series of related transactions in arm's length dealings with an unrelated third Person, (ii) if such Affiliate Transaction involves an amount in excess of $2.5 million, the disinterested members of the Board of Directors have, by resolution, determined in good faith that such Affiliate Transaction meets the criteria set forth in clause (i)(2) above, and (iii) if such Affiliate Transaction involves an amount in excess of $7.5 million, such Affiliate Transaction is determined by an Independent Financial Advisor to be fair from a financial standpoint to Sterling or its Restricted Subsidiary, as the case may be. The foregoing requirements shall not be applicable to (x) contracts with Koch Capital Services, Inc. or its affiliates in the ordinary course of business on terms as favorable to Sterling or the relevant Restricted Subsidiary as would be obtainable at the time for a comparable transaction in arm's length dealings with an unrelated third Person, or (y) any purchase or supply contracts in the ordinary course of business on terms as favorable to Sterling or the relevant Restricted Subsidiary as would be obtainable at the time for a comparable transaction in arm's length dealings with an unrelated third Person; provided, however, that the Board of Directors shall, not later than the 60th day after the end of each six-month period following the Issue Date, have reviewed such contracts and determined that such contracts meet the criteria set forth in this sub-clause (y). (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any Restricted Payment or Permitted Investment permitted to be paid pursuant to the covenant described in Section 5.05; (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors or the board of directors of the relevant Restricted Subsidiary; (iii) loans or advances to employees in the ordinary course of business, but in any event not to exceed $2 million in the aggregate outstanding at any one time; 40 (iv) the payment of reasonable and customary fees to directors of Sterling and its Restricted Subsidiaries who are not employees of Sterling or its Restricted Subsidiaries; (v) any transaction between Sterling and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries; (vi) indemnification payments to directors and officers of Sterling in accordance with applicable state laws. Section 5.09. Limitation On the Sale or Issuance of Capital Stock of Restricted Subsidiaries. Sterling shall not sell or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock except: (i) to Sterling or a Wholly Owned Subsidiary; (ii) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary remains a Restricted Subsidiary; or (iii) if all shares of Capital Stock of such Restricted Subsidiary are sold or otherwise disposed of; provided, however, that in connection with any sale pursuant to this clause (iii), Sterling may retain no more than 10% of the outstanding Capital Stock of the Restricted Subsidiary being sold as a portion of the purchase price in connection with such sale. In connection with any such sale or disposition of Capital Stock, Sterling or any such Restricted Subsidiary shall comply with Section 5.07. Section 5.10. Compliance Certificates. Sterling shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of Sterling and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether Sterling has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such Officers' Certificate, that to the best of his or her knowledge Sterling has kept, observed, performed and fulfilled each covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto). Sterling shall also comply with TIA Section 314(a)(4). Section 5.11. Further Instruments and Acts. Upon request of the Trustee, Sterling will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. 41 ARTICLE VI SUCCESSORS Section 6.01. When Sterling May Merge or Transfer Assets. Sterling shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not Sterling) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Trustee, in form acceptable to the Trustee, all the obligations of Sterling under the Notes and this Indenture; (ii) immediately after giving effect to such transaction (and treating any Debt which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Debt pursuant to Section 5.04(a); (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of Sterling prior to such transaction minus any costs incurred in connection with such transaction; and (v) Sterling shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the terms of this Indenture. Section 6.02. Successor Company Substituted. The Successor Company shall be the successor to Sterling and shall succeed to, and be substituted for, and may exercise every right and power of, Sterling under this Indenture, but the predecessor Person in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Notes. 42 ARTICLE VII DEFAULTS AND REMEDIES Section 7.01. Events of Default. Each of the following shall constitute an "Event of Default": (i) Sterling defaults in any payment of interest on any Note when the same becomes due and payable, whether or not such payment shall be prohibited by Article XI, and such default continues for a period of 30 days; (ii) Sterling defaults in the payment of the principal of any Note when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration, upon required repurchase or otherwise, whether or not such payment shall be prohibited by Article XI; (iii) Sterling fails to comply with Article VI; (iv) Sterling fails to comply for 30 days after the notice specified in this Section 7.01 with any of its obligations contained in Article IV (other than a failure to purchase Notes), Section 5.03, Section 5.04, Section 5.05, Section 5.06, Section 5.07 (other than a failure to purchase Notes), Section 5.08, Section 5.09 or Section 5.10; (v) Sterling fails to comply with any of its agreements in the Notes or this Indenture (other than those referred to in clause (i), clause (ii), clause (iii) or clause (iv) of this Section 7.01) and such failure continues for 60 days after the notice specified in this Section 7.01; (vi) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Debt for money borrowed by Sterling or any of its Subsidiaries (or the payment of which is Guaranteed by Sterling or any of its Subsidiaries) whether such Debt or Guarantee now exists, or is created after the date of this Indenture, which default (1) is caused by failure to pay principal of or premium, if any, or interest on such Debt prior to the expiration of the grace period provided in such Debt on the date of such default ("Payment Default"), or (2) results in the acceleration of such Debt prior to its express maturity and, in each case, the principal amount of any such Debt, together with the principal amount of any other such Debt under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more; (vii) Sterling or any Significant Subsidiary of Sterling pursuant to or within the meaning of Bankruptcy Law: (1) commences a voluntary case, (2) consents to the entry of an order for relief against it in an involuntary case, (3) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (4) makes a general assignment for the benefit of its creditors; (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against Sterling or any Significant Subsidiary of Sterling in an involuntary case, (2) appoints a Custodian of Sterling or any Significant Subsidiary of Sterling or for all or substantially all of the property of Sterling or any Significant Subsidiary of Sterling, or (3) orders the liquidation of Sterling or any Significant Subsidiary of Sterling, and the order or decree remains unstayed and in effect for 60 consecutive days; and 43 (ix) any final non-appealable judgment or decree not covered by insurance or as to which the insurance carrier has denied responsibility for the payment of money in excess of $10 million is rendered against Sterling or a Significant Subsidiary and is not discharged and there is a period of 60 days following such judgment during which such judgment or decree is not discharged, waived or the execution thereof stayed. A Default under clause (iv) or clause (v) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the Notes notify Sterling of the Default and Sterling does not cure such Default within the time specified after receipt of such notice. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. Sterling shall deliver to the Trustee, within 30 days after the occurrence thereof, an Officers' Certificate of any Event of Default pursuant to clause (iii), clause (iv), clause (v), clause (vi), clause (vii), clause (viii) or clause (ix) and any event which with the giving of notice or the lapse of time would become an Event of Default, its status and what action Sterling is taking or proposes to take in respect thereof. Section 7.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (vii) or clause (viii) of Section 7.01) occurs and is continuing, the Trustee by notice to Sterling, or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes by written notice to Sterling and the Trustee, may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable (collectively, the "Default Amount"). Upon such a declaration, the Default Amount shall be due and payable immediately. Notwithstanding the foregoing, in case of an Event of Default specified in clause (vii) or clause (viii) of Section 7.01, all outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of the Notes. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. Section 7.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes and this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any such Notes in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon any Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in such Event of 44 Default. No remedy shall be exclusive of any other remedy. All remedies shall be cumulative to the extent permitted by law. Section 7.04. Waiver of Past Defaults. Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default and its consequences, except (i) a Default in the payment of the principal of, premium, if any, or interest on, the Notes; or (ii) a Default in respect of a provision that under Section 10.02 cannot be amended without the consent of each Holder affected thereby. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 7.05. Control by Majority. Holders of a majority in principal amount of the Notes then outstanding may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the terms of this Indenture or if, subject to Section 8.01, the Trustee reasonably determines that such action, if taken, would be unduly prejudicial to the rights of other Holders of Notes or may involve the Trustee in personal liability. Section 7.06. Limitation On Suits. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder of a Note may pursue any remedy with respect to this Indenture or the Notes, unless: (i) such Holder has previously given the Trustee notice that an Event of Default is continuing; (ii) Holders of at least 25% in principal amount of the Notes then outstanding have requested the Trustee to pursue the remedy; (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (iv) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and (v) Holders of a majority in principal amount of the Notes then outstanding have not given the Trustee a direction inconsistent with such request within such 60-day period. A Holder of a Note shall not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. 45 Section 7.07. Unconditional Right of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on such Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of any such Holder of a Note. Section 7.08. Collection Suit by Trustee. If an Event of Default specified in Section 7.01(i) or Section 7.01(ii) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against Sterling for the entire amount then due and owing, plus the amounts provided for in Section 8.07. Section 7.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders of the Notes allowed in any judicial proceedings relative to Sterling, Sterling's creditors or Sterling's property, and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders of Notes in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder of a Note to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Notes, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due to Trustee under Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Note any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder of a Note thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Note in any such proceeding. Section 7.10. Priorities. If the Trustee collects any money pursuant to this Article VII, it shall pay out the money in the following order: (i) FIRST: to the Trustee for amounts due to it under Section 8.07; (ii) SECOND: to holders of Senior Debt to the extent required by Article XI; (iii) THIRD: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest, respectively; and (iv) FOURTH: to Sterling. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 7.10. 46 Section 7.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.11 shall not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 7.07, or a suit by Holders of more than 10% in principal amount of the Notes then outstanding. Section 7.12. Waiver of Stay, Extension and Usury Laws. Sterling (to the extent that it may lawfully do so) shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and Sterling (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VIII TRUSTEE Section 8.01. Duties of Trustee. (a) If an Event of Default of which a Responsible Officer of the Trustee is aware has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default of which a Responsible Officer of the Trustee is aware: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee shall not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct or bad faith, except that: 47 (i) this paragraph does not limit the effect of paragraph (b) of this Section 8.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with a direction received by it pursuant to Section 7.05. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraph (a), paragraph (b) and paragraph (c) of this Section 8.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if the Trustee shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with Sterling. (g) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 8.01 and to the provisions of the TIA. Section 8.02. Rights of Trustee. (a) The Trustee may rely upon any document reasonably believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in any such document. (b) Before the Trustee acts or refrains from taking any act, the Trustee may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in reliance on such Officers' Certificate or such Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent; provided, however, that any such agent is appointed by the Trustee with due care. (d) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture; provided, however, that the Trustee's conduct does not constitute negligence, willful misconduct or bad faith. 48 (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by the Trustee hereunder in good faith and in accordance with the advice or opinion of such counsel. Section 8.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with Sterling or any Affiliate of Sterling with the same rights as it would have if the Trustee were not the Trustee hereunder. However, in the event the Trustee acquires any conflicting interest in accordance with the TIA it must eliminate such conflicting interest within 90 days, apply to the SEC for permission to continue as Trustee or resign. Any Paying Agent, Registrar or co-registrar may do the same with like rights. The Trustee shall at all times remain subject to Section 8.10 and Section 8.11. Section 8.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for Sterling's use of the proceeds of the Notes and it shall not be responsible for any statement contained herein or any statement contained in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than the Trustee's certificates of authentication. Section 8.05. Notice of Default. If a Default occurs and is continuing and if such Default is known to a Responsible Officer of the Trustee, the Trustee shall mail to each Holder of a Note a notice of such Default within 90 days (or such shorter period as may be required by applicable law) after such Default occurs. Except in the case of a Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 8.06. Reports by Trustee to Holders of Notes. Within 60 days after each May 15, beginning with May 15 following the date of this Indenture, the Trustee shall mail to Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) to the extent such a report is required by TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to Sterling and filed with the SEC and each stock exchange on which the Notes may be listed. Sterling shall promptly notify the Trustee upon the Notes being listed on any stock exchange and any delisting thereof. 49 Section 8.07. Compensation and Indemnity. Sterling shall pay to the Trustee from time to time reasonable compensation for the Trustee's acceptance of this Indenture and its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. Sterling shall reimburse the Trustee for all reasonable out-of-pocket expenses incurred or made by it in the course of its services hereunder. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. Sterling shall indemnify the Trustee against any and all loss, liability or reasonable expense incurred by it in connection with the administration of this trust and the performance of its duties under this Indenture, except any such loss, liability or expense attributable to the negligence, willful misconduct or bad faith of the Trustee. The Trustee shall notify Sterling promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify Sterling shall not relieve Sterling of its obligations hereunder except to the extent that Sterling may be materially prejudiced by such failure. Sterling shall defend the claim and the Trustee shall cooperate in the defense of such claim. The Trustee may have separate counsel and Sterling shall pay the reasonable fees and expenses of such counsel. Sterling need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own negligence, willful misconduct or bad faith. Sterling need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. Sterling's payment obligations under this Section 8.07 shall survive the satisfaction and discharge of this Indenture. To secure Sterling's payment obligations under this Section 8.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except such money or property that is held by it in trust for the benefit of Holders of Notes to pay principal and interest on particular Notes. If the Trustee shall incur expenses after the occurrence of a Default specified in Section 7.01(vii) or Section 7.01(viii), such expenses (including the reasonable fees and expenses of its agents and counsel) are intended to constitute expenses of administration under Bankruptcy Law. Section 8.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 8.08. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying Sterling in writing. The Holders of Notes of not less than a majority in principal amount of the Notes then outstanding may remove the Trustee by so notifying the Trustee and Sterling in writing. Sterling shall remove the Trustee if: (i) the Trustee fails to comply with Section 8.10; 50 (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a Custodian or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), Sterling shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by Sterling. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, Sterling or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder of a Note who has been a Holder of a Note for at least six months fails to comply with Section 8.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Any successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Sterling. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all of the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Note. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 8.07. Notwithstanding replacement of the Trustee pursuant to this Section 8.08, Sterling's obligations under Section 8.07 shall continue for the benefit of the retiring Trustee. Section 8.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee entity without any further act shall constitute the successor Trustee; provided, however, that such entity shall be otherwise qualified and eligible under this Article VIII. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Notes so authenticated, and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have. 51 Section 8.10. Eligibility; Disqualification. This Indenture at all times shall have a Trustee which satisfies the requirements of TIA 310(a). Trustee shall be a corporation organized and doing business under the laws of the United States of America or of any State thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $50 million as set forth in its most recently published annual report of condition. The Trustee shall be subject to TIA Section 310(b). Section 8.11. Preferential Collection of Claims Against Sterling. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee which has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE IX DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Liability on Notes; Defeasance. (a) When (i) Sterling delivers to the Trustee all outstanding Notes (other than Notes replaced pursuant to Section 2.07) for cancellation; or (i) all outstanding Notes have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article III of this Indenture and Sterling irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Notes including interest thereon to maturity or such redemption date (other than Notes replaced pursuant to Section 2.07), and if in either case Sterling pays all other sums payable hereunder by Sterling, then this Indenture shall, subject to Section 9.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of Sterling accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of Sterling. (b) Subject to Section 9.01(c) and Section 9.02, Sterling at any time may terminate (i) all of Sterling obligations under the Notes and this Indenture ("legal defeasance"); or (ii) its obligations under Article IV, Section 5.02, Section 5.03, Section 5.04, Section 5.05, Section 5.06, Section 5.07, Section 5.08, Section 5.09, Section 5.10, Section 5.11, Section 6.01(iii), Section 6.01(iv), Section 7.01(iv), Section 7.01(vi), Section 7.01(vii) (with respect only to Significant Subsidiaries), Section 7.01(viii) (with respect only to Significant Subsidiaries) and Section 7.01(ix) ("covenant defeasance"). Sterling may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If Sterling exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default. If Sterling exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in Section 7.01 (iv), Section 7.01(vi), Section 7.01(vii) (with respect only to Significant Subsidiaries), Section 7.01(viii) (with respect only to Significant Subsidiaries), Section 7.01(ix) or the failure of Sterling to comply with Article IV. 52 Upon satisfaction of the conditions set forth herein and at the request of Sterling, the Trustee shall acknowledge in writing the discharge of those obligations of Sterling terminated thereby. (c) Notwithstanding clause (a) and clause (b) above, Sterling's obligations contained in Section 2.03, Section 2.04, Section 2.05, Section 2.06, Section 2.07, Section 8.07, Section 8.08 and this Article IX shall survive until the Notes have been paid in full. Thereafter, Sterling's obligations contained in Section 8.07, Section 9.04 and Section 9.05 shall survive. Section 9.02. Conditions to Defeasance. Sterling may exercise its legal defeasance option or its covenant defeasance option only if: (i) Sterling irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal, premium (if any) and interest on the Notes to maturity or redemption, as the case may be; (ii) Sterling delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Notes to maturity or redemption, as the case may be; (iii) 91 days pass after the deposit is made and during the 91-day period no Default specified in Section 7.01(vii) or Section 7.01(viii) in either case with respect to Sterling occurs which is continuing at the end of the period; (iv) the deposit does not constitute a default under any other agreement binding on Sterling and is not prohibited by Article XI; (v) Sterling delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the U.S. Investment Company Act of 1940, as amended; (vi) in the case of the legal defeasance option, Sterling shall have delivered to the Trustee an Opinion of Counsel in the United States stating that (1) Sterling has received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such defeasance and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (vii) in the case of the covenant defeasance option, Sterling shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that the Holders of Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such covenant defeasance and will be subject to U.S. Federal income tax on the 53 same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (viii) Sterling delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes as contemplated by this Article IX have been complied with. Before or after a deposit, Sterling may make arrangements satisfactory to the Trustee for the redemption of the Notes at a future date in accordance with Article III. Section 9.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article IX. The Trustee shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of, and premium, if any, and interest on, the Notes. Section 9.04. Repayment to Sterling. The Trustee and the Paying Agent shall promptly turn over to Sterling upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to Sterling upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Holders of Notes entitled to the money shall look to Sterling for payment as general creditors. Section 9.05. Indemnity for Government Obligations. Sterling shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. Section 9.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article IX by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, Sterling's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article IX until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article IX; provided, however, that, if Sterling has made any payment of interest on or principal of any of the Notes because of the reinstatement of its obligations, Sterling shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. 54 ARTICLE X AMENDMENT, SUPPLEMENT AND WAIVER Section 10.01. Without Consent of Holders of Notes. Sterling and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to provide for the assumption of Sterling's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article VI; (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (iv) to add guarantees with respect to the Notes; (v) to add to the covenants of Sterling and its Subsidiaries hereunder for the benefit of the Holders of Notes or to surrender any right or power conferred upon Sterling; (vi) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the rights hereunder of any Holder of a Note; or (vii) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of Sterling accompanied by a resolution of the Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 10.06, the Trustee shall join with Sterling in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be contained therein, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture which affects its own rights, duties or immunities under this Indenture or otherwise. After an amendment, supplement or waiver under this Section 10.01 becomes effective, Sterling shall mail to the Holders of Notes affected thereby a notice briefly describing any such amendment, supplement or waiver. Any failure of Sterling to mail such notice, or any defect therein, shall not in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Section 7.04 and Section 7.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance by Sterling in any particular instance with any provision of this Indenture or the Notes. 55 Section 10.02. With Consent of Holders of Notes. Sterling and the Trustee may amend or supplement this Indenture, the Notes or any amended or supplemental Indenture with the written consent of the Holders of Notes of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default and its consequences or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each Holder of a Note affected, any amendment, supplement or waiver may not: (i) reduce the amount of Notes the Holders of which must consent to an amendment; (ii) reduce the rate of or extend the time for payment of interest on any Note; (iii) reduce the principal of or extend the Stated Maturity of any Note (except that Sterling's obligations to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the prior written consent of the Holders of a majority in principal amount of the Notes); (iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with Article III; (v) make any Notes payable in money other than that stated in the Note; (vi) impair the right of any Holder of a Note to receive payment of, principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes; (vii) make any change in Section 7.04 or Section 7.07 or the second sentence of this Section 10.02; or (viii) make any change in any material provision of Article XI that adversely affects the interests of any Holder of a Note. Upon the request of Sterling accompanied by a resolution of the Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory with the Trustee of the consent of the Holders of Notes as aforesaid and upon receipt by the Trustee of the documents described in Section 10.06, the Trustee shall join with Sterling in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 10.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. 56 After an amendment, supplement or waiver under this Section 10.02 becomes effective, Sterling shall mail to the Holders of Notes affected thereby a notice briefly describing any such amendment, supplement or waiver. Any failure of Sterling to mail such notice, or any defect therein, shall not in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Section 7.04 and Section 7.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance by Sterling in any particular instance with any provision of this Indenture or the Notes. Section 10.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. Section 10.04. Revocation and Effect of Consents and Waivers. Until an amendment, supplement or waiver becomes effective, a consent to such amendment, supplement or waiver by a Holder of a Note is a continuing and binding consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same Debt as the consenting Holder's Note, even if a notation of the consent or waiver is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver shall become effective in accordance with its terms and thereafter shall bind every Holder of a Note. Sterling may, but shall not be obligated to, fix a record date for the purpose of determining the Holders of Notes entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, such Persons which were Holders of Notes at such record date (or their duly designated proxies), and only such Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders of Notes after such record date. No such consent shall be valid or effective for more than 120 days after such record date. Section 10.05. Notation On or Exchange of Notes. If an amendment or supplement changes the terms of a Note, the Trustee may require the Holder of such Note to deliver such Note to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder of such Note. Alternatively, if Sterling or the Trustee so determines, Sterling in exchange for such Note shall issue and the Trustee shall authenticate a new Note that reflects such changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment or supplement. Section 10.06. Trustee to Sign Amendments, Etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article X if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment or supplement the Trustee shall be entitled to receive, and (subject 57 to Section 8.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that such amendment or supplement is authorized or permitted pursuant to this Indenture. Sterling shall not sign any amendment or supplemental Indenture until the Board of Directors approves any such amendment or supplemental Indenture. Section 10.07. Payment for Consents. Sterling shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Note for or as an inducement to any consent, amendment, supplement or waiver with respect to any term or provision of this Indenture or the Notes, unless such consideration is offered to be paid or agreed to be paid to all Holders of Notes that consent, waive or agree to amend or supplement in the time frame set forth in the solicitation documents relating to any such consent, waiver or agreement to amend or supplement. ARTICLE XI SUBORDINATION OF NOTES Section 11.01. Notes Subordinate to Senior Debt; Notes Pari Passu with Senior Subordinated Debt. Sterling covenants and agrees, and each Holder of a Note, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article XI, the payment of the principal of and premium, if any, and interest on each and all of the Notes are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt of Sterling. All provisions of this Article XI shall be subject to Section 11.14 hereof. The Notes shall rank pari passu in right of payment with all Senior Subordinated Debt of Sterling. Section 11.02. Payment Over of Proceeds Upon Dissolution, Etc. In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to Sterling or to its creditors, as such, or to its assets; or (ii) any liquidation, dissolution or other winding up of Sterling, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy; or (iii) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of Sterling, then and in any such event specified in clause (i), clause (ii) or clause (iii) above (each such event, if any, herein sometimes referred to as a "Proceeding") the holders of Senior Debt of Sterling will be first entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Debt of Sterling, or provision shall be made for such payment, in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Senior Debt, before the Holders of the Notes are entitled to receive any payment or distribution of any kind or character, on account of principal of (or premium, if any) or interest on or other obligations in respect of the Notes or on account of any purchase or other acquisition of Notes by Sterling (all such payments, distributions, purchases and acquisitions herein referred to, individually and collectively, as a "Notes Payment"), and to that end the holders of Senior Debt of Sterling shall be entitled to receive, for application to the 58 payment thereof, any Notes Payment which may be payable or deliverable in respect of the Notes in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section 11.02, the Trustee receives payment or distribution of assets of Sterling of any kind or character, before all the Senior Debt of Sterling is paid in full in cash or cash equivalents, then and in such event, subject to Section 11.04, such Notes Payment shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of assets of Sterling for application to the payment of all Senior Debt of Sterling remaining unpaid, to the extent necessary to pay the Senior Debt of Sterling in full in cash or cash equivalents, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of Sterling. For purposes of this Article XI only, the words "any payment or distribution of any kind or character" shall not be deemed to include a payment or distribution of stock or securities of Sterling provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Debt of Sterling, to at least the same extent as the Notes are so subordinated as provided in this Article XI; provided that (1) if a new corporation results from such reorganization or readjustment, such corporation assumes any Senior Debt of Sterling not paid in full in cash or cash equivalents in connection with such reorganization or readjustment; and (2) the rights of the holders of such Senior Debt are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of Sterling with, or the merger of Sterling into, another person or the liquidation or dissolution of Sterling following the convey ance or transfer of all or substantially all of its properties and assets as an entirety to another person upon the terms and conditions set forth in Article VI shall not be deemed a Proceeding for the purposes of this Section 11.02 if the person formed by such consolidation or into which Sterling is merged or the person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, shall, as part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article VI. Section 11.03. No Payment When Senior Debt in Default. In the event that any Senior Payment Default (as defined below) shall have occurred and be continuing, then Sterling may not make any Notes Payment unless and until such Senior Payment Default shall have been cured or waived or shall have ceased to exist or all amounts then due and payable in respect of Designated Senior Debt shall have been paid in full, or provision shall have been made for such payment, in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Designated Senior Debt. The term "Senior Payment Default" means any default in the payments of principal of (or premium, if any) or interest on any Designated Senior Debt of Sterling when due, whether at the maturity thereof or by declaration or acceleration, call for redemption or otherwise. In the event that any Senior Nonmonetary Default (as defined below) shall have occurred and be continuing, then, upon the receipt by Sterling and the Trustee of written notice of such Senior Nonmonetary Default from the representatives of holders of the Designated Senior Debt to which such default relates, Sterling may not make any Notes Payment for a period (the "blockage period") commencing on the date Sterling and Trustee receive such written notice and 59 ending 179 days after the date of such receipt of such written notice (or earlier) if terminated (i) by written notice to the Trustee and Sterling from the representative of holders of Designated Senior Debt that gave such written notice; (ii) because such Designated Senior Debt has been repaid in full; or (iii) because such default is no longer continuing). In any event, not more than one blockage period may be commenced during any period of 360 consecutive days and there shall be a period of at least 181 consecutive days in each period of 360 consecutive days when no blockage period is in effect. For all purposes of this paragraph, no Senior Nonmonetary Default that existed or was continuing on the date of commencement of any blockage period with respect to the Designated Senior Debt initiating such blockage period will be, or can be, made the basis for the commencement of a subsequent blockage period unless such default has been cured or waived for a period of not less than 90 consecutive days. The term "Senior Nonmonetary Default" means the occurrence or existence and continuance of any event of default, or of any event which, after notice or lapse of time (or both), would become an event of default, under the terms of any instrument pursuant to which any Designated Senior Debt is outstanding, permitting (after notice or lapse of time or both) one or more holders of such Senior Debt (or a trustee or agent on behalf of the holders thereof) to declare such Senior Debt due and payable prior to the date on which it should otherwise become due and payable, other than a Senior Payment Default. In the event that, notwithstanding the foregoing, Sterling shall make any Notes Payment to the Trustee or any Holder prohibited by the foregoing provisions of this Section 11.03, then and in such event, subject to Section 11.04, such Notes Payment shall be paid over and delivered forthwith to the holders of the Senior Debt of Sterling remaining unpaid, to the extent necessary to pay in full all the Senior Debt of Sterling. The provisions of this Section 11.03 shall not apply to any Notes Payment with respect to which Section 11.02 would be applicable. Section 11.04. Payment Permitted If No Default. Nothing contained in this Article XI or elsewhere in this Indenture or in any of the Notes shall prevent (i) Sterling, at any time except during the pendency of any Proceeding referred to in Section 11.02 or under the conditions described in Section 11.03, from making Notes Payments; or (ii) the application by the Trustee of any money deposited with it hereunder to Notes Payments or the retention of such Notes Payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such Notes Payment would have been prohibited by the provisions of this Article XI. Section 11.05. Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all amounts due or to become due on or in respect of Senior Debt of Sterling, or the provision for such payment, in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt of Sterling, the Holders of the Notes shall be subrogated (equally and ratably with the holders of all Debt of Sterling, if any, which by its express terms is subordinated to Senior Debt of Sterling to substantially the same extent as the Notes are subordinated to the Senior Debt of Sterling and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Debt) to the rights of the holders of such Senior Debt of Sterling to receive payments and distributions of cash, property and securities applicable to the Senior Debt of Sterling until the principal of (and premium, if any) and interest on the Notes shall be paid in full. For purposes of such 60 subrogation, no payments or distributions to the holders of the Senior Debt of Sterling of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article XI, and no payments over pursuant to the provisions of this Article XI to the holders of Senior Debt of Sterling by Holders of the Notes or the Trustee, shall, as among Sterling, its creditors other than holders of Senior Debt and the Holders of the Notes, be deemed to be a payment or distribution by Sterling to or on account of the Senior Debt of Sterling. Section 11.06. Provisions Solely to Define Relative Rights. The provisions of this Article XI are and are intended solely for the purpose of defining the relative rights of the Holders of Notes on the one hand and the holders of Senior Debt of Sterling on the other hand. Nothing contained in this Article XI or elsewhere in this Indenture or in the Notes is intended to or shall (i) impair, as among Sterling, its creditors other than holders of Senior Debt and the Holders of the Notes, the obligation of Sterling, which is absolute and unconditional, to pay to the Holders of the Notes the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (ii) affect the relative rights against Sterling of the Holders of the Notes and creditors of Sterling other than the holders of Senior Debt; or (iii) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XI of the holders of Senior Debt of Sterling to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. Section 11.07. Trustee to Effectuate Subordination. Each Holder of a Note by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XI and appoints the Trustee his attorney-in-fact for any and all such purposes. Section 11.08. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt of Sterling to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Sterling or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Sterling with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt of Sterling may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article XI or the obligations hereunder of the Holders of the Notes to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew, increase or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any person liable in any 61 manner for the payment or collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against Sterling and any other person. Section 11.09. Notice to Trustee. Sterling shall give prompt written notice to the Trustee of any fact known to Sterling which would prohibit the making of any payment to or by the Trustee in respect of the Notes. Notwithstanding the provisions of this Article XI or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which could prohibit the making of any payment to or by the Trustee in respect of the Notes, unless and until the Trustee shall have received written notice thereof specifically referencing this Article XI from Sterling or a holder of Senior Debt of Sterling or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.01, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 11.09 at least two Business Days prior to the date upon which by the terms hereof any money may became payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Note), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 8.01, the Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Debt of Sterling (or a trustee therefor) to establish that such notice has been given by a holder of Senior Debt of Sterling (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Debt of Sterling to participate in any payment or distribution pursuant to this Article XI, the Trustee may request each person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt of Sterling held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article XI, and if such evidence is not furnished, the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of Sterling referred to in this Article XI, the Trustee, subject to the provisions of Section 8.01, and the Holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Debt of Sterling and other Debt of Sterling, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XI. 62 Section 11.11. Trustee Not Fiduciary for Holders of Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of Sterling and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Notes or to Sterling or to any other person cash, property or securities to which any holders of Senior Debt of Sterling shall be entitled by virtue of this Article XI or otherwise. With respect to the holders of Senior Debt of Sterling, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article XI and no implied covenants or obligations with respect to holders of Senior Debt of Sterling shall be read into this Indenture against the Trustee. Section 11.12. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XI with respect to any Senior Debt of Sterling which may at any time be held by it, to the same extent as any other holder of Senior Debt of Sterling, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XI shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.07. Section 11.13. Article XI Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by Sterling and be then acting hereunder, the term "Trustee" as used in this Article XI shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XI in addition to or in place of the Trustee; provided, however, that Section 11.12 shall not apply to Sterling or any Affiliate of Sterling if it or such Affiliate acts as Paying Agent. Section 11.14. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article IX by the Trustee for the payment of principal of, and premium, if any, and interest on, the Notes shall not be subordinated to the prior payment of any Senior Debt or subject to the restrictions on this Article XI, and none of the Trustee or the Holders shall be obligated to pay over any such amount to Sterling or any holder of Senior Debt of Sterling or any other creditor of Sterling. 63 ARTICLE XII MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), such imposed duties shall control. Section 12.02. Notices. Any notice or communication by Sterling or the Trustee to the other is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to Sterling: Sterling Chemicals, Inc. 1200 Smith Street Suite 1900 Houston, Texas 77002 Telecopier No.: (713) 654-9552 Attention: Jim P. Wise If to the Trustee: Fleet National Bank 777 Main Street Hartford, Connecticut 06115 Telecopier No: (860) 986-7920 Attention: Corporate Trust Administration Sterling or the Trustee, by notice each to the other may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders of Notes) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder of a Note shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the Note Register. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder of a Note or any defect in such notice shall not affect its sufficiency with respect to other Holders of Notes. 64 If a notice or communication is mailed in the manner set forth above within the time prescribed, such notice or communication shall be deemed to be duly given whether or not the addressee receives it. If Sterling mails a notice or communication to Holders of Notes, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03. Communication by Holders of Notes with Other Holders of Notes. Holders of Notes pursuant to TIA Section 312(b) may communicate with other Holders of Notes with respect to their rights under this Indenture or the Notes. Sterling, the Trustee, the Registrar, the Paying Agent and any other Person shall have the protection of TIA Section 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by Sterling to the Trustee to take any action under this Indenture, Sterling shall furnish to the Trustee: (i) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (ii) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all conditions and covenants have been satisfied. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant contained in this Indenture shall include: (i) a statement that the Person making such certificate or opinion has read such condition or covenant; (ii) a statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether such condition or covenant has been satisfied; and (iv) a statement as to whether, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders of Notes. The Registrar and Paying Agent may make reasonable rules and set reasonable requirements for their functions. 65 Section 12.07. No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders. No director, officer, employee, incorporator or stockholder of Sterling, as such, shall have any liability for any obligations of Sterling under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations. Each Holder of a Note by accepting a Note waives and releases all such liability. Such waiver and release form a part of the consideration for issuance of the Notes. Section 12.08. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of Sterling or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10. Successors. All agreements of Sterling contained in this Indenture and the Notes shall bind Sterling and its successors. All agreements of the Trustee in this Indenture shall bind the Trustee and its successors. Section 12.11. Severability. In case any provision of this Indenture or the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each such signed copy shall be deemed to be an original, and all of such signed copies together shall represent one and the same agreement. Section 12.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. 66 SIGNATURES ---------- DATED AS OF APRIL 7, 1997 STERLING CHEMICALS, INC. BY: /s/ JIM P. WISE _________________________________ NAME: Jim P. Wise TITLE: Vice President and Chief Financial Officer ATTEST: /s/ F. MAXWELL EVANS ____________________________ NAME: F. Maxwell Evans TITLE: Secretary DATED AS OF APRIL 7, 1997 FLEET NATIONAL BANK, AS TRUSTEE BY: /s/ MICHAEL M. HOPKINS _________________________________ NAME: Michael M. Hopkins TITLE: Vice President ATTEST: /s/ ELIZABETH C. HAMMER ____________________________ NAME: Elizabeth C. Hammer TITLE: Vice President 67 EXHIBIT A --------- [FORM OF FACE OF INITIAL NOTE] ---------------------------- STERLING CHEMICALS, INC. [Global Notes Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.* [Restricted Notes Legend] "THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND UNDER APPLICABLE STATE SECURITIES LAWS, AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (i) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES - ------------------------ * This legend should only be added if the Security is issued in global form. A-1 ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." ["IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.]** - ------------------------ ** Include on a Definitive Security to be held by an institutional "accredited investor" (as defined in Rule 501(a), (1), (2), (3) or (7) under the Securities Act). A-2 No. __________ Principal Amount $ CUSIP No. _________ 11 1/4% Senior Subordinated Notes Due 2007 STERLING CHEMICALS, INC., a Delaware corporation, promises to pay to ___________________________________, or registered assigns, the principal sum of _________ Dollars on April 1, 2007. Interest Payment Dates: April 1 and October 1. Record Dates: March 15 and September 15. Additional provisions of this Note are set forth on the reverse side of this Note. Dated: ________________ STERLING CHEMICALS, INC. By _______________________________ Title: By _______________________________ Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION FLEET NATIONAL BANK, as Trustee, certifies that this is one of the Notes referred to in the Indenture. By ____________________________ Authorized Signatory A-3 [FORM OF REVERSE SIDE OF NOTE] ---------------------------- 11 1/4% Senior Subordinated Notes Due 2007 1. Interest -------- STERLING CHEMICALS, INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called "Sterling"), promises to pay interest on the principal amount of this Note at the rate per annum shown above provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this security at a rate of 11 3/4% per annum from and including the date on which any such Registration Default shall occur but excluding the date on which all Registration Defaults have been cured. Sterling will pay interest semi-annually on April 1 and October 1 of each year, commencing October 1, 1997. Interest on the Notes will accrue from the most recent date to which interest has been paid, or, if no interest has been paid, from April 7, 1997. Interest will be computed on the basis of a 360- day year of twelve 30-day months. Sterling shall pay interest on overdue principal at the rate borne by the Notes. 2. Method of Payment ----------------- Sterling will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. Sterling will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, Sterling may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent and Registrar -------------------------- Initially, Fleet National Bank, a national banking association (the "Trustee"), will act as Paying Agent and Registrar. Sterling may appoint and change any Paying Agent, Registrar or co-registrar without notice. Sterling or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture --------- Sterling issued the Notes under an Indenture dated as of April 7, 1997 (the "Indenture"), between Sterling and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of those terms. A-4 The Notes are unsecured senior subordinated obligations of Sterling limited to $150,000,000 aggregate principal amount (subject to Section 2.07 of the Indenture). The Indenture imposes certain limitations on the incurrence of additional indebtedness by Sterling and certain of its subsidiaries, the payment of dividends on, and the redemption of, capital stock of Sterling and certain of its Subsidiaries, the making of Investments, restrictions on distributions from certain Subsidiaries, the use of proceeds from the sale of assets and Subsidiary stock and transactions with affiliates. The Indenture also restricts the ability of Sterling to consolidate or merge with or into, or to transfer all or substantially all its assets to, another person. 5. Optional Redemption ------------------- The Notes will be redeemable, at Sterling's option, in whole or in part, at any time and from time to time on or after April 1, 2002, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount at maturity), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on or after April 1 of the years set forth below: Redemption Year Price ---- ---------- 2002 . . . . . . . . 105.625% 2003 . . . . . . . . 103.750% 2004 . . . . . . . . 101.875% 2005 . . . . . . . . 100.000% In addition, at any time and from time to time prior to April 1, 2000, Sterling may redeem in the aggregate up to 35% of the original principal amount of the Notes with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount) of 111.25%, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least $97,500,000 aggregate principal amount of the Notes must remain outstanding after each such redemption. 6. Notice of Redemption -------------------- Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Notes (or such portions thereof) called for redemption. A-5 7. Put Provisions -------------- Upon a Change of Control, any Holder of Notes will have the right to cause Sterling to repurchase all or any part of the Notes of such Holder at a purchase price equal to 101% of the principal amount of the Notes to be repurchased plus accrued interest to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the interest payment date) as provided in, and subject to the terms of, the Indenture. 8. Subordination ------------- The Notes are subordinated to Senior Debt. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. Sterling agrees, and each Holder of a Note by accepting a Note agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give effect to such subordination provisions and appoints the Trustee as attorney-in-fact for such purpose. 9. Denominations; Transfer; Exchange --------------------------------- The Notes are in registered form without coupons in denominations of $1,000 (or, in the case of Securities sold to institutional "accredited investors" as described in Rule 501(a) (1), (2), (3) or (7) under the Securities Act in a transaction intended to be exempt from registration under the Securities Act, minimum denominations of $500,000) and integral multiples of $1,000. Holders of Notes may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a Holder of a Note, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days before a selection of Notes to be redeemed or 15 days before an interest payment date. 10. Persons Deemed Owners --------------------- The registered Holder of this Note may be treated as the sole owner of such Note for all purposes. 11. Unclaimed Money --------------- Subject to applicable abandoned property law, if money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to Sterling at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to Sterling and not to the Trustee or Paying Agent for payment. 12. Discharge and Defeasance ------------------------ Subject to certain conditions, Sterling at any time may terminate some or all of its obligations under the Notes and the Indenture if Sterling deposits with the A-6 Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be. 13. Amendment; Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Notes; and (ii) any default or compliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the Notes then outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of a Note, Sterling and the Trustee may amend the Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency, or to comply with Article VI of the Indenture, or to provide for uncertificated Notes, in addition to or in place of certificated Notes, or to add guarantees with respect to the Notes or add additional covenants or surrender rights and powers conferred on Sterling, or to make any change that would provide additional rights or benefits to the Holders of Notes or that does not adversely affect the rights of any Holder of a Note or to comply with requirements of the SEC in connection with the qualification of the Indenture under the TIA. 14. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) default for 30 days in payment of interest; (ii) default in payment of principal on the Notes at maturity, upon redemption, upon declaration, upon required repurchase or otherwise; (iii) failure by Sterling to comply with other covenants in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Debt of Sterling or any of its Subsidiaries if the amount accelerated (or so unpaid) aggregates $10 million or more; (v) certain events of bankruptcy or insolvency with respect to Sterling and its Significant Subsidiaries; and (vi) certain judgments or decrees for the payment of money in excess of $10 million. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare all the Notes to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding such notice is in the interest of the Holders of Notes. 15. Trustee Dealings with Sterling ------------------------------ Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by Sterling or its A-7 Affiliates and may otherwise deal with Sterling or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others -------------------------- A director, officer, employee or stockholder, as such, of Sterling or the Trustee shall not have any liability for any obligations of Sterling under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations. By accepting a Note, each Holder of a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 17. Authentication -------------- This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the face of this Note. 18. Abbreviations ------------- Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP Numbers ------------- Pursuant to the recommendation promulgated by the Committee on Uniform Security Identification Procedures Sterling has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use such CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. __________________________ Sterling will furnish to any Holder of a Note upon written request and without charge to such Holder of a Note a copy of the Indenture which contains the text of this Note in larger type. Requests may be made to: Sterling Chemicals, Inc. 1200 Smith Suite 1900 Houston, TX 77002 Attention: Jim P. Wise A-8 ================================================================================ ASSIGNMENT FORM To assign this Note, complete the form below: I or we assign and transfer this Note to: [Print or type assignee's name, address and zip code] [Insert assignee's soc. sec. or tax I.D. No. ] and irremovably appoint ___________________ agent to transfer this Note on the books of Sterling. The agent may substitute another to act for him. ================================================================================ Date: ______________ Your Signature:_________________________________________ ================================================================================ Sign exactly as your name appears on the face of this Note. A-9 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF RESTRICTED NOTES This certificate relates to $_________ principal amount of Notes held in (check applicable space) ____ book-entry or _____ definitive form by the undersigned. The undersigned (check one box below): [ ] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depository a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or [ ] has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. The undersigned confirms that such Notes are being: CHECK ONE BOX BELOW: (1) [_] acquired for the undersigned's own account, without Transfer (in satisfaction of Section 2.06(a)(ii)(A) of the Indenture); or (2) [_] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) [_] transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or (4) [_] transferred pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or (5) [_] transferred pursuant to an effective registration statement under the Securities Act of 1933, as amended. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (2), (3) or (4) is checked, Sterling or the Trustee may require evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend on the face of this Note. _____________________________ Signature A-10 Signature Guarantee: _______________________________________ (Signature must be guaranteed by member firm of the New York Stock Exchange or a commercial bank or trust company) A-11 OPTION OF HOLDER OF NOTE TO ELECT PURCHASE If you elect to have this Note purchased by Sterling pursuant to Article IV or Section 5.07 of the Indenture, check the box: [_] If you elect to have only part of this Note purchased by Sterling pursuant to Article IV or Section 5.07 of the Indenture, state the amount: $___________________________ Date:_________________ Your Signature: ______________________________ (Sign exactly as your name appears on the face of the Note) Signature Guarantee: _________________________________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) A-12 [TO BE ATTACHED TO GLOBAL NOTES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The following increases or decreases in this Global Note have been made:
=================================================================================================================== DATE OF AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN PRINCIPAL AMOUNT OF THIS SIGNATURE OF AUTHORIZED EXCHANGE PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF GLOBAL NOTE FOLLOWING SIGNATORY OF TRUSTEE OR NOTES THIS GLOBAL NOTE THIS GLOBAL NOTE SUCH DECREASE OR INCREASE CUSTODIAN - ------------------------------------------------------------------------------------------------------------------- ===================================================================================================================
A-13 EXHIBIT B --------- [FORM OF FACE OF EXCHANGE NOTE AND PRIVATE EXCHANGE NOTE] * ** STERLING CHEMICALS, INC. $ No. CUSIP: 11 1/4% Senior Subordinated Note Due 2007 Sterling Chemicals, Inc., a Delaware corporation, promises to pay to or registered assigns, the principal sum of Dollars on April 1, 2007. Interest Payment Dates: April 1 and October 1. Record Dates: March 15 and September 15. Additional provisions of this Note are set forth on the other side of this Note. STERLING CHEMICALS, INC. by Dated: _________________ [Seal] ____________________________ Title: ____________________________ Title ________________________ * If the Note is to be issued in global form add the Global Notes Legend from Exhibit A and the attachment to Exhibit A captioned "[TO BE ATTACHED TO GLOBAL NOTES] - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE". ** If the Note is a Private Exchange Note issued in a Private Exchange to the Initial Purchasers holding an unsold portion of its initial allotment, add the restricted securities legend from Exhibit A and include the "Certificate to be Delivered upon Exchange or Registration of Transfer of Restricted Notes" from Exhibit A. B-1 TRUSTEE'S CERTIFICATE OF AUTHENTICATION FLEET NATIONAL BANK, as Trustee, certifies that this is one of the Notes referred to in the Indenture. by ____________________ Authorized Signatory B-2 [FORM OF REVERSE SIDE OF NOTE] ---------------------------- 11 1/4% Senior Subordinated Notes Due 2007 1. Interest -------- STERLING CHEMICALS, INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called "Sterling"), promises to pay interest on the principal amount of this Note at the rate per annum shown above provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this security at a rate of 11 3/4% per annum from and including the date on which any such Registration Default shall occur but excluding the date on which all Registration Defaults have been cured. Sterling will pay interest semi-annually on April 1 and October 1 of each year, commencing October 1, 1997. Interest on the Notes will accrue from the most recent date to which interest has been paid, or, if no interest has been paid, from April 7, 1997. Interest will be computed on the basis of a 360- day year of twelve 30-day months. Sterling shall pay interest on overdue principal at the rate borne by the Notes. 2. Method of Payment ----------------- Sterling will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. Sterling will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, Sterling may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent and Registrar -------------------------- Initially, Fleet National Bank, a national banking association (the "Trustee"), will act as Paying Agent and Registrar. Sterling may appoint and change any Paying Agent, Registrar or co-registrar without notice. Sterling or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture --------- Sterling issued the Notes under an Indenture dated as of April 7, 1997 (the "Indenture"), between Sterling and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date of B-3 the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of those terms. The Notes are unsecured senior subordinated obligations of Sterling limited to $150,000,000 aggregate principal amount (subject to Section 2.07 of the Indenture). The Indenture imposes certain limitations on the incurrence of additional indebtedness by Sterling and certain of its subsidiaries, the payment of dividends on, and the redemption of, capital stock of Sterling and certain of its Subsidiaries, the making of Investments, restrictions on distributions from certain Subsidiaries, the use of proceeds from the sale of assets and Subsidiary stock and transactions with affiliates. The Indenture also restricts the ability of Sterling to consolidate or merge with or into, or to transfer all or substantially all its assets to, another person. 5. Optional Redemption ------------------- The Notes will be redeemable, at Sterling's option, in whole or in part, at any time and from time to time on or after April 1, 2002, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount at maturity), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on or after April 1 of the years set forth below: Redemption Year Price ---- ---------- 2002 . . . . . . . . 105.625% 2003 . . . . . . . . 103.750% 2004 . . . . . . . . 101.875% 2005 . . . . . . . . 100.000% In addition, at any time and from time to time prior to April 1, 2000, Sterling may redeem in the aggregate up to 35% of the original principal amount of the Notes with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount) of 111.25%, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least $97,500,000 aggregate principal amount of the Notes must remain outstanding after each such redemption. 6. Notice of Redemption -------------------- Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption B-4 price of and accrued interest on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Notes (or such portions thereof) called for redemption. 7. Put Provisions -------------- Upon a Change of Control, any Holder of Notes will have the right to cause Sterling to repurchase all or any part of the Notes of such Holder at a purchase price equal to 101% of the principal amount of the Notes to be repurchased plus accrued interest to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the interest payment date) as provided in, and subject to the terms of, the Indenture. 8. Subordination ------------- The Notes are subordinated to Senior Debt. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. Sterling agrees, and each Holder of a Note by accepting a Note agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give effect to such subordination provisions and appoints the Trustee as attorney-in-fact for such purpose. 9. Denominations; Transfer; Exchange --------------------------------- The Notes are in registered form without coupons in denominations of $1,000 (or, in the case of Securities sold to institutional "accredited investors" as described in Rule 501(a) (1), (2), (3) or (7) under the Securities Act in a transaction intended to be exempt from registration under the Securities Act, minimum denominations of $500,000) and integral multiples of $1,000. Holders of Notes may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a Holder of a Note, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days before a selection of Notes to be redeemed or 15 days before an interest payment date. 10. Persons Deemed Owners --------------------- The registered Holder of this Note may be treated as the sole owner of such Note for all purposes. 11. Unclaimed Money --------------- Subject to applicable abandoned property law, if money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to Sterling at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to Sterling and not to the Trustee or Paying Agent for payment. B-5 12. Discharge and Defeasance ------------------------ Subject to certain conditions, Sterling at any time may terminate some or all of its obligations under the Notes and the Indenture if Sterling deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be. 13. Amendment; Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Notes; and (ii) any default or compliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the Notes then outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of a Note, Sterling and the Trustee may amend the Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency, or to comply with Article VI of the Indenture, or to provide for uncertificated Notes, in addition to or in place of certificated Notes, or to add guarantees with respect to the Notes or add additional covenants or surrender rights and powers conferred on Sterling, or to make any change that would provide additional rights or benefits to the Holders of Notes or that does not adversely affect the rights of any Holder of a Note or to comply with requirements of the SEC in connection with the qualification of the Indenture under the TIA. 14. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) default for 30 days in payment of interest; (ii) default in payment of principal on the Notes at maturity, upon redemption, upon declaration, upon required repurchase or otherwise; (iii) failure by Sterling to comply with other covenants in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Debt of Sterling or any of its Subsidiaries if the amount accelerated (or so unpaid) aggregates $10 million or more; (v) certain events of bankruptcy or insolvency with respect to Sterling and its Significant Subsidiaries; and (vi) certain judgments or decrees for the payment of money in excess of $10 million. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare all the Notes to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding such notice is in the interest of the Holders of Notes. B-6 15. Trustee Dealings with Sterling ------------------------------ Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by Sterling or its Affiliates and may otherwise deal with Sterling or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others -------------------------- A director, officer, employee or stockholder, as such, of Sterling or the Trustee shall not have any liability for any obligations of Sterling under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations. By accepting a Note, each Holder of a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 17. Authentication -------------- This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the face of this Note. 18. Abbreviations ------------- Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP Numbers ------------- Pursuant to the recommendation promulgated by the Committee on Uniform Security Identification Procedures Sterling has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use such CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. __________________________ Sterling will furnish to any Holder of a Note upon written request and without charge to such Holder of a Note a copy of the Indenture which contains the text of this Note in larger type. Requests may be made to: Sterling Chemicals, Inc. 1200 Smith Suite 1900 Houston, TX 77002 Attention: Jim P. Wise B-7 ================================================================================ ASSIGNMENT FORM To assign this Note, complete the form below: I or we assign and transfer this Note to: [Print or type assignee's name, address and zip code] [Insert assignee's soc. sec. or tax I.D. No.] and irremovably appoint ___________________ agent to transfer this Note on the books of Sterling. The agent may substitute another to act for him. ================================================================================ Date: ____________________ Your Signature: _____________________________ ================================================================================ Sign exactly as your name appears on the face of this Note. B-8 OPTION OF HOLDER OF NOTE TO ELECT PURCHASE If you elect to have this Note purchased by Sterling pursuant to Article IV or Section 5.07 of the Indenture, check the box: [_] If you elect to have only part of this Note purchased by Sterling pursuant to Article IV or Section 5.07 of the Indenture, state the amount: $___________________________ Date: ________________ Your Signature: _____________________________ (Sign exactly as your name appears on the face of the Note) Signature Guarantee: _________________________________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) B-9 EX-4.2 3 EXHIBIT 4.2 EXHIBIT 4.2 STERLING CHEMICALS, INC. 11 1/4% Senior Subordinated Notes Due 2007 REGISTRATION RIGHTS AGREEMENT ----------------------------- April 1, 1997 Credit Suisse First Boston Corporation Chase Securities Inc. c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Ladies and Gentlemen: Sterling Chemicals, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to Credit Suisse First Boston Corporation and Chase Securities Inc. (collectively, the "Initial Purchasers"), upon the terms set forth in a purchase agreement of even date herewith (the "Purchase Agreement"), $150,000,000 aggregate principal amount of its 11 1/4% Senior Subordinated Notes Due 2007 (the "Notes"). The Notes will be issued pursuant to an Indenture, dated as of April 7, 1997 (the "Indenture") between the Company and Fleet National Bank (the "Trustee"). As an inducement to the Initial Purchasers, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Notes (including, without limitation, the Initial Purchasers), the Exchange Notes (as defined below) and the Private Exchange Notes (as defined below) (collectively the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall, at its own cost, prepare and, not later than 45 days after (or if the 45th day is not a business day, the first business day thereafter) the date of original issue of the Notes (the "Issue Date"), file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Notes (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of debt securities (the "Exchange Notes") of the Company issued under the Indenture and identical in all material respects to the Notes (except for the transfer restrictions relating to the Notes and provisions relating to the matters described in Section 6 hereof). The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 150 days (or if the 150th day is not a business day, the first business day thereafter) after the Issue Date of the Notes and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof provided that the Company has accepted all the Notes theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Notes electing to exchange the Notes for Exchange Notes (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Notes in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Notes and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), subject as to an Exchanging Dealer (as defined below) to the provisions of the next paragraph below) and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Notes, acquired for its own account as a result of market making activities or other trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Notes received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Notes acquired in exchange for Notes constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Notes; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Notes held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto, available to any broker- dealer for use in connection with any resale of any Exchange Notes for a period of not less than 90 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Notes acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Notes pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States but excluding provisions relating to the matters described in Section 6 hereof) to the Notes (the "Private Exchange Notes"). The Notes, the Exchange Notes and the Private Exchange Notes are herein collectively called the "Securities." 2 In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (i) accept for exchange all the Notes validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (ii) deliver to the Trustee for cancellation all the Notes so accepted for exchange; and (iii) cause the Trustee to authenticate and deliver promptly to each Holder of the Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Indenture will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Note and Private Exchange Note issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue of the Notes. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Notes received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Notes or the Exchange Notes within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes and (v) if such Holder is a broker-dealer, that it will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. 3 Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any Initial Purchaser so requests with respect to the Notes (or the Private Exchange Notes) not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Notes on the date of the exchange, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Notes by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of three years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when the Notes covered by the Shelf Registration Statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144 (or any successor rule thereof); provided, however, that the Company shall not be obligated to keep the Shelf Registration Statement effective if (i) the Company determines, in its reasonable judgment, upon advice of counsel, as authorized by a resolution of its Board of Directors, that the continued effectiveness and usability of the Shelf Registration Statement would (x) require the disclosure of material information, which the Company has a bona fide business reason for preserving as confidential, or (y) interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Company or any of its subsidiaries or its parent, provided that the failure to keep the Shelf Registration Statement effective and usable for offers and sales of Securities for such reasons shall last no longer than 45 days in any 12-month period (whereafter Additional Interest (as defined in Section 6(a)) shall accrue and be payable), and (ii) the Company promptly thereafter complies with the requirements of Section 3(j) hereof, if applicable. Any such period during which the Company is excused from keeping the Shelf Registration Statement effective and usable for offers and sales of Securities is referred to herein as a "Suspension Period." A Suspension Period shall commence on and include the date that the 4 Company gives notice that the registration statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Securities and shall end on the earlier to occur of (1) the date on which each seller of Securities covered by the Shelf Registration Statement either receives the copies of the supplemented or amended prospectus contemplated by Section 3(j) hereof or is advised in writing by the Company that use of the prospectus may be resumed and (2) the expiration of 45 days in any 12-month period during which one or more Suspension Periods has been in effect. The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration, the Company shall use its best efforts to reflect in each such document when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Notes received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders, who propose to sell Securities pursuant to the Shelf Registration Statement, as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which 5 notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in the light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference other then exhibits to such incorporated documents unless such exhibits are specifically incorporated by reference into such incorporated documents). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post- effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those, if any, incorporated by reference other then exhibits to such incorporated documents unless such exhibits are specifically incorporated by reference into such incorporated documents). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the 6 Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Notes covered by the prospectus, or any amendment or supplement thereto, included in the Registered Exchange Offer. (h) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action that would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Notes or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker- Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker- Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, and provide the applicable trustee with printed certificates for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 7 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) In the case of any Shelf Registration, if the Securities are to be sold in an underwritten offering, the Company shall, if requested, enter into an underwriting agreement in customary form and cooperate to take such other actions as may be reasonably requested in connection therewith. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by the Initial Purchasers and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its subsidiaries incorporated in the United States; the qualification of the Company and such subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof, the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, a 8 statement of such counsel that it has no reason to believe that such Shelf Registration Statement or the prospectus included therein, as then amended or supplemented, or any documents incorporated by reference therein contained an untrue statement of a material fact or omitted to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Sections 6(d), (e) and (f) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Registration Statement to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Sections 6(a) and (b) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Notes by Holders to the Company (or to such other person or entity as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on the Notes so exchanged that such Notes are being canceled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall the Notes be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to either (i) confirm that the ratings obtained for the Notes prior to the initial sale of such Notes will apply to the Securities covered by a Registration Statement or (ii) cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "participate in the distribution," (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker- dealer in complying with the requirements of the Rules, including, without limitation, by (i) if such Rules, including Rule 2720 thereto, shall so require, engaging a "qualified independent underwriter", (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. 9 (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of Dewey Ballantine, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not any Registration Statement is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus, in the light of the circumstances under which they are made) not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereto; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at, or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, selling brokers, dealer-managers and similar securities industry professionals participating in the distribution (as described in such Registration Statement) their officers and directors and each person who controls such persons within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. 10 (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein (in the case of any prospectus, in the light of the circumstances under which they are made) not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above to the extent that the indemnifying party is not materially prejudiced thereby. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Notes, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement 11 of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified person, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "Additional Interest") with respect to the Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default"): (i) If by May 22, 1997, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) If by October 4, 1997, neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (other than during a Suspension Period with respect to a Shelf Registration Statement) (A) such Registration Statement thereafter ceases to be effective (unless all Securities have been previously exchanged or the obligation to maintain the effectiveness of such Registration Statement has expired); or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Notes during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Notes over and above the interest set forth in the title of the Notes from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum. 12 (b) A Registration Default referred to in Section 6(a)(iii)(B) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Notes. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "Transfer Restricted Notes" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferrable Exchange Note in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of a Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Transfer Restricted Notes, make publicly available other information so long as necessary to permit sales of Transfer Restricted Notes pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Notes may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Notes without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Notes identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Transfer Restricted Notes, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Notes to be included in such offering, subject to the approval of such Managing Underwriters by the Company which shall not be unreasonably withheld. 13 No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Notes on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company; (2) if to the Initial Purchasers, at its address as follows: Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Fax No.: (212) 325-8278 Attention: Investment Banking Department -- Transactions Advisory Group with a copy to: Dewey Ballantine 1301 Avenue of the Americas New York, New York 10019 Fax No.: (212) 259-6333 Attention: Morton A. Pierce (3) if to the Company, at its address as follows: Sterling Chemicals, Inc. 1200 Smith, Suite 1900 Houston, Texas 77002 Fax No.: (713) 654-9577 Attention: F. Maxwell Evans with a copy to: Andrews & Kurth, L.L.P. Texas Commerce Tower Suite 4200 Houston, Texas 77002 14 Fax No: (713) 220-4285 Attention: David G. Elkins All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight courier guaranteeing next day delivery. (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) Successors and Assigns. This Agreement shall be binding upon the Company and the Initial Purchasers and their respective successors and assigns, including, without limitation and without the need for an express assignment, subsequent holders of the Securities. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (i) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 15 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the several Initial Purchasers and the Company in accordance with its terms. Very truly yours, STERLING CHEMICALS, INC. By: ____________________ Name: Jim P. Wise Title: Vice President and Chief Financial Officer The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION By: _________________________ Name: Title: CHASE SECURITIES INC. By: _________________________ Name: Title: 16 ANNEX A Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must agree that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 17 ANNEX B Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." 18 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must agree that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus.* The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker- dealers) against certain liabilities, including liabilities under the Securities Act. - ------------------------ * In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. 19 ANNEX D [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: __________________________________________________________ Address: _______________________________________________________ _______________________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it agrees that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so agreeing and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 20 EX-4.3 4 EXHIBIT 4.3 EXHIBIT 4.3 CREDIT AGREEMENT Among STERLING CHEMICALS, INC. as the Company and TEXAS COMMERCE BANK NATIONAL ASSOCIATION Individually and as Administrative Agent, CREDIT SUISSE FIRST BOSTON Individually and as Documentation Agent and FINANCIAL INSTITUTIONS NOW OR HEREAFTER PARTIES HERETO $31,000,000 Tranche A Term Loans $50,000,000 Tranche B Term Loans January 31, 1997 TABLE OF CONTENTS ARTICLE I DEFINITIONS; CONSTRUCTION Section 1.01 Definitions.......................... 2 Section 1.02 Accounting Terms and Determinations.. 25 Section 1.03 Other Definitional Terms............. 25 ARTICLE II AMOUNT AND TERMS OF LOANS Section 2.01 Loans and Commitments................ 25 Section 2.02 Borrowing Requests................... 26 Section 2.03 Replacement of Lenders............... 27 Section 2.04 Disbursement of Funds................ 27 Section 2.05 Notes and Amortization............... 28 Section 2.06 Interest............................. 29 Section 2.07 Interest Periods..................... 30 Section 2.08 Repayment of Loans................... 31 Section 2.09 Termination of Commitments........... 32 Section 2.10 Prepayments.......................... 32 Section 2.11 Continuation and Conversion Options.. 35 Section 2.12 Fees................................. 36 Section 2.13 Payments, etc........................ 36 Section 2.14 Interest Rate Not Ascertainable, etc. 37 Section 2.15 Illegality........................... 37 Section 2.16 Increased Costs...................... 38 Section 2.17 Change of Lending Office............. 39 Section 2.18 Funding Losses....................... 40 Section 2.19 Sharing of Payments, etc............. 40 Section 2.20 Taxes................................ 40 Section 2.21 Pro Rata Treatment................... 44 ARTICLE III CONDITIONS TO BORROWINGS AND TO PURCHASE, RENEWAL AND REARRANGEMENT Section 3.01 Closing................................ 44 Section 3.02 Conditions Precedent to Loans.......... 44 i ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01 Corporate Existence.................. 50 Section 4.02 Corporate Power and Authorization.... 50 Section 4.03 Binding Obligations.................. 51 Section 4.04 No Legal Bar or Resultant Lien....... 51 Section 4.05 No Consent........................... 51 Section 4.06 Financial Information................ 52 Section 4.07 Investments and Guaranties........... 52 Section 4.08 Litigation........................... 52 Section 4.09 Use of Proceeds...................... 52 Section 4.10 Employee Benefits.................... 53 Section 4.11 Taxes; Governmental Charges.......... 54 Section 4.12 Titles, etc.......................... 54 Section 4.13 Defaults............................. 54 Section 4.14 Casualties; Taking of Properties..... 55 Section 4.15 Compliance with the Law.............. 55 Section 4.16 No Material Misstatements............ 55 Section 4.17 Investment Company Act............... 55 Section 4.18 Public Utility Holding Company Act... 55 Section 4.19 Subsidiaries......................... 55 Section 4.20 Insurance............................ 56 Section 4.21 Environmental Matters................ 56 Section 4.22 Solvency............................. 57 Section 4.23 Material Contracts................... 57 Section 4.24 Employee Matters..................... 58 Section 4.25 Senior Indebtedness.................. 58 ARTICLE V COVENANTS Section 5.01 Certain Affirmative Covenants........ 58 (a) Maintenance and Compliance, etc...... 58 (b) Payment of Taxes and Claims, etc..... 58 (c) Further Assurances................... 58 (d) Performance of Obligations........... 59 (e) Insurance............................ 59 (f) Accounts and Records................. 59 (g) Right of Inspection.................. 59 (h) Operation and Maintenance of Property 59 (i) Additional Subsidiaries; Permitted Acquisitions; Additional Liens...... 60 ii Section 5.02 Reporting Covenants.................. 61 (a) Annual Financial Statements.......... 61 (b) Quarterly Financial Statements....... 61 (c) Monthly Financial Statements......... 62 (d) No Default/Compliance Certificate.... 62 (e) Management Letters................... 62 (f) Title Information.................... 63 (g) Events or Circumstances with respect to Collateral........................ 63 (h) Notice of Certain Events............. 63 (i) Shareholder Communications, Filings.. 63 (j) Litigation........................... 64 (k) ERISA................................ 64 (l) Insurance Coverage................... 64 (m) Annual Budget........................ 64 (n) Excess Cash Flow Certificate......... 64 (o) Other Information.................... 64 Section 5.03 Financial Covenants.................. 64 (a) Interest Coverage Ratio.............. 64 (b) Current Ratio........................ 65 (c) Fixed Charge Coverage Ratio.......... 65 (d) Leverage Ratio....................... 65 Section 5.04 Certain Negative Covenants........... 66 (a) Indebtedness......................... 66 (b) Liens................................ 67 (c) Mergers, Sales, etc.................. 69 (d) Dividends, etc....................... 70 (e) Investments, Loans, etc.............. 70 (f) Lease Payments....................... 72 (g) Sales and Leasebacks................. 72 (h) Nature of Business................... 72 (i) ERISA Compliance..................... 73 (j) Sale or Discount of Receivables...... 74 (k) Negative Pledge Agreements........... 74 (l) Transactions with Affiliates......... 74 (m) Unconditional Purchase Obligations... 75 (n) Stock................................ 75 (o) Capital Expenditures................. 75 (p) Modifications to Senior Subordinated Notes; No Voluntary Prepayments...... 76 (q) Intercompany Transactions............ 76 (r) Modification of Original Credit Agreement............................ 77 (s) Modification or Amendment of the AFB Earnout Agreement.................... 77 iii ARTICLE VI EVENTS OF DEFAULT Section 6.01 Payments......................................... 77 Section 6.02 Covenants Without Notice......................... 77 Section 6.03 Other Covenants.................................. 77 Section 6.04 Other Financing Document Obligations............. 77 Section 6.05 Representations.................................. 78 Section 6.06 Non-Payments of Other Indebtedness............... 78 Section 6.07 Defaults Under Other Agreements.................. 78 Section 6.08 Bankruptcy....................................... 78 Section 6.09 Money Judgment................................... 79 Section 6.10 Discontinuance of Business....................... 79 Section 6.11 Financing Documents.............................. 79 Section 6.12 Change of Control................................ 79 Section 6.13 Purchase Agreement Representations and Warranties 79 Section 6.14 Albright Indemnity............................... 79 Section 6.15 Default Under Senior Secured Discount Notes...... 79 Section 6.16 Senior Indebtedness.............................. 80 Section 6.17 Equity Note Contributions........................ 80 Section 6.18 Cytec Indemnity.................................. 80 ARTICLE VII THE AGENTS Section 7.01 Appointment of Administrative Agent.............. 80 Section 7.02 Limitation of Duties of Administrative Agent and the Administrative Agent For Combined Lenders... 81 Section 7.03 Lack of Reliance on the Administrative Agent, the Administrative Agent For Combined Lenders and the Documentation Agent......................... 81 Section 7.04 Certain Rights of the Administrative Agent....... 81 Section 7.05 Reliance by Administrative Agent................. 82 Section 7.06 INDEMNIFICATION OF ADMINISTRATIVE AGENT, ADMINISTRATIVE AGENT FOR COMBINED LENDERS AND DOCUMENTATION AGENT............................. 82 Section 7.07 The Administrative Agent, the Administrative Agent For Combined Lenders and Documentation Agent in their Individual Capacity.............. 82 Section 7.08 May Treat Lender as Owner........................ 83 Section 7.09 Successor Administrative Agent or Administrative Agent For Combined Lenders...................... 83 Section 7.10 Documentation Agent.............................. 84 Section 7.11 The Administrative Agent For Combined Lenders.... 84 iv ARTICLE VIII MISCELLANEOUS Section 8.01 Notices............................................... 84 Section 8.02 Amendments and Waivers................................ 84 Section 8.03 No Waiver; Remedies Cumulative........................ 85 Section 8.04 Payment of Expenses, Indemnities, etc................. 86 Section 8.05 Right of Setoff....................................... 88 Section 8.06 Benefit of Agreement.................................. 88 Section 8.07 Successors and Assigns; Participations and Assignments 88 Section 8.08 Governing Law; Submission to Jurisdiction; Etc........ 91 Section 8.09 Independent Nature of Lenders' Rights................. 92 Section 8.10 Invalidity............................................ 92 Section 8.11 Renewal, Extension or Rearrangement................... 92 Section 8.12 Interest.............................................. 92 Section 8.13 Confidential Information.............................. 93 Section 8.14 ENTIRE AGREEMENT...................................... 94 Section 8.15 Attachments........................................... 94 Section 8.16 Counterparts.......................................... 94 Section 8.17 Survival of Indemnities............................... 94 Section 8.18 Headings Descriptive.................................. 94 Section 8.19 Satisfaction Requirement.............................. 94 Section 8.20 Exculpation Provisions................................ 95 Section 8.21 Secured Affiliate..................................... 95 Section 8.22 Intercreditor Agreement............................... 95 Section 8.23 Merger of Credit Agreement............................ 96 ANNEXES Annex I - Commitments v SCHEDULES Schedule 4.07 - Investments and Guaranties Schedule 4.08 - Litigation Schedule 4.12 - Titles Schedule 4.13 - Defaults Schedule 4.19 - Subsidiaries/Guarantors Schedule 4.23 - Material Contracts Schedule 4.24 - Employment Contracts Schedule 5.04(a) - Existing Indebtedness Schedule 5.04(b) - Liens EXHIBITS Exhibit A - Form of Tranche A Term Note Exhibit B - Form of Tranche B Term Note Exhibit C - Description of Terms, Limitations, Rights and Preferences of Preferred Stock Exhibit D-1 - Form of Opinion of Andrews & Kurth, L.L.P. counsel to the Company Exhibit D-2 - Form of Opinion of Canadian counsel to the Company Exhibit D-3 - Form of Opinion of Georgia counsel to the Company Exhibit D-4 - Form of Opinion of Florida counsel to the Company Exhibit E-1 - Form of Security Agreement of Sterling Fibers Exhibit E-2 - Form of Santa Rosa Deed of Trust Exhibit E-3 - Form of Limited Guaranty Agreement (Santa Rosa) Exhibit E-4 - Form of Collateral Assignment (Intercompany Loans and Accounts) by Sterling Fibers Exhibit E-5 - Form of Second Lien Deed of Trust Exhibit F - Form of Assignment and Acceptance Exhibit G - Form of Intercreditor Agreement Exhibit H - Form of U.S. Tax Compliance Certificate Exhibit I - Form of Notice of Designated Retained Cash Flow Usage vi CREDIT AGREEMENT THIS CREDIT AGREEMENT is made and entered into as of this 31st day of January, 1997, among STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually, as a Lender and as Administrative Agent, CREDIT SUISSE FIRST BOSTON, individually, as a Lender and as Documentation Agent and each of the lenders that is a signatory hereto or which becomes a party hereto as provided in Section 8.07 (individually, a "Lender" and, collectively, the "Lenders"). INTRODUCTORY STATEMENT Sterling Fibers, Inc., a Delaware corporation ("Sterling Fibers"), a wholly-owned subsidiary of the Company, desires to acquire the acrylic fibers business (the "AFB Acquisition") from Cytec Acrylic Fibers Inc., a Delaware corporation, ("Cytec Fibers"), Cytec Industries Inc., a Delaware corporation ("Cytec Industries"), and Cytec Technology Corp., a Delaware corporation ("Cytec Technology" and together with Cytec Industries and Cytec Fibers, the "Cytec Parties") pursuant to an Asset Purchase Agreement (the "Purchase Agreement") dated as of December 23, 1996 among Sterling Fibers, the Company, Sterling Chemicals Holdings, Inc., a Delaware corporation ("Holdco") and the Cytec Parties. It is contemplated that the total amount of the financing for the AFB Acquisition will consist of approximately (a) $10,000,000 of new common equity of Holdco (of which up to $300,000 may be in the form of notes (the "Equity Notes") from former employees of the Cytec Parties), (b) 100,000 shares of Preferred Stock (as hereinafter defined) issued to Cytec Industries, and (c) up to $81,000,000 of senior secured debt issued pursuant to this Agreement, as described below. The Lenders have agreed to provide senior secured debt in the amount of up to $81,000,000 consisting of up to $31,000,000 of Tranche A Term Loans and up to $50,000,000 of Tranche B Term Loans, subject to the terms and conditions of this Agreement. The proceeds of the Tranche A Term Loans and the Tranche B Term Loans will be used solely to finance a portion of the AFB Acquisition, to finance fees and expenses relating to the AFB Acquisition, and up to $1,000,000 will be used to fund the Secondary ESOP Loan. The Original Lenders (as defined below) have provided senior secured credit facilities to the Company pursuant to the Original Credit Agreement (as defined below) in the aggregate principal amount of $456,500,000. The Original Lenders and the Lenders have agreed to share pro rata in proceeds of Collateral (as defined below) and in certain other payments and prepayments and, in furtherance thereof, have entered into the Intercreditor Agreement (as defined below). AGREEMENT In consideration of the mutual covenants and agreements herein contained, the Company, the Agents and the Lenders agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION Section 1.01 Definitions. As used herein, the following terms shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined). Reference to any party to a Financing Document means that party and its successors and assigns. "Administrative Agent" shall mean Texas Commerce Bank National Association, acting in the manner and to the extent described in Article VII. "Administrative Agent For Combined Lenders" shall mean the "Administrative Agent" under the Original Credit Agreement acting on behalf of both the Lenders, the Original Lenders, the Documentation Agent (as defined in the Original Credit Agreement), the Issuing Banks (as defined in the Original Credit Agreement), and the Documentation Agent. "Advance Notice" shall mean written or telecopy notice (with telephonic confirmation in the case of telecopy notice), which in each case shall be irrevocable, from the Company to be received by the Administrative Agent before 11:00 a.m. (Houston time), by the number of Business Days in advance of any Borrowing, conversion, continuation or prepayment of any Loan or Loans pursuant to this Agreement as respectively indicated below: (a) Eurodollar Loans - 3 Business Days; and (b) Base Rate Loans - Same Business Day. For the purpose of determining the respectively applicable Loans in the case of the conversion from one Type of Loan into another, the Loans into which there is to be a conversion shall control. The Administrative Agent and each Lender are entitled to rely upon and act upon telecopy notice made or purportedly made by the Company, and the Company hereby waives the right to dispute the authenticity and validity of any such transaction once the Administrative Agent or any Lender has advanced funds, absent manifest error. "AFB Acquisition" shall have the meaning provided in the Introductory Statement. "AFB Adjusted Historical EBITDA" shall mean (i) for the Rolling Period ending March 31, 1997, $15,000,000, (ii) for the Rolling Period ending June 30, 1997, $10,200,000, (iii) for the 2 Rolling Period ending September 30, 1997, $3,900,000, and (iv) for the Rolling Period ending December 31, 1997, $1,000,000. "AFB Earnout Agreement" shall mean the earnout agreement dated as of December 23, 1996 among Sterling Fibers, Holdco, and Cytec Industries in the form attached as Exhibit C to the Purchase Agreement. "AFB Pilko Report" shall mean the Environmental, Health & Safety Review dated November 13, 1996 relating to Cytec Industries, Inc., Santa Rosa Plant--Pace, Florida, prepared by Pilko & Associates, Inc., and the Investigation of Environmental Impacts dated January 17, 1997 relating to Cytec Industries' Acrylic Fiber Manufacturing Facility, Santa Rosa County, Florida, prepared by Pilko & Associates, Inc., each of which has been delivered to the Lenders. "Affiliate" shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to either (a) vote 10% or more of the securities having ordinary voting power for election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation. "Agents" shall mean, collectively, the Administrative Agent, the Administrative Agent For Combined Lenders and the Documentation Agent. "Agreement" shall mean this Credit Agreement, as amended, supplemented or modified from time to time. "Albright" shall mean Albright and Wilson U.K., Ltd., a corporation incorporated under the laws of England and Wales. "Albright Indemnity" shall mean the indemnification obligations of Albright in favor of Sterling Canada and Sterling Pulp as set forth in the Purchase Agreement dated as of August 20, 1992, between Sterling Canada, Sterling Pulp, and Tenneco Canada, Inc., as amended pursuant to an Amending Agreement dated January 24, 1996, which obligations were assigned by Tenneco Canada, Inc. to, and assumed by, Albright pursuant to an Assignment and Consent Agreement dated as of May 30, 1996. "Applicable Lender" shall mean, with respect to any Borrowing of Tranche A Term Loans, each Tranche A Term Loan Lender and with respect to any Borrowing of Tranche B Term Loans, each Tranche B Term Loan Lender. 3 "Applicable Margin" shall mean, on any day and with respect to any (a) Tranche B Term Loan, for Base Rate Loans, 2.00% per annum and for Eurodollar Loans, 3.00% per annum, and (b) Tranche A Term Loan, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Leverage Ratio for the Rolling Period ending on the most recent Quarterly Date with respect to which the Company is required to deliver the Current Information (said calculation to be made by the Administrative Agent as soon as practicable after receipt by the Administrative Agent of all required Current Information for the applicable period); provided that, for purposes of this definition, "Rolling Period" shall mean (a) for the second full Fiscal Quarter after the Effective Date, such quarter and the preceding Fiscal Quarter, (b) for the third full Fiscal Quarter after the Effective Date, such quarter and the two preceding Fiscal Quarters (in the case of each of clauses (a) and (b) determined on an annualized basis) and (c) for each Fiscal Quarter thereafter, such quarter and the three preceding Fiscal Quarters:
LEVERAGE RATIO EURODOLLAR LOAN APPLICABLE BASE RATE LOAN APPLICABLE MARGIN PERCENTAGE MARGIN PERCENTAGE ---------------- -------------------------- -------------------------- Greater than or equal to 4.00 2.50% 1.50% Greater than or equal to 3.75 but less than 4.00 2.25% 1.25% Greater than or equal to 3.50 but less than 3.75 2.00% 1.00% Greater than or equal to 3.25 but less than 3.50 1.75% .75% Greater than or equal to 3.00 but less than 3.25 1.50% .50% Greater than or equal to 2.75 but less than 3.00 1.25% .25% Less than 2.75 1.00% 0%
Each change in the Applicable Margin based on a change in the Current Information (or the Company's failure to deliver the Current Information) shall be effective as of the first day of the third month of each applicable Fiscal Quarter (but based upon Current Information for the immediately preceding Rolling Period), or if such day is not a Business Day, then the first Business Day thereafter. Notwithstanding the foregoing, (a) for the period from the Effective Date through June 1, 1997, the initial Eurodollar Loan Applicable Margin for the Tranche A Term Loans will be 2.50% and the initial Base Rate Loan Applicable Margin for the Tranche A Term Loans will be 1.50% and (b) if at any time the Company fails to deliver Current Information on or before the date required pursuant to Section 5.02 (without regard to grace periods), the Eurodollar Loan Applicable Margin for the Tranche A Term Loans will be 2.50% and the Base Rate Loan Applicable Margin for the Tranche A 4 Term Loans will be 1.50% from the date such Current Information is due pursuant to Section 5.02 (without regard to grace periods) through the date the Administrative Agent receives all Current Information then due pursuant to Section 5.02. "Applicable Percentage" shall mean, with respect to any Tranche A Term Loan Lender, such Lender's Tranche A Term Loan Percentage and with respect to any Tranche B Term Loan Lender, such Lender's Tranche B Term Loan Percentage. "Assignment and Acceptance" shall have the meaning provided in Section 8.07(c). "Bankruptcy Code" shall have the meaning provided in Section 6.08. "Base CD Rate" shall mean the sum of (a) the product of (i) the Three- Month Secondary CD Rate and (ii) a fraction, whose numerator is one and whose denominator is one minus the C\D Reserve Percentage and (b) the C\D Assessment Rate. "Base Rate" shall have the meaning provided in Section 2.06(a). "Base Rate Loan" shall mean a Tranche A Term Loan or a Tranche B Term Loan bearing interest at the rate provided in Section 2.06(a). "Borrowing" shall mean a borrowing pursuant to a Borrowing Request or a continuation or a conversion pursuant to Section 2.11 consisting, in each case, of the same Type of Loans having, in the case of Eurodollar Loans, the same Interest Period (except as otherwise provided in Sections 2.14 and 2.15) and made previously or being made concurrently, with respect to Tranche A Term Loans, by all of the Tranche A Term Loan Lenders and with respect to Tranche B Term Loans, by all of the Tranche B Term Loan Lenders. "Borrowing Request" shall mean a written request for a Borrowing pursuant to Section 2.02. "BP Facility Fee" shall mean the periodic fee payable to the Company by BP Chemicals, Inc., an Ohio corporation pursuant to Section 3.1(c) of that certain Lease and Production Agreement between BP Chemicals, Inc. and the Company dated August 8, 1994. "Business Day" shall mean any day excluding Saturday, Sunday and any other day on which banks are required or authorized to close in New York, New York or Houston, Texas and, if the applicable Business Day relates to Eurodollar Loans, on which trading is carried on by and between banks in Dollar deposits in the applicable interbank Eurodollar market. "Canadian Facility" shall mean a revolving loan and letter of credit facility for loans and letters of credit in Canadian or U.S. dollars to or for the account of Sterling Pulp. "Canadian Subsidiaries" shall mean any Subsidiary of the Company which is organized under the laws of Canada or any province thereof. 5 "Capital Expenditures" shall mean, for any period, all expenditures (whether paid in cash or accrued as a liability, including the portion of Capital Lease Obligations originally incurred during such period that are capitalized for the consolidated balance sheet of the Company) by the Company and its Subsidiaries during such period, that, in conformity with GAAP, are included in "capital expenditures," "additions to property, plant or equipment" or comparable items in the consolidated financial statements of the Company, but excluding (a) increases in the consolidated fixed or capital assets of the Company and its Subsidiaries resulting solely from Permitted Acquisitions (other than expenditures made after the date of any such Permitted Acquisition), (b) expenditures for the restoration, repair or replacement of any fixed or capital asset that was destroyed or damaged, in whole or in part, in an amount equal to any insurance proceeds received in connection with such destruction or damage, (c) increases in the capital assets of the Company or its Subsidiaries resulting from expenditures in respect of fixed or capital assets made by a Person other than the Company or its Subsidiaries so long as they have no obligation to reimburse such other Person for such expenditures and (d) expenditures made to acquire the Properties in connection with the AFB Acquisition. "Capital Expenditures from Retained Cash Flow" shall mean Capital Expenditures of the Company and its Subsidiaries on a consolidated basis permitted for any Fiscal Year pursuant to Section 5.04(o)(iii). "Capital Lease Obligations" shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property (excluding the Valdosta Lease but only to the extent that the Company or any Subsidiary owns Valdosta Bonds) which obligations are required to be classified and accounted for as a liability for a capital lease on a balance sheet of such Person and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof. "Carry-Forward Capital Expenditures" shall mean Capital Expenditures of the Company and its Subsidiaries on a consolidated basis permitted for any Fiscal Year pursuant to Section 5.04(o)(ii). "C\D Assessment Rate" shall mean for any day as applied to any Base Rate Loan, the annual assessment rate determined by the Administrative Agent to be payable on such day to the Federal Deposit Insurance Corporation (the "FDIC") for the FDIC (or any successor thereto) to insure time deposits at offices of the Administrative Agent in the United States. "C\D Reserve Percentage" shall mean for any day as applied to any Base Rate Loan, that percentage (expressed as a decimal) that is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the then current reserve requirement for the Administrative Agent in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Change of Control" shall mean either a "Change in Control", as defined in the Senior Subordinated Notes Indenture or a change resulting when any Unrelated Person or any Unrelated Persons, other than the Designated Shareholders, acting together, which would constitute a Group 6 together with any Affiliates or Related Persons thereof (in each case also constituting Unrelated Persons) shall at any time either (i) Beneficially Own more than 30% of the aggregate voting power of all classes of Voting Stock of Holdco or (ii) succeed in having sufficient of its or their nominees elected to the Board of Directors of Holdco such that such nominees, when added to any existing director remaining on the Board of Directors of Holdco after such election who is an Affiliate or Related Person of such Person or Group, shall constitute a majority of the Board of Directors of Holdco; provided, however, no Change of Control shall have occurred so long as the Designated Shareholders (or any combination thereof) shall retain more than 50% of the aggregate voting power of all classes of Voting Stock of Holdco. As used herein (a) "Beneficially Own" shall mean "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto; provided, however, that, for purposes of this definition, a Person shall not be deemed to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; (b) "Group" shall mean a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" shall mean at any time any Person other than Holdco or any of its Subsidiaries and other than any trust for any employee benefit plan of Holdco or any of its Subsidiaries; (d) "Related Person" of any Person shall mean any other Person owning (1) 5% or more of the outstanding common stock of such Person or (2) 5% or more of the Voting Stock of such Person; and (e) "Designated Shareholders" shall mean the Persons who are, as of the Effective Date, parties to the shareholder agreement among certain shareholders of Holdco, delivered to the Administrative Agent on the Effective Date. "Closing Date" shall mean the "as of" date of this Agreement set forth in the first paragraph hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statute. "Collateral" shall mean the Company's, Holdco's and the Subsidiary Guarantors' Properties described in and subject to the Liens, privileges, priorities and security interests purported to be created by any Security Instrument. "Combined Lender Indebtedness" shall mean collectively the Lender Indebtedness and the Original Lender Indebtedness. "Combined Loans" shall mean the Loans and the Original Loans. "Combined Term Loans" shall mean collectively the Loans and the Original Term Loans. "Commitments" shall mean as to any Lender, its Tranche A Term Loan Commitment and Tranche B Term Loan Commitment. "Commodity Swap Agreement" shall mean any contract for sale for future delivery of commodities (whether or not the subject commodities are to be delivered), hedging contract, forward contract, swap agreement, futures contract or other commodity pricing protection agreement or option 7 with respect to any such transaction, designed to hedge against fluctuations in prices of the subject commodities. "Company" shall mean Sterling Chemicals, Inc., a Delaware corporation, (formerly known as STX Chemicals Corp.). "Cumulative Retained Cash Flow" shall mean an amount equal to the difference of (a) Retained Cash Flow for all then previous Fiscal Years, on a cumulative basis, minus (b) Designated Retained Cash Flow Usage, on a cumulative basis, in each case from the Effective Date through the date of determination. "Current Assets" shall mean all assets of a Person which under GAAP would be classified as current assets (excluding any cash or cash equivalents). "Current Information" shall mean, as of any day, the financial statements and other related information for any applicable period most recently required to be delivered to the Administrative Agent pursuant to Sections 5.02(a), (b), and (d). "Current Liabilities" shall mean all liabilities of a Person which under GAAP would be classified as current liabilities, other than current maturities of long term debt and the obligation to repay the Revolving Credit Loans (as defined in the Original Credit Agreement). "Current Ratio" shall mean, on any day, the ratio of Current Assets to Current Liabilities. "Cytec Indemnity" shall mean the indemnification obligations of the Cytec Parties in favor of the Company, Sterling Fibers and Holdco as set forth in the Purchase Agreement. "Deed of Trust" shall mean the Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of August 21, 1996, delivered by the Company pursuant to the Original Credit Agreement as security for the payment and performance of the Original Lender Indebtedness. "Default" shall mean an Event of Default or any condition or event which, with notice or lapse of time or both, would constitute an Event of Default. "Designated Retained Cash Flow Usage" shall be an amount designated in writing by a Responsible Officer of the Company to the Administrative Agent, which designation shall be in the form of Exhibit I, to be a usage of Retained Cash Flow for either a Permitted Acquisition or a Capital Expenditure. "Documentation Agent" shall mean Credit Suisse First Boston, acting in the manner and to the extent described in Article VII. "Dollar" and the sign "$" shall mean lawful money of the United States of America. 8 "EBITDA" shall mean, as to the Company and its Subsidiaries on a consolidated basis and for any period, without duplication, the amount equal to net income less any non-cash income included in net income, plus (a) to the extent deducted from net income, interest expense, depreciation, depletion and impairment, amortization of leasehold and intangibles, expenses incurred on or prior to the Effective Date relating to SAR's, non- capitalized expenses incurred on or prior to August 21, 1996 relating to the Merger not to exceed $3,633,000, other non-cash expenses, and income tax expenses, (b) prepaid royalty income (including the BP Facility Fee) to the extent actually received in cash; provided, that, extraordinary gains or losses, including but not limited to gains or losses on the disposition of assets, shall not be included in EBITDA, in each case for such period, and (c) for the Rolling Periods ending on March 31, 1997, June 30, 1997, September 30, 1997, and December 31, 1997, the AFB Adjusted Historical EBITDA for such Rolling Period. "Effective Date" shall mean the date on which (i) each of the conditions precedent set forth in Article III have been satisfied or waived by each of the Lenders and (ii) the Loans have been made. "Environmental Laws" shall mean any and all laws, statutes, ordinances, rules, regulations, orders, or determinations of any Governmental Authority pertaining to health or the environment in effect in any and all jurisdictions in which the Company or its Subsidiaries are conducting or at any time have conducted business, or where any Property of the Company or its Subsidiaries is located, or where any hazardous substances generated by or disposed of by the Company or its Subsidiaries are located, including but not limited to the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA; the terms "hazardous substance," "release" and "threatened release" have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, in the event either CERCLA or RCRA is amended so as to change the meaning of any term defined thereby, such changed meaning shall apply subsequent to the effective date of such amendment, and provided, further, that, to the extent the laws of the state in which any Property of the Company or its Subsidiaries is located establish a meaning for "oil," "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply. "Equity Plans" shall have the meaning provided in the Original Credit Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with the Company or a Subsidiary of the Company would be deemed to be a "single 9 employer" within the meaning of Section 4001(b)(1) of ERISA or Subsections 414(b), (c), (m) or (o) of the Code. "ERISA Termination Event" shall mean (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provision for 30-day notice to the PBGC under Subsections .14, .18, .19 or .20 of Part 2615 of the PBGC regulations), (ii) the withdrawal of the Company, a Subsidiary of the Company or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041(c) of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC, or (v) any other event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "ESOP" shall mean the new employee stock ownership plan of the Company and its related trust, as in effect on the Effective Date. "ESOP Security Agreement" shall mean that certain Security Agreement dated as of the Effective Date, executed by the ESOP in favor of the Company, and any and all amendments, modifications, supplements, renewals and restatements thereof. "ESOP Term Loan" shall have the meaning provided in the Original Credit Agreement. "Eurodollar Loan" shall mean a Tranche A Term Loan or a Tranche B Term Loan bearing interest at the rate provided in Subsection 2.06(b). "Eurodollar Rate" shall mean, with respect to any Borrowing of Eurodollar Loans for any Interest Period, the product of (a) (i) the interest rate per annum shown on page 3750 of the Dow Jones & Company Telerate screen or any successor page as the composite offered rate for London interbank deposits with a period comparable to the Interest Period for such Eurodollar Loan, as shown under the heading "USD" at 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period or (ii) if the rate in clause (i) of this definition is not shown for any particular day, the average interest rate per annum (rounded upwards, if necessary, to the next 1/16th of 1%) offered to the Reference Banks in the interbank Eurodollar market for Dollar deposits of amounts in funds comparable to the principal amount of the Eurodollar Loan to which such Eurodollar Rate is to be applicable with maturities comparable to the Interest Period for which such Eurodollar Rate will apply as of approximately 10:00 a.m. (Houston time) two Business Days prior to the commencement of such Interest Period, times (b) Statutory Reserves. "Event of Default" shall have the meaning provided in Article VI. "Excess Cash Flow" shall mean (a) EBITDA for any Fiscal Year, minus (b) for each such Fiscal Year and for the Company and its Subsidiaries on a consolidated basis, the sum of (i) scheduled payments of principal pursuant to Sections 2.05(a) and (b) and Sections 2.05(b) and (c) 10 of the Original Credit Agreement, (ii) the principal portion of scheduled payments under Capital Lease Obligations, (iii) cash interest, (iv) cash taxes applicable to such Fiscal Year and paid prior to the date of determination, by or on behalf of the Company and its Subsidiaries, (v) any Permitted Holdco Dividends actually paid, (vi) the amount paid to Cytec pursuant to Section 2.03 of the AFB Earnout Agreement attributable to such Fiscal Year, (vii) for the Fiscal Year ending September 30, 1997, the AFB Adjusted Historical EBITDA for the Rolling Period ending on September 30, 1997, and (viii) the amount equal to (A) actual Capital Expenditures (exclusive of Capital Lease Obligations incurred during such Fiscal Year and Capital Expenditures for such Fiscal Year that were designated as Capital Expenditures from Retained Cash Flow), plus (B) the amount of Carry-Forward Capital Expenditures permitted to be made in the next succeeding Fiscal Year, minus (C) the amount of Carry-Forward Capital Expenditures permitted to be made in the current Fiscal Year. "Exchange Rate Swap Agreement" shall mean any contract for sale, purchase, or exchange or for future delivery of foreign currency (whether or not the subject currency is to be delivered or exchanged), hedging contract, forward contract, swap agreement, futures contract, or other foreign exchange protection agreement or option with respect to any such transaction, designed to hedge against fluctuations in foreign exchange rates. "Federal Funds Effective Rate" shall mean, for any day, the per annum rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" shall mean the letter agreement dated December 23, 1996, regarding fees, executed by TCB, and Chase Securities Inc. and accepted and agreed to by the Company as of December 23, 1996. "Financial Statements" shall mean the audited consolidated financial statements of the Company for the Fiscal Year ended September 30, 1996. "Financing Documents" shall mean this Agreement, the Notes, the Subsidiary Guaranty, the Security Instruments, the Stock Intercreditor Agreement, the Borrowing Request, the Fee Letter, the Intercreditor Agreement and the other documents, instruments or agreements described in Subsection 3.02(d), together with any other document, instrument or agreement (other than participation, agency or similar agreements among the Lenders or between any Lender and any other bank or creditor with respect to any indebtedness or obligations of Holdco or the Company or its Subsidiaries hereunder or thereunder) now or hereafter entered into in connection with the Loans, the Lender Indebtedness or the Collateral, as such documents, instruments or agreements may be amended, modified or supplemented from time to time. 11 "Fiscal Quarter" shall mean the fiscal quarter of the Company, ending on the last day of each December, March, June and September in each year. "Fiscal Year" shall mean the fiscal year of the Company, ending on September 30th of each year. "Fixed Charge Coverage Ratio" shall mean, for any day: (a) from January 1, 1997, through March 31, 1997, the ratio of (i) EBITDA for the Rolling Period ending on December 31, 1996 less cash income taxes actually paid during the Fiscal Quarter ending on December 31, 1996, times four, plus cash income tax refunds actually received by the Company and its Subsidiaries on a consolidated basis for the Rolling Period ending on December 31, 1996, to (ii) the sum of (A) Scheduled Principal Payments made during the Fiscal Quarter ending on December 31, 1996, times four, plus (B) the amount of cash interest paid during the Fiscal Quarter ending on December 31, 1996 (including the interest component of Capital Lease Obligations), times four, plus (C) actual Capital Expenditures (excluding Project Capital Expenditures and Capital Lease Obligations incurred during such period) made during the Rolling Period ending on December 31, 1996, plus (D) all Permitted Holdco Dividends paid during the Rolling Period ending on December 31, 1996; (b) from April 1, 1997, through June 30, 1997, the ratio of (i) EBITDA for the Rolling Period ending on March 31, 1997, less cash income taxes actually paid during the two Fiscal Quarters ending on December 31, 1996 and March 31, 1997, respectively, times two, plus cash income tax refunds actually received by the Company and its Subsidiaries on a consolidated basis for the Rolling Period ending on March 31, 1997, to (ii) the sum of (A) Scheduled Principal Payments made during the two Fiscal Quarters ending on December 31, 1996, and March 31, 1997, times two, plus (B) the amount of cash interest paid during the two Fiscal Quarters ending on December 31, 1996, and March 31, 1997 (including the interest component of Capital Lease Obligations), respectively, times two, plus (C) actual Capital Expenditures (excluding Project Capital Expenditures and Capital Lease Obligations incurred during such period) made during the Rolling Period ending on March 31, 1997, plus (D) all Permitted Holdco Dividends paid during the Rolling Period ending on March 31, 1997; (c) from July 1, 1997, through September 30, 1997, the ratio of (i) EBITDA for the Rolling Period ending on June 30, 1997, less cash income taxes actually paid for the three Fiscal Quarters ending on December 31, 1996, March 31, 1997 and June 30, 1997, respectively, times 1.33, plus cash income tax refunds actually received by the Company and its Subsidiaries on a consolidated basis for the Rolling Period ending on June 30, 1997, to (ii) the sum of (A) Scheduled Principal Payments made during the three Fiscal Quarters ending on December 31, 1996, March 31, 1997, June 30, 1997, respectively, times 1.33, plus (B) the amount of cash interest paid during the three Fiscal Quarters ending on December 31, 1996, March 31, 1997, and June 30, 1997 (including the interest component of Capital Lease 12 Obligations), respectively, times 1.33, plus (C) actual Capital Expenditures (excluding Project Capital Expenditures and Capital Lease Obligations incurred during such period) made during the Rolling Period ending on June 30, 1997, plus (D) all Permitted Holdco Dividends paid during the Rolling Period ending on June 30, 1997; and (d) from October 1, 1997, through December 31, 1997, the ratio of (i) EBITDA less cash income taxes actually paid plus cash income tax refunds actually received by the Company and its Subsidiaries on a consolidated basis in each case for the Rolling Period ending on September 30, 1997, to (ii) the sum of (A) Scheduled Principal Payments made during such period, plus (B) the amount of cash interest paid during such period (including the interest component of Capital Lease Obligations), plus (C) the greater of (1) actual Capital Expenditures (exclusive of Capital Lease Obligations incurred during such period, Capital Expenditures made during such period that were designated by the Company to be Capital Expenditures from Retained Cash Flow, and Project Capital Expenditures made during such period) and (2) $15,000,000, plus (D) all Permitted Holdco Dividends paid during such period, all without duplication and as to the Company and its Subsidiaries on a consolidated basis. (e) after December 31, 1997, the ratio of (i) EBITDA less cash income taxes actually paid plus cash income tax refunds actually received by the Company and its Subsidiaries on a consolidated basis to (ii) the Fixed Charges, in each case for the Rolling Period ending on the most recent Quarterly Date. "Fixed Charges" shall mean without duplication, as to the Company and its Subsidiaries on a consolidated basis and for each Rolling Period, (a) Scheduled Principal Payments made during such period, plus (b) the amount of cash interest paid during such period (including the interest component of Capital Lease Obligations), plus (c) the greater of (i) actual Capital Expenditures (exclusive of Capital Lease Obligations incurred during such period and Capital Expenditures made during such period that were designated by the Company to be Capital Expenditures from Retained Cash Flow) and (ii) $15,000,000, plus (d) all Permitted Holdco Dividends paid during such period. "Form 1001 Certification" shall have the meaning provided in Section 2.20(f). "Form 4224 Certification" shall have the meaning provided in Section 2.20(f). "Funded Indebtedness" shall mean, as to any Person, without duplication, all Indebtedness for borrowed money, all obligations evidenced by bonds, debentures, notes, or other similar instruments, all Capital Lease Obligations, and all guaranties of Funded Indebtedness of other Persons. "GAAP" shall mean generally accepted accounting principles as applied in accordance with Section 1.02. "Governmental Authority" shall mean any (domestic or foreign) federal, state, province, county, city, municipal or other political subdivision or government, department, commission, board, 13 bureau, court, agency or any other instrumentality of any of them, which exercises jurisdiction over the Company or any of its Property, or any Subsidiary of the Company or any of such Subsidiary's Property or any Plan. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other direction or requirement (including but not limited to any of the foregoing which relate to Environmental Laws, energy regulations and occupational, safety and health standards or controls) of any Governmental Authority. "Hedge Agreement" shall mean (i) any Commodity Swap Agreement, (ii) any Interest Rate Swap Agreement, or (iii) any Exchange Rate Swap Agreement. "Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Lender Indebtedness, as the case may be, owed to it under the law of any jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding other provisions of this Agreement, or law of the United States of America applicable to such Lender and the Transactions, which would permit such Lender to contract for, charge, take, reserve or receive a greater amount of interest than under such jurisdiction's law. "Holdco" shall have the meaning provided in the Introductory Statement. "Holdco Common Stock" shall mean the common stock of Holdco, par value $0.01 per share. "Indebtedness" of any Person shall mean: (i) all obligations of such Person for borrowed money and obligations evidenced by bonds, debentures, notes or other similar instruments; (ii) all obligations of such Person (whether contingent or otherwise) in respect of bankers' acceptances, letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money); (iv) all Capital Lease Obligations in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss; (v) all guaranties (direct or indirect), and other contingent obligations of such Person in respect of, or obligations to purchase or otherwise acquire or to assure payment of, Indebtedness of other Persons; 14 (vi) Indebtedness of others secured by any Lien upon Property owned by such Person, whether or not assumed; (vii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or financial covenants of other Persons; (viii) obligations to deliver goods or services in consideration of advance payments, excluding such obligations incurred in the ordinary course of business as conducted by the Company and its Subsidiaries as of the Closing Date; and (ix) the net amount of obligations of such Person under agreements of the types described in the definitions of Commodity Swap Agreements, Exchange Rate Swap Agreements and Interest Rate Swap Agreements; provided, that the term "Indebtedness" shall not mean or include any indebtedness of the type described in clause (i) of this definition in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such indebtedness may be duly called for redemption and payment) shall be deposited (in accordance with the terms of such indebtedness) with a depository, agency or trustee, acceptable to the Administrative Agent, in trust for the payment of such indebtedness with the effect that the obligor of such indebtedness has no further obligation to comply with the covenants and other applicable terms of the documentation existing in connection therewith. "Intercreditor Agreement" shall have the meaning assigned such term in Section 8.22. "Interest Coverage Ratio" shall mean, on any day, the ratio of (a) EBITDA for the Rolling Period ending on the then most recent Quarterly Date to (b) cash interest payments made by the Company and its Subsidiaries on a consolidated basis during such Rolling Period. "Interest Period" shall mean, with respect to each Borrowing of Eurodollar Loans, an interest period complying with the terms and provisions of Section 2.07. "Interest Rate Swap Agreement" shall mean any rate swap, rate cap, rate floor, rate collar, forward rate agreement, futures or other rate protection agreement or option with respect to any such transaction, designed to hedge against fluctuations in interest rates. "Leasehold Deed of Trust" shall mean the Leasehold Deed to Secure Debt and Security Agreement dated as of August 21, 1996, as amended by the First Amendment and Supplement to Leasehold Deed to Secure Debt and Security Agreement delivered by the Company pursuant to Section 3.02(d)(xiv) as security for the Combined Lender Indebtedness. "Lender" shall have the meaning assigned such term in the opening paragraph of this Agreement. 15 "Lender Indebtedness" shall mean any and all amounts owing or to be owing by the Company to the Agents or the Lenders with respect to or in connection with the Loans, the Notes, any Hedge Agreement, this Agreement, or any other Financing Document and, as to Hedge Agreements, any and all amounts owing or to be owing by the Company thereunder to any Secured Affiliate. "Lending Office" shall mean for each Lender the office specified opposite such Lender's name on the signature pages hereof, or in the Assignment and Acceptance pursuant to which it became a Lender, with respect to each Type of Loan, or such other office as such Lender may designate in writing from time to time to the Company and the Administrative Agent with respect to such Type of Loan. "Leverage Ratio" shall mean, on any day, the ratio of (a) Funded Indebtedness of the Company and its Subsidiaries on a consolidated basis as of the date of determination to (b) EBITDA for the Rolling Period ending on the most recent Quarterly Date as of the date of determination. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on contract or constitutional common law, or statutory law, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, liens and other statutory, constitutional, or common law rights of landlords, leases and other title exceptions and encumbrances affecting Property. For the purposes of this Agreement, the Company or any Subsidiary of the Company shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. "Loan" shall mean a Tranche A Term Loan or a Tranche B Term Loan, as the context shall require; and "Loans" shall mean collectively the Tranche A Term Loans and the Tranche B Term Loans or one or more of them as provided herein. "Margin Stock" shall have the meaning provided in Regulations G, U and X. "Material Adverse Effect" shall mean any material and adverse effect on (i) the business operations, assets, liabilities, condition (financial or otherwise), or results of operations of the Company, on an individual basis, or the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company on an individual basis to carry out its business or of the Company and its Subsidiaries taken as a whole to carry out their business, or (iii) the ability of the Company and its Subsidiaries, taken as a whole, to perform the obligations under the Notes, this Agreement or the other Financing Documents in accordance with their respective terms. "Material Contract" shall mean each contract, license, and agreement listed on Schedule 4.23. 16 "Net Proceeds" shall mean, with respect to any sale, transfer, or disposition of Property permitted by Section 5.04(c) ("Permitted Disposition"), the gross amount received by the Company or any of its Subsidiaries from such Permitted Disposition, minus the sum of (i) the amount, if any, of all taxes paid or payable by the Company or any of its Subsidiaries directly resulting from such Permitted Disposition (including the amount, if any, estimated by the Company in good faith at the time of such Permitted Disposition for taxes payable by the Company or any of its Subsidiaries on or measured by net income or gain resulting from such Permitted Disposition), and (ii) the reasonable out-of-pocket costs and expenses incurred by the Company or such Subsidiary in connection with such Permitted Disposition (including reasonable brokerage fees paid to a Person other than an Affiliate of the Company, but excluding any fees or expenses paid to an Affiliate of the Company). "Notes" shall mean the Tranche A Term Notes and the Tranche B Term Notes. "Notice of Designated Retained Cash Flow Usage" shall mean a notice in the form attached as Exhibit I. "Original Credit Agreement" shall mean the $456,500,000 principal amount credit agreement dated as of June 21, 1996 among the Company, TCB, individually, as an issuing bank and as administrative agent, Credit Suisse, individually, as an issuing bank and as documentation agent, and the lenders party thereto, as amended by the First Amendment to Credit Agreement of even date herewith, and as further amended, modified or supplemented. "Original Fee Letter" shall mean the "Fee Letter" under the Original Credit Agreement. "Original Lender Indebtedness" shall mean the "Lender Indebtedness" under the Original Credit Agreement. "Original Lenders" shall mean the "Lenders" under the Original Credit Agreement. "Original Loans" shall mean the "Loans" under the Original Credit Agreement. "Original Pilko Report" shall mean the environmental assessment letter of Pilko & Associates, Inc. dated April 18, 1996, and the accompanying Environmental Assessment of Sterling Chemicals, Inc. each of which has been delivered to the Lenders. "Original Term Loan Lenders" shall mean "Term Loan Lenders" under the Original Credit Agreement. "Original Term Loans" shall mean the "Term Loans" under the Original Credit Agreement. "Original Tranche A Term Loan Lender" shall mean any "Tranche A Term Loan Lender" under the Original Credit Agreement. 17 "Original Tranche B Term Loan Lender" shall mean any "Tranche B Term Loan Lender" under the Original Credit Agreement. "Other Taxes" shall have the meaning provided in Subsection 2.20(b). "Payment Office" shall mean the Administrative Agent's office located at 1111 Fannin Street, Houston, Texas 77002; Attention: Gale Manning (or such other office or individual as the Administrative Agent may hereafter designate in writing to the other parties hereto). "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor thereto. "Permitted Acquisition" shall mean any non-hostile acquisition of the voting securities (other than publicly traded securities) or other equity interests, or all or substantially all of the assets, of any Person (or any division or product line of such person), but only so long as no Default shall have occurred and be continuing at the time of (or would result from) such acquisition, and only to the extent permitted pursuant to Section 5.04(e)(x). "Permitted Holdco Dividend" shall mean any of the following, to the extent permitted pursuant to Section 5.04(d)(iv): (a) cash dividends to Holdco in any Fiscal Year not to exceed (A) $500,000 for the period from the Effective Date through September 30, 1996 and (B) $2,000,000 for Fiscal Year ended September 30, 1997, and for each succeeding Fiscal Year; and (b) cash dividends to Holdco so long as Holdco promptly, and in any event within five Business Days, utilizes the full amount of such cash dividends for the sole purpose of paying interest as and when due with respect to the Senior Secured Discount Notes then outstanding to the extent required to be made in accordance with the terms of the Senior Secured Discount Notes as in effect on the Effective Date and without giving effect to any amendment or modification thereof unless agreed to in writing by the Lenders; provided that (i) the amount of such cash dividends paid pursuant to this clause (b) shall not exceed the amount necessary to make such required interest payment in accordance with the terms of the Senior Secured Discount Notes, (ii) no such payment shall be made at any time when the payment of cash interest on the Senior Secured Discount Notes is not required to be made pursuant to the provisions thereof, and (iii) no such payment shall be made at any time prior to the fifth anniversary of the Effective Date. "Person" shall mean any individual, partnership, firm, corporation (including, but not limited to the Company), association, joint venture, trust or other entity, or any government or political subdivision or agency, department or instrumentality thereof; provided, however, for the purpose of the definition of "Change of Control," "Person" shall mean a "person" or group of persons within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended. 18 "Plan" shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA (including, but not limited to, an employee pension benefit plan, such as a foreign plan, which is not subject to the provisions of ERISA), which (i) is currently or hereafter sponsored, maintained or contributed to by the Company, a Subsidiary of the Company or an ERISA Affiliate, or (ii) was at any time during the six preceding Fiscal Years sponsored, maintained or contributed to by the Company, a Subsidiary of the Company or an ERISA Affiliate. "Preferred Stock" shall mean the redeemable Series A Preferred Stock issued by Holdco with terms, limitations, rights and preferences as set forth in Exhibit C. "Prime Rate" shall mean the rate which the Administrative Agent announces from time to time as its prime rate, effective as of the date announced as the effective date of any change in such prime rate. Without notice to the Company or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which such prime rate shall fluctuate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Project Capital Expenditures" shall mean all Capital Expenditures made by the Company and its Subsidiaries through December 31, 1996, for the construction of the Valdosta, Georgia facility and the methanol facility located in Texas City, Texas. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchase Agreement" shall have the meaning provided in the Introductory Statement. "Quarterly Dates" shall mean the last day of each December, March, June, and September, in each year. "Reference Banks" shall mean the Agents. "Register" shall have the meaning assigned in Section 8.07(d). "Regulation D", "Regulations G, U and X" shall mean, respectively, Regulation D under the Securities Act of 1933, as amended or modified from time to time, and Regulation G, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System, as such regulations are from time to time in effect and any successor regulations thereto. "Required Lenders" shall mean at any time, Lenders the Total Credit Percentages of which aggregate at least 51%. "Responsible Officer" shall mean, with respect to any corporation, the chairman of the board, the president, any vice president, the chief executive officer or the chief operating officer, or any 19 equivalent officer (regardless of his or her title), and, in respect of financial or accounting matters, the chief financial officer, the vice president of finance, the treasurer, the controller, or any equivalent officer (regardless of his or her title). Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Company. "Retained Cash Flow" shall mean, in any Fiscal Year, the amount of Excess Cash Flow that exceeds the amount of the prepayment of Combined Loans required pursuant to Section 2.10(a)(i) for such Fiscal Year. "Rolling Period" shall mean for each Fiscal Quarter commencing with the first full Fiscal Quarter after the Effective Date, such quarter and the three preceding Fiscal Quarters. "Santa Rosa Deed of Trust" shall mean the Mortgage, Assignment and Security Agreement dated as of the Closing Date delivered by Sterling Fibers pursuant to Section 3.02(d)(ii) as security for the payment and performance of Sterling Fibers' obligations under the Limited Guaranty Agreement (Santa Rosa) dated as of the Closing Date delivered by Sterling Fibers pursuant to Section 3.02(d)(iii). "SAR" shall mean each stock appreciation right outstanding under any Equity Plan. "Scheduled Capital Expenditures" shall mean Capital Expenditures of the Company and its Subsidiaries on a consolidated basis permitted for any Fiscal Year pursuant to Section 5.04(o)(i). "Scheduled Principal Payments" shall mean, for any period, the amounts of scheduled principal payments made during such period with respect to Funded Indebtedness (including the principal portion of all Capital Lease Obligations) not including any principal payments of (a) the ESOP Term Loan, but only to the extent that net income for the applicable period was reduced for the expense incurred by the Company for contributions to the ESOP, and (b) Revolving Credit Loans (as defined in the Original Credit Agreement). "SCI Acquisition" shall have the meaning assigned to the term "Acquisition" in the Original Credit Agreement. "Second Lien Deed of Trust" shall mean the Second Lien Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of the Closing Date, delivered by the Company pursuant to Section 3.02(d)(v) as security for the payment and performance of the Lender Indebtedness. "Secondary ESOP Loan" shall mean the loan or loans made by the Company to the ESOP to allow the ESOP to purchase Holdco Common Stock. "Secondary ESOP Loan Documents" shall mean the Secondary ESOP Note, the ESOP Security Agreement, and all documents, instruments and agreements now or hereafter executed by the 20 ESOP and delivered to the Company as the lender under the Secondary ESOP Loan, and any and all amendments, modifications, supplements, renewals or restatements thereof. "Secondary ESOP Note" shall mean the promissory note or notes from the ESOP to the Company evidencing the Secondary ESOP Loan, and any and all amendments, modifications, supplements, renewals and restatements thereof. "Secured Affiliate" shall mean any Affiliate of any Lender that has entered into a Hedge Agreement with the Company or any of its Subsidiaries with the obligations of the Company or such Subsidiary thereunder being secured by one or more Security Instruments. "Security Instruments" shall mean the agreements or instruments described or referred to in Subsections 3.02(d)(i) through (xviii), including, to the extent such Subsections describe an amendment, the agreement or instrument amended thereby, and any and all other agreements or instruments now or hereafter executed and delivered by the Company, any Subsidiary of the Company or any other Person as security for the payment or performance of the Lender Indebtedness or the Original Lender Indebtedness, as any of the foregoing may have been, or may hereafter be, amended, modified or supplemented. "Senior Secured Discount Notes" shall mean the senior secured discount notes issued pursuant to the Senior Secured Discount Notes Indenture with initial proceeds in an amount of up to $100,000,000 issued by Holdco in connection with the debt financing for the SCI Acquisition. "Senior Secured Discount Notes Indenture" shall mean the Sterling Chemicals Holdings, Inc. $191,751,000 132% Senior Secured Discount Notes due 2008 Indenture dated as of August 15, 1996, with Fleet National Bank, as Trustee. "Senior Subordinated Notes" shall mean the senior subordinated notes issued pursuant to the Senior Subordinated Notes Indenture in an amount of up to $275,000,000 issued by the Company in connection with the debt financing for the SCI Acquisition. "Senior Subordinated Notes Indenture" shall mean the Sterling Chemicals, Inc. $275,000,000 11 3/4% Senior Subordinated Notes Due 2006 Indenture dated as of August 15, 1996, with Fleet National Bank, as Trustee. "Solvent" shall mean with respect to any Person on a particular date, the condition that, on such date, (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small amount of capital. 21 "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum applicable reserve percentages, including any marginal, special, emergency or supplemental reserves (expressed as a decimal) established by the Board of Governors of the Federal Reserve System and any other banking authority to which the Lenders are subject for Eurocurrency Liabilities (as defined in Regulation D) or any other category of deposits or liabilities by reference to which the Eurodollar Rate is determined. Such reserve percentages shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Sterling Canada" shall mean Sterling Canada, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Company. "Sterling NRO" shall mean Sterling NRO, Ltd., an Ontario (Canada) corporation. "Sterling Pulp" shall mean Sterling Pulp Chemicals, Ltd., an Ontario (Canada) corporation and a wholly-owned subsidiary of Sterling Canada. "Stock Intercreditor Agreement" shall mean the intercreditor agreement between TCB, on behalf of the Original Lenders, and Fleet National Bank of Connecticut, as Trustee on behalf of the holders of the Senior Secured Discount Notes, and dated as of August 21, 1996. "Subrogation and Contribution Agreement" shall mean the Subrogation and Contribution Agreement dated as of August 21, 1996 among the Subsidiary Guarantors as amended, modified and supplemented. "Subsidiary" of any Person shall mean a corporation, limited liability company, partnership or other entity of which a majority of the outstanding shares of stock of each class having ordinary voting power or other equity interests is owned by such Person, by one or more Subsidiaries of such Person, or by such Person and one or more of its Subsidiaries. "Subsidiary Guaranty" shall mean, collectively, (i) the Guaranty Agreement dated as of the Closing Date executed by the Subsidiary Guarantors in favor of the Original Administrative Agent, the Administrative Agent, the Documentation Agent, the Documentation Agent (as defined in the Original Credit Agreement), the Issuing Banks (as defined in the Original Credit Agreement), and the Combined Lenders and (ii) the Limited Guaranty Agreement (Santa Rosa) dated as of the Closing Date executed by Sterling Fibers in favor of the Original Administrative Agent, the Administrative Agent, the Documentation Agent, the Documentation Agent (as defined in the Original Credit Agreement), the Issuing Banks (as defined in the Original Credit Agreement), and the Combined Lenders. 22 "Subsidiary Guarantors" shall mean those Subsidiaries designated as Subsidiary Guarantors on Schedule 4.19, and any other Subsidiaries that become Subsidiary Guarantors pursuant to Section 5.01(i). "Taxes" shall have the meaning provided in Subsection 2.20(a). "TCB" shall mean Texas Commerce Bank National Association, in its individual capacity and not as Administrative Agent. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary rate (adjusted to the basis of a year of 365 or 366 days, as the case may be) for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve System (the "Board") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in the Federal Reserve Statistical Release H.15(519) during the week following such day), or if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time on such day (or, if such day shall not be a Business Day, on the next preceding Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by the Administrative Agent. "Total Credit Percentage" shall mean as to any Lender at any time, the percentage of the aggregate principal amount of the Tranche A Term Loans and the Tranche B Term Loans then constituted by the aggregate principal amount of such Lender's Tranche A Term Loans and Tranche B Term Loans. "Tranche A Term Loan" shall have the meaning provided in Subsection 2.01(a)(i). "Tranche A Term Loan Commitment" shall have the meaning assigned such term in Subsection 2.01(c). "Tranche A Term Loan Lender" shall mean any Lender having a Tranche A Term Loan Commitment hereunder and/or a Tranche A Term Loan outstanding hereunder. "Tranche A Term Loan Maturity Date" shall mean March 31, 2003. "Tranche A Term Loan Percentage" shall mean as to any Tranche A Term Loan Lender, the percentage which such Lender's Tranche A Term Loans then outstanding constitutes of the aggregate Tranche A Term Loans then outstanding. "Tranche A Term Note" shall mean a promissory note of the Company described in Section 2.05(a) payable to a Tranche A Term Loan Lender and being substantially in the form of 23 Exhibit B-1, evidencing the aggregate indebtedness of the Company to such Lender for Tranche A Term Loans. "Tranche B Term Loan" shall have the meaning provided in Subsection 2.01(a)(ii). "Tranche B Term Loan Commitment" shall have the meaning assigned such term in Subsection 2.01(d). "Tranche B Term Loan Lender" shall mean any Lender having a Tranche B Term Loan Commitment hereunder or a Tranche B Term Loan outstanding hereunder. "Tranche B Term Loan Maturity Date" shall mean September 30, 2004. "Tranche B Term Loan Percentage" shall mean as to any Tranche B Term Loan Lender, the percentage which such Lender's Tranche B Term Loans then outstanding constitutes of the aggregate Tranche B Term Loans then outstanding. "Tranche B Term Note" shall mean a promissory note of the Company described in Section 2.05(b) payable to a Tranche B Term Loan Lender and being substantially in the form of Exhibit B-2, evidencing the aggregate indebtedness of the Company to such Lender for Tranche B Term Loans. "Transactions" shall mean the transactions provided for in and contemplated by this Agreement and the other Financing Documents. "TSG" shall mean The Sterling Group, Inc., a Texas corporation. "Type" of Loan shall mean a Base Rate Loan or Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the State of New York or, where applicable as to specific Collateral, any other relevant state. "U.S. Subsidiary" shall mean all Subsidiaries of the Company organized under the laws of any state, territory or subdivision of the United States. "U.S. Tax Compliance Certificate" shall have the meaning provided in Section 2.20(f)(y). "Valdosta Bonds" shall mean any of the Valdosta-Lowndes County Industrial Authority Industrial Development Revenue Bonds (Sterling Pulp Chemicals US, Inc. Project) Series 1995, issued and outstanding under that certain Indenture of Trust dated as of October 1, 1995 between Valdosta- Lowndes County Industrial Authority and Synovus Trust Company, as amended as of the Closing Date, and thereafter, as amended from time to time to the extent permitted by the Financing Documents. 24 "Valdosta Lease" shall mean that certain Indenture of Lease dated as of October 1, 1995 by and between the Valdosta-Lowndes County Industrial Authority and Sterling Pulp Chemicals US, Inc., a Delaware corporation. "Voting Stock" of any Person shall mean capital stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. Section 1.02 Accounting Terms and Determinations. Unless otherwise defined or specified herein, all accounting terms shall be construed herein, all accounting determinations hereunder shall be made, all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP applied on a basis consistent with the Financial Statements, except for changes concurred with by the Company's independent public accountants; provided that, if such changes affect the results of the calculations of the financial ratios required under Section 5.03 (as compared to the results obtained by applying GAAP in effect on the Closing Date), the Company and the Administrative Agent (acting on behalf and at the direction of the Required Lenders) agree to negotiate in good faith to adjust such financial ratios in order to make them comparable after giving effect to such change in GAAP. Section 1.03 Other Definitional Terms. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, schedule, exhibit and like references are to this Agreement unless otherwise specified. ARTICLE II AMOUNT AND TERMS OF LOANS Section 2.01 Loans and Commitments. (a) Loans. Subject to the terms and conditions and relying on the representations and warranties contained herein, (i) each Tranche A Term Loan Lender severally agrees to make, on the Effective Date, term loans pursuant to its Tranche A Term Loan Commitment (each a "Tranche A Term Loan") to the Company and (ii) each Tranche B Term Loan Lender severally agrees to make, on the Effective Date, term loans pursuant to its Tranche B Term Loan Commitment (each a "Tranche B Term Loan") to the Company. (b) Types of Loans. The Loans made pursuant hereto by each Lender shall, at the option of the Company, be either Base Rate Loans or Eurodollar Loans and may be continued or converted pursuant to Section 2.11, provided that, except as otherwise specifically provided herein, all Loans made pursuant to the same Borrowing shall be of the same Type. 25 (c) Tranche A Term Loan Commitments. The Tranche A Term Loans made pursuant hereto by each Tranche A Term Loan Lender shall not exceed in aggregate principal amount outstanding the amount set forth opposite such Lender's name on Annex I under the caption "Tranche A Term Loan Commitment" (as the same may be from time to time modified pursuant to Section 8.07(b), its "Tranche A Term Loan Commitment," and collectively for all Tranche A Term Loan Lenders, the "Tranche A Term Loan Commitments"). Any portion of each such Lender's Tranche A Term Loan Commitment not utilized on the Effective Date shall be permanently cancelled. Any Tranche A Term Loans that are repaid or prepaid may not be reborrowed. (d) Tranche B Term Loan Commitments. The Tranche B Term Loans made pursuant hereto by each Tranche B Term Loan Lender shall not exceed in aggregate principal amount outstanding the amount set forth opposite such Lender's name on Annex I under the caption "Tranche B Term Loan Commitment" (as the same may be from time to time modified pursuant to Section 8.07(b), its "Tranche B Term Loan Commitment," and collectively for all Tranche B Term Loan Lenders, the "Tranche B Term Loan Commitments"). Any portion of each such Lender's Tranche B Term Loan Commitment not utilized on the Effective Date shall be permanently cancelled. Any Tranche B Term Loans that are repaid or prepaid may not be reborrowed. (e) Amounts of Borrowings, etc. The aggregate principal amount of each Borrowing (i) of Eurodollar Loans shall be not less than $3,000,000 and shall be in an integral multiple of $100,000, and (ii) of Base Rate Loans hereunder shall be not less than $1,000,000 and shall be in an integral multiple of $100,000. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Company shall not be entitled to request any Borrowing that, if made, would result in an aggregate of more than six separate Borrowings of Eurodollar Loans being outstanding at any one time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. Section 2.02 Borrowing Requests. (a) Borrowing Requests. The Company shall give the Administrative Agent Advance Notice in the form of a Borrowing Request requesting that the Lenders make the Loans on the Effective Date and specifying the amount to be borrowed. (b) Notice by Administrative Agent. The Administrative Agent shall promptly give each Applicable Lender telecopy or telephonic notice (and, in the case of telephonic notices, confirmed by telecopy or otherwise in writing) of the proposed Borrowing, of such Lender's Applicable Percentage thereof and of the other matters covered by the Advance Notice. The Company hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice, absent manifest error. 26 Section 2.03 Replacement of Lenders. If any Lender does not make a Eurodollar Loan pursuant to Section 2.15, is subject to increased costs pursuant to Section 2.16, fails to designate an alternate Lending Office pursuant to Section 2.17, or is owed or reasonably anticipates being owed additional amounts pursuant to Section 2.20 and fails to take action required under Subsection 2.20(g) to avoid or reduce any such additional amounts, the Company shall have the right, if no Default then exists, to replace such Lender with another bank or financial institution with the consent of the Administrative Agent, which consent shall not be unreasonably withheld, provided that (i) the obligations of the Company owing to the Lender being replaced (including such increased costs) that are not being assigned to the replacement lender shall be paid in full to the Lender being replaced concurrently with such replacement lender, (ii) the replacement lender shall execute an Assignment and Acceptance pursuant to which it shall become a party hereto as provided in Section 8.07(c), and (iii) upon compliance with the provisions for assignment provided in Section 8.07(c) and the payment of amounts referred to in clause (i), the replacement lender shall constitute a "Lender" hereunder and the Lender being so replaced shall no longer constitute a "Lender" hereunder. Section 2.04 Disbursement of Funds. (a) Availability. No later than 11:00 a.m. (Houston time) on the date of each Borrowing, each Lender will make available to the Administrative Agent such Lender's Applicable Percentage of the amount (if any) by which the principal amount of the Borrowing requested to be made on such date by such Lender exceeds the principal amount of Loans (if any) of such Lender maturing on such date, in Dollars and in immediately available funds at the Payment Office. The Administrative Agent will make available to the Company at the Payment Office the aggregate of the amounts (if any) so made available by the Lenders by depositing such amounts, in immediately available funds, to an account of the Company at the Administrative Agent designated by the Company for such purpose. (b) Funds to the Administrative Agent. Unless the Administrative Agent shall have been notified by any Applicable Lender prior to the date of a Borrowing that such Lender does not intend to make available to the Administrative Agent such Lender's Applicable Percentage of the Borrowing to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent may make available to the Company a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of a Borrowing, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest at the Federal Funds Effective Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company, and the Company shall immediately pay such corresponding amount to the Administrative Agent together with interest at the rate specified for the Borrowing which includes such amount paid. Nothing in this Section shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights which the Company may have against any Lender as a result of any default by such Lender hereunder. (c) Lenders' Responsibilities. No Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder, and each Lender shall be obligated to make only 27 such Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its Commitment hereunder. Section 2.05 Notes and Amortization. (a) Tranche A Term Notes and Amortization. The Company's obligation to pay the principal of, and interest on, the Tranche A Term Loans made by each Tranche A Term Loan Lender shall be further evidenced by the Company's issuance, execution and delivery of a Tranche A Term Note payable to the order of each such Lender in the amount of the sum of such Lender's Tranche A Term Loan Commitment (if issued on the Effective Date) or in the principal amount of such Lender's Tranche A Term Loans (if issued after the Effective Date), and dated as of the date of issuance of such Tranche A Term Note. The aggregate principal amount of the Tranche A Term Notes applicable to the aggregate Tranche A Term Loans of all Tranche A Term Loan Lenders shall be payable in quarterly installments of the amounts set forth below (in each case, as reduced by the application of any prepayments pursuant to Section 2.10):
QUARTERLY DATA AMOUNT QUARTERLY DATE AMOUNT - -------------- -------- -------------- -------- June 30, 1997 $ 348,750 September 30, 2000 $1,123,750 September 30, 1997 $ 348,750 December 31, 2000 $1,511,250 December 31, 1997 $ 930,000 March 31, 2001 $1,511,250 March 31, 1998 $ 930,000 June 30, 2001 $1,511,250 June 30, 1998 $ 930,000 September 30, 2001 $1,511,250 September 30, 1998 $ 930,000 December 31, 2001 $1,898,750 December 31, 1998 $ 930,000 March 31, 2002 $1,898,750 March 31, 1999 $ 930,000 June 30, 2002 $1,898,750 June 30, 1999 $ 930,000 September 30, 2002 $1,898,750 September 30, 1999 $ 930,000 December 31, 2002 $2,363,750 December 31, 1999 $1,123,750 March 31, 2003 $2,363,750 March 31, 2000 $1,123,750 June 30, 2000 $1,123,750
The first such quarterly installment shall be payable on June 30, 1997, and the remaining quarterly installments shall be payable on each Quarterly Date thereafter, with the final installment in the amount of the aggregate unpaid principal balance then owing being payable on or before the Tranche A Term Loan Maturity Date. (b) Tranche B Term Notes and Amortization. The Company's obligation to pay the principal of, and interest on, the Tranche B Term Loans made by each Tranche B Term Loan Lender shall be further evidenced by the Company's issuance, execution and delivery of a Tranche B Term Note payable to the order of each such Lender in the amount of the sum of such Lender's 28 Tranche B Term Loan Commitment (if issued on the Effective Date) or in the principal amount of such Lender's Tranche B Term Loans (if issued after the Effective Date), and dated as of the date of issuance of such Tranche B Term Note. The aggregate principal amount of the Tranche B Term Notes applicable to the aggregate Tranche B Term Loans of all Tranche B Term Loan Lenders shall be payable in quarterly installments in the amounts set forth below (in each case, as reduced by the application of any prepayments pursuant to Section 2.10):
QUARTERLY DATA AMOUNT QUARTERLY DATE AMOUNT - -------------- ------ -------------- ------ June 30, 1997 $83,333 March 31, 2001 $ 83,333 September 30, 1997 $83,333 June 30, 2001 $ 83,333 December 31, 1997 $83,333 September 30, 2001 $ 83,333 March 30, 1998 $83,333 December 31, 2001 $ 83,333 June 30, 1998 $83,333 March 31, 2002 $ 83,333 September 30, 1998 $83,333 June 30, 2002 $ 83,333 December 31, 1998 $83,333 September 30, 2002 $ 83,333 March 31, 1999 $83,333 December 31, 2002 $ 83,333 June 30, 1999 $83,333 March 31, 2003 $ 83,333 September 30, 1999 $83,333 June 30, 2003 $7,750,004 December 31, 1999 $83,333 September 30, 2003 $7,750,004 March 30, 2000 $83,333 December 31, 2003 $8,125,000 June 30, 2000 $83,333 March 30, 2004 $8,125,000 September 30, 2000 $83,333 June 30, 2004 $8,125,000 December 31, 2000 $83,333 September 30, 2004 $8,125,000
The first such quarterly installment shall be payable on June 30, 1997, and the remaining quarterly installments shall be payable on each Quarterly Date thereafter, with the final installment in the amount of the aggregate unpaid principal balance then owing being payable on or before the Tranche B Term Loan Maturity Date. Section 2.06 Interest. In all cases subject to Section 8.12: (a) Base Rate Loans. Subject to Section 2.06(c), the Company agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date thereof until payment in full thereof at a rate per annum which shall be, for any day, equal to the sum of the Applicable Margin plus the Base Rate in effect on such day, but in no event to exceed the Highest Lawful Rate. The term "Base Rate" shall mean, for any day, the highest of (i) the Prime Rate in effect on such day, (ii) one-half of one percent (2%) plus the Federal Funds Effective Rate in effect for such day (rounded upwards, if necessary, to the nearest 1/16th of 1%), and (iii) one percent (1%) plus the Base CD Rate in effect on such day, but in no event to exceed the Highest Lawful Rate. For purposes of this Agreement, any change in the Base Rate due to a change in the Three-Month Secondary CD Rate, the Federal Funds Effective Rate, or the Prime Rate shall be effective as of the opening of business on the effective date of such change in the Three-Month Secondary CD Rate, the Federal Funds Effective Rate, or the Prime Rate, as the case may be. If for any reason the Administrative Agent shall 29 have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate and the Three-Month Secondary CD Rate for any reason, including but not limited to the inability of the Administrative Agent to obtain sufficient bids or publications in accordance with the terms hereof, the Base Rate shall be the Prime Rate until the circumstances giving rise to such inability no longer exist. (b) Eurodollar Loans. Subject to Section 2.06(c), the Company agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date thereof until payment in full thereof at a rate per annum which shall be the sum of the relevant Applicable Margin plus the Eurodollar Rate, but in no event to exceed the Highest Lawful Rate. (c) Default Interest. If the Company shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder or under any Financing Document, by acceleration or otherwise, the Company shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) at a rate per annum equal to (a) in the case of any Eurodollar Loan, the rate that would be applicable under Section 2.06(b) to such Eurodollar Loan, plus 2% per annum, and (b) in the case of any other amount, the rate that would be applicable under Section 2.06(a) to a Base Rate Loan, plus 2% per annum. (d) Interest Payment Dates. Interest on each Loan shall accrue from and including the date of such Loan to but excluding the date of payment in full thereof. Interest on each Eurodollar Loan shall be payable on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each day which occurs every three months after the initial date of such Interest Period, and on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. Interest on each Base Rate Loan shall be payable on each Quarterly Date, commencing on the first of such days to occur after such Loan is made, at maturity (whether by acceleration or otherwise) and, after maturity, on demand. (e) Notice by the Administrative Agent. The Administrative Agent, upon determining the Eurodollar Rate for any Interest Period, shall promptly notify by telecopy or telephone (in the case of telephonic notices, confirmed by telecopy or otherwise in writing) or in writing the Company and the Applicable Lenders. Section 2.07 Interest Periods. In connection with each Borrowing of Eurodollar Loans, the Company shall elect an Interest Period to be applicable to such Borrowing, which Interest Period shall begin on and include, as the case may be, the date selected by the Company pursuant to Section 2.02(a), the conversion date or the date of expiration of the then current Interest Period applicable thereto, and end on but exclude the date which is either one, two, three, six or (subject to availability by each Applicable Lender) twelve months thereafter, as selected by the Company; provided that: (a) Business Days. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided, further, that if any Interest Period (other than in respect of a Borrowing of Eurodollar Loans the 30 Interest Period of which is expiring pursuant to Section 2.15(b) hereof) would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (b) Month End. Any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to Subsection (c) below, end on the last Business Day of a calendar month; (c) Payment Limitations. No Interest Period shall extend beyond any date that any principal payment or prepayment is scheduled to be due unless the aggregate principal amount of Borrowings which are Borrowings of Base Rate Loans or which have Interest Periods which will expire on or before such date, less the aggregate amount of any other principal payments or prepayments due during such Interest Period, is equal to or in excess of the amount of such principal payment or prepayment; and (d) Maturity Dates. No Interest Period with regard to Tranche A Loans shall extend beyond the Tranche A Term Loan Maturity Date and no Interest Period with regard to Tranche B Term Loans shall extend beyond the Tranche B Term Loan Maturity Date. Section 2.08 Repayment of Loans. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of (i) each Tranche A Term Loan Lender, the amounts specified in Section 2.05(a), on the dates specified in Section 2.05(a) (or such earlier date on which the Tranche A Term Loans become due and payable pursuant to Article VI) and (ii) each Tranche B Term Loan Lender, the amounts specified in Section 2.05(b), on the dates specified in Section 2.05(b) (or such earlier date on which the Tranche B Term Loans become due and payable pursuant to Article VI). The Company hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.06. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company to such Lender resulting from each Loan of such Lender from time to time, including, without limitation, the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 8.07(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder, the Type thereof and each Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company and each Lender's Applicable Percentage thereof. 31 (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.08(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Loans made to the Company by such Lender in accordance with the terms of this Agreement. Section 2.09 Termination of Commitments. Any or all of the Commitments remaining unused as of 5:00 p.m. on the Closing Date shall automatically terminate at such time. Section 2.10 Prepayments. (a) Mandatory Combined Term Loan Prepayments. Subject to the terms of the Intercreditor Agreement: (i) On or before the 105th day after each September 30th, commencing on September 30, 1997, the Company shall deliver to each Lender the Company's calculation of its Excess Cash Flow for the Fiscal Year ended on such September 30th; provided that for purposes of this Section 2.10(a), the period ending on September 30, 1997, shall begin on August 22, 1996 and end on September 30, 1997. On the third day after delivery of the notice provided above, but in no event later than the 108th day after each September 30th, commencing September 30, 1997, the Company shall prepay (by payment to the Administrative Agent for distribution to the Lenders and the Original Term Loan Lenders as provided below) an aggregate principal amount of Combined Term Loans equal to (A) 75% of Excess Cash Flow for any Fiscal Year (or other applicable period as provided above) if, as of the last day of the applicable Fiscal Year, the aggregate principal amount of the Original Tranche A Term Loans, the Original Tranche B Term Loans and the Loans is equal to or greater than $203,000,000, and (B) 50% of Excess Cash Flow for any Fiscal Year thereafter (provided that, other Indebtedness of the Company and its Subsidiaries has not been used to effect such repayment of Combined Term Loans); and, in the case of (A) and (B) above, less the amount of any voluntary prepayments of Combined Term Loans made by the Company as permitted in Subsection 2.10(b) during such Fiscal Year (or other applicable period). (ii) At any time the Company becomes obligated to prepay all or part of the Senior Subordinated Notes, the Company shall, prior to any prepayment of the Senior Subordinated Notes, prepay the Combined Term Loans in full. (iii) At any time that the Company and its Subsidiaries sell, lease, or otherwise dispose of any of their Property, the Company shall promptly prepay an aggregate principal amount of Combined Term Loans equal to the amount of Net Proceeds in excess of $5,000,000 in the aggregate in any Fiscal Year, received from such sale, lease or disposal of Property, less the amount reinvested pursuant to Subsection 5.04(c)(i)(C)(2). 32 (iv) Prepayments of the Combined Term Loans pursuant to this Section 2.10(a) shall be applied (i), so long as no Default has occurred and is continuing, to the Original Tranche A Term Loans, the Original Tranche B Term Loans and the Loans (A) pro rata based on outstanding principal amount thereof at the time of such prepayment and (B) pro rata to the respective installments of principal thereof, and (ii), if a Default has occurred and is continuing, (A) pro rata (based on outstanding principal amount thereof at the time of such prepayment) to the Original Tranche A Term Loans, the Original Tranche B Term Loans, the Loans and the ESOP Term Loans and (B) pro rata to the respective installments of principal thereof. Notwithstanding the foregoing, in respect of any partial prepayment of Combined Term Loans (until such time as the Original Tranche A Term Loans and the Tranche A Term Loans have been repaid in full) pursuant to this Section 2.10(a), any Original Tranche B Term Loan Lender or Tranche B Term Loan Lender may, at its option, irrevocably decline receipt of its Original Tranche B Term Loan or Tranche B Term Loan, as applicable, share of any such prepayment, and, if such lender so declines, such share shall be applied as an additional prepayment of the Original Tranche A Term Loans and the Tranche A Term Loans, the other Original Tranche B Term Loans and Tranche B Term Loans, as applicable, and ESOP Term Loans in accordance with the immediately preceding sentence, as further adjusted pursuant to the balance of this Section 2.10(a). In the case of any prepayment pursuant to clauses (i,) (ii), or (iii), the Company shall provide to the Administrative Agent written notice of such prepayment at least five Business Days prior to the date such prepayment is to be made. Any Tranche B Term Loan Lender may notify the Administrative Agent and the Company of its election to decline its Tranche B Term Loan share of all such prepayments, in which event such notice shall be effective until such Lender notifies the Administrative Agent and the Company to the contrary. Any Tranche B Term Loan Lender that wishes to decline receipt of its share of any given prepayment pursuant to this Section 2.10(a), shall promptly, and in any event no later than 10:00 a.m. (Houston, Texas time) on the date following its receipt of the notice of such prepayment, notify the Company and the Administrative Agent of such election. Any Tranche B Term Loan Lender that has not provided notice pursuant to one of the two preceding sentences prior to such 10:00 a.m. deadline shall be deemed to have elected to accept such prepayment. The Administrative Agent shall promptly provide, to all such accepting Tranche B Term Loan Lenders, notice of the principal amount of the Original Tranche B Term Loans and Tranche B Term Loans that such lenders have elected to decline. Any such accepting Lender may, at its option, irrevocably decline receipt of its share of any such declined shares of such prepayment (and shall indicate in such notice whether it elects to accept or decline receipt of its share of such prepayment declined by other Original Lenders or Lenders pursuant to this sentence), and, if such Original Lender or Lender so declines, such share shall be applied as an additional prepayment of the Original Tranche A Term Loans, the other Original Tranche B Term Loans, the Tranche A Term Loans, the other Tranche B Term Loans and the ESOP Term Loans in accordance with this Section 2.10(a). Any Tranche B Term Loan Lender that wishes to decline receipt of its share of such declined shares, shall promptly, and in any event no later than 10:00 a.m. (Houston, Texas time) on the date following receipt of the notice from the Administrative Agent regarding such declined shares, notify the Company and the Administrative Agent of such election. Any such accepting Lender that has not provided such notice prior to such 10:00 a.m. deadline shall be deemed to have elected to accept the full amount of its share of such prepayment. 33 (b) Voluntary Prepayments. Subject to the terms of the Intercreditor Agreement, the Company may, at its option, at any time and from time to time, prepay the Loans, in whole or in part, upon giving three Business Days' prior written notice to the Administrative Agent. Such notice shall specify (i) the date and amount of prepayment, (ii) whether the prepayment is of Eurodollar Loans, Base Rate Loans or a combination thereof, and, in each case if a combination thereof, the principal amount allocable to each, and (iii) whether the Company shall approve the election, if any, of the Original Tranche B Term Loan Lenders or the Tranche B Term Loan Lenders to decline their share of any such prepayment as further provided in this Section 2.10(b). Upon receipt of such notice, the Administrative Agent shall promptly notify each Applicable Lender of the contents thereof and of such Lender's Applicable Percentage of such prepayment and, in the case of any Tranche B Term Loan Lender, whether or not the Company has elected to permit each Tranche B Term Loan Lender to, at its option, decline its Tranche B Term Loan share of such prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (if a Eurodollar Loan is prepaid other than at the end of the Interest Period applicable thereto) any amounts payable pursuant to Section 2.18 and accrued interest to such date on the amount prepaid. Prepayments of (i) the Loans pursuant to this Section 2.10(b) shall be applied (A) so long as no Default has occurred and is continuing, first, to the Original Tranche A Term Loans, the Original Tranche B Term Loans and the Loans (x) pro rata based on outstanding principal amount thereof at the time of such prepayment and (y) pro rata to the respective installments of principal thereof, and, second, to the ESOP Term Loans pro rata to the respective installments of principal thereof, and (B) if a Default has occurred and is continuing, (x) pro rata (based on outstanding principal amount thereof at the time of such prepayment) to the Original Tranche A Term Loans, the Original Tranche B Term Loans, the Loans and the ESOP Term Loans and (y) pro rata to the respective installments of principal thereof. Notwithstanding the foregoing and subject to the Company's approval described above, in respect of any partial prepayment of Combined Loans (until such time as the Original Tranche A Term Loans and the Tranche A Term Loans have been repaid in full) pursuant to this Section 2.10(b), any Original Tranche B Term Loan Lender or Tranche B Term Loan Lender may, at its option, irrevocably decline receipt of its Original Tranche B Term Loan or Tranche B Term Loans, as applicable, share of any such prepayment, and, if such lender so declines, such share shall be applied as an additional prepayment of the Original Tranche A Term Loans, the other Original Tranche B Term Loans, the Tranche A Term Loans, the other Tranche B Term Loans and the ESOP Term Loans in accordance with the immediately preceding sentence, as further adjusted pursuant to balance of this Section 2.10(b). Any Tranche B Term Loan Lender may notify the Administrative Agent and the Company of its election to decline its Tranche B Term Loan share of all such prepayments, in which event such notice shall be effective until such Lender notifies the Administrative Agent and the Company to the contrary. Any Tranche B Term Loan Lender that wishes to decline receipt of its share of any given prepayment pursuant to this Section 2.10(b), shall promptly, and in any event no later than 10:00 a.m. (Houston, Texas time) on the date following receipt of its notice of such prepayment, notify the Company and the Administrative Agent of such election. Any Tranche B Term Loan Lender that has not provided notice pursuant to one of the two preceding sentences prior to such 10:00 a.m. deadline shall be deemed to have elected to accept such prepayment. The Administrative Agent shall promptly provide, to all such accepting Tranche B Term Loan Lenders, notice of the principal amount of the Original Tranche 34 B Term Loans and the Tranche B Term Loans that such lenders have elected to decline. Any such accepting Lender may, at its option, irrevocably decline receipt of its share of any such declined shares of such prepayment (and shall indicate in such notice whether it elects to accept or decline receipt of its share of such prepayment declined by such other lenders pursuant to this sentence), and, if such Lender so declines, such share shall be applied as an additional prepayment of the Original Tranche A Term Loans, the other Original Tranche B Term Loans, the Tranche A Term Loans, the other Tranche B Term Loans and the ESOP Term Loans in accordance with this Section 2.10(b). Any Tranche B Term Loan Lender that wishes to decline receipt of its share of the reallocation of such declined shares, shall promptly, and in any event no later than 10:00 a.m. (Houston, Texas time) on the date following receipt of the notice from the Administrative Agent regarding such declined shares, notify the Company and the Administrative Agent of such election. Any such accepting Lender that has not provided such notice prior to such 10:00 a.m. deadline shall be deemed to have elected to accept the full amount of its share of such prepayment. After repayment in full of the Original Loans, each prepayment of Base Rate Loans shall be in the minimum principal amount of $1,000,000 and in integral multiples of $100,000 and each prepayment of Eurodollar Loans shall be in the minimum principal amount of $3,000,000 and in integral multiples of $100,000 or, in the case of either Base Rate Loans or Eurodollar Loans, the aggregate principal balance outstanding on the Loans. (c) Notice by Administrative Agent. Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Applicable Lender of the contents thereof and of such Lender's ratable share of such prepayment. Section 2.11 Continuation and Conversion Options. (a) Continuation. The Company may elect to continue all or any part of any Borrowing of Eurodollar Loans beyond the expiration of the then current Interest Period relating thereto by giving Advance Notice (which shall be irrevocable) to the Administrative Agent of such election, specifying the Eurodollar Loans or portion thereof to be continued and the Interest Period therefor. In the absence of such a timely and proper election with regard to Eurodollar Loans, the Company shall be deemed to have elected to convert such Eurodollar Loans to Base Rate Loans pursuant to Subsection 2.11(d). (b) Amounts of Continuations. All or part of any Eurodollar Loans may be continued as provided herein, provided that any continuation of such Loans shall not be (as to each Borrowing of such Loans as continued for an applicable Interest Period) less than $3,000,000 and shall be in an integral multiple of $100,000. (c) Continuation or Conversion Upon Default. If no Default shall have occurred and be continuing, each Eurodollar Loan may be continued or converted as provided in this Section. If a Default shall have occurred and be continuing, the Company shall not have the option to elect to continue any such Eurodollar Loan pursuant to Subsection 2.11(a) or to convert Base Rate Loans to Eurodollar Loans pursuant to Subsection 2.11(e). 35 (d) Conversion to Base Rate. The Company may elect to convert any Eurodollar Loan on the last day of the then current Interest Period relating thereto to a Base Rate Loan by giving Advance Notice to the Administrative Agent of such election. (e) Conversion to Eurodollar Rate. The Company may elect to convert any Base Rate Loan at any time or from time to time to a Eurodollar Loan by giving Advance Notice (which shall be irrevocable) to the Administrative Agent of such election, specifying each Interest Period therefor. (f) Amounts of Conversions. All or any part of the outstanding Loans may be converted as provided herein, provided that any conversion of such Loans shall not result in a Borrowing of Eurodollar Loans in an amount less than $3,000,000 and in integral multiples of $100,000. Section 2.12 Fees. The Company shall pay to the Administrative Agent such fees as are set forth in the Fee Letter, as the same has been or may be hereafter amended or supplemented, on the dates and in the manner specified therein. Section 2.13 Payments, etc. (a) Without Setoff, etc. Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Administrative Agent on behalf of the Applicable Lenders without defense, set-off or counterclaim to the Administrative Agent not later than 11:00 a.m. Houston time on the date when due and shall be made in Dollars in immediately available funds at the Payment Office. The Administrative Agent will promptly thereafter distribute funds in the form received relating to the payment of principal or interest ratably to the Applicable Lenders for the account of their respective Lending Offices, and funds in the form received relating to the payment of any other amount payable to any Lender to such Lender for the account of its Lending Office. (b) Non-Business Days. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (except as otherwise provided in Section 2.07 hereof) and, with respect to payments of principal, interest thereon shall be payable at the applicable rate during such extension. (c) Computations. All computations of interest shall be made on the basis of a year of 360 days (unless such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be) in the case of Eurodollar Loans or Base Rate Loans that are based upon the Federal Funds Effective Rate or the Base CD Rate, and 365 or 366 days (as the case may be) in the case of Base Rate Loans that are based upon the Prime Rate, and all computations of fees shall be made on the basis of a year of 360 days (unless such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be), in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall, except for manifest error, be final, conclusive and binding for all purposes, provided that such 36 determination shall be made in good faith in a manner generally consistent with the Administrative Agent's standard practice. If the Administrative Agent and the Company determine that manifest error exists, said parties shall correct such error by way of an adjustment to the payment due on the next Quarterly Date. Section 2.14 Interest Rate Not Ascertainable, etc. In the event that the Administrative Agent shall have determined (which determination shall be reasonably exercised and shall, absent manifest error, be final, conclusive and binding upon all parties) that on any date for determining the Eurodollar Rate for any Interest Period, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, or any Lender's position in such market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate, then, and in any such event, the Administrative Agent shall forthwith give notice (by telephone confirmed in writing) to the Company and to the Lenders of such determination. Until the Administrative Agent notifies the Company that the circumstances giving rise to the suspension described herein no longer exist, the obligations of the Lenders to make Eurodollar Loans shall be immediately suspended; any Borrowing of Eurodollar Loans that is requested (by continuation, conversion or otherwise) shall instead be made as a Borrowing of Base Rate Loans, and any outstanding Eurodollar Loan shall be converted, on the last day of the then current Interest Period applicable thereto, to a Base Rate Loan. Section 2.15 Illegality. (a) Determinations of Illegality. In the event that any Lender shall have determined (which determination shall be reasonably exercised and shall, absent manifest error, be final, conclusive and binding upon all parties) at any time that the making or continuance of any Eurodollar Loan has become unlawful as a result of compliance by such Lender in good faith with any applicable law, governmental rule, regulation, guideline or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, in any such event, the Lender shall give prompt notice (by telephone confirmed in writing) to the Company and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to the other Lenders). (b) Eurodollar Loans Suspended. Upon the giving of the notice to the Company referred to in Subsection (a) above, (i) the Company's right to request (by continuation, conversion or otherwise) and such Lender's obligation to make Eurodollar Loans shall be immediately suspended, and thereafter, any requested Borrowing of Eurodollar Loans shall, as to such Lender only, be deemed to be a request for a Base Rate Loan, and (ii) if the affected Eurodollar Loan or Loans are then outstanding, the Company shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one Business Day's written notice to the Administrative Agent and the affected Lender, convert each such Eurodollar Loan into a Base Rate Loan, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Subsection. 37 Section 2.16 Increased Costs. (a) Eurodollar Regulations, etc. If, by reason of (x) after the date hereof, the introduction of or any change (including, but not limited to, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (y) the compliance with any guideline or request issued by any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally that becomes effective after the Closing Date (whether or not having the force of law): (i) any Lender (or its applicable Lending Office) shall be subject to any tax, duty or other charge with respect to its Eurodollar Loans or its obligation to make Eurodollar Loans, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Eurodollar Loans or its obligation to make Eurodollar Loans (except for changes in the rate of tax on the overall net income or gross receipts of such Lender or its applicable Lending Office imposed by the jurisdiction in which such Lender's principal executive office or applicable Lending Office is located); or (ii) any reserve (including, but not limited to, any imposed by the Board of Governors of the Federal Reserve System, but excluding any such reserve requirement that is reflected in the Eurodollar Rate), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or its applicable Lending Office shall be imposed or deemed applicable or any other condition affecting its Eurodollar Loans or its obligations to make Eurodollar Loans shall be imposed on any Lender or its applicable Lending Office or the interbank Eurodollar market or the secondary certificate of deposit market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Loans (except to the extent already included in the determination of the applicable Eurodollar Rate) or there shall be a reduction in the amount received or receivable by such Lender or its applicable Lending Office, then the Company shall from time to time, upon written notice from and demand by such Lender (with a copy of such notice and demand to the Administrative Agent), pay to such Lender, within 30 days after the date specified in such notice and demand, additional amounts determined by such Lender in a reasonable manner to be sufficient to indemnify such Lender against such increased cost. A certificate as to the amount of such increased cost and the calculation thereof, submitted to the Company and the Administrative Agent by such Lender, shall, except for manifest error, be final, conclusive and binding for all purposes, provided that the determination of such amount shall be made in good faith in a manner generally consistent with such Lender's standard practice. (b) Costs. If any Lender shall advise the Administrative Agent that at any time, because of the circumstances described in clauses (x) or (y) in Subsection 2.16(a) or any other circumstances arising after the Effective Date affecting such Lender or the interbank Eurodollar market or such Lender's position in such market, the Eurodollar Rate, as determined in good faith by the 38 Administrative Agent, will not adequately and fairly reflect the cost to such Lender of funding its Eurodollar Loans, then, and in any such event: (i) the Administrative Agent shall forthwith give notice (by telephone confirmed in writing) to the Company and to the Lenders of such advice; (ii) the Company's right to request a Borrowing of Eurodollar Loans from such Lender and such Lender's obligation to make Eurodollar Loans shall be immediately suspended, any such Borrowing of Eurodollar Loans that is requested (by continuation, conversion or otherwise) shall, as to such Lender only, be deemed to be a request for a Base Rate Loan, and any such outstanding Eurodollar Loan from such Lender shall be converted, on the last day of the then current Interest Period applicable thereto, to a Base Rate Loan. (c) Capital Adequacy. If, by reason of (i) after the date hereof, the introduction of or any change (including, but not limited to, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (ii) the compliance with any guideline or request issued by any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally that becomes effective after the Closing Date (whether or not having the force of law) affects or would affect the amount of capital required to be maintained by any Lender or any corporation controlling such Lender, and the amount of such capital is increased by or based upon the existence of such Lender's Loans or such Lender's Commitment to lend hereunder and other commitments of this type, then, within 30 days after written request therefor by such Lender (with a copy of such request to the Administrative Agent), the Company shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for the increased cost of such additional capital in light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Loans or such Lender's Commitment to lend hereunder. A certificate as to such amounts and the calculation thereof, submitted to the Company and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination of such amount shall be made in good faith in a manner generally consistent with such Lender's standard practice. (d) Notice. The Company shall not be obligated to compensate any Lender pursuant to this Section 2.16 for any amounts attributable to a period more than one year prior to the giving of notice by such Lender to the Company of its intention to seek compensation under this Section 2.16. Section 2.17 Change of Lending Office. Each Lender agrees that it will use reasonable efforts to designate an alternate Lending Office with respect to any of its Eurodollar Loans affected by the matters or circumstances described in Sections 2.14, 2.15 or 2.16 to reduce the liability of the Company or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Lender as determined by such Lender in its sole discretion; provided that such Lender shall have no obligation to so designate an alternate Lending Office located in the United States. 39 Section 2.18 Funding Losses. The Company shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such amounts and shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto), for all losses, expenses and liabilities (including, but not limited to, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Eurodollar Loans to the extent not recovered by the Lender in connection with the re-employment of such funds and excluding loss of anticipated profits), which the Lender may sustain: (i) if for any reason (other than a default by such Lender) a Borrowing of Eurodollar Loans does not occur on the date specified therefor in a Borrowing Request (whether or not withdrawn), including, but not limited to a failure by the Company to fulfill on the date of any Borrowing of Eurodollar Loans the conditions set forth in Article III, or to convert or continue any Eurodollar Loan hereunder after irrevocable notice of such conversion or continuation has been given pursuant to Section 2.11 (ii), if any payment, prepayment or conversion of any of its Eurodollar Loans required or permitted by any other provision of this Agreement or otherwise, or any assignment of a Eurodollar Loan pursuant to Section 2.22, in each case is made or deemed made on a date which is not the last day of the Interest Period applicable thereto, or (iii) if, for any reason, the Company defaults in its obligation to repay its Eurodollar Loans or interest accrued thereon as and when due and payable (at the due date thereof, whether at scheduled maturity, by acceleration, irrevocable notice of prepayment or otherwise). Section 2.19 Sharing of Payments, etc. If any Lender shall obtain any payment or reduction (including, but not limited to, any amounts received as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code) of any obligation of the Company hereunder (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share of payments or reductions on account of such obligations obtained by all the Lenders, such Lender shall forthwith (i) notify each of the other Lenders and the Administrative Agent of such receipt, and (ii) purchase from the other Lenders such participations in the affected obligations as shall be necessary to cause such purchasing Lender to share the excess payment or reduction, net of costs incurred in connection therewith, ratably with each of them, provided that if all or any portion of such excess payment or reduction is thereafter recovered from such purchasing Lender or additional costs are incurred, the purchase shall be rescinded and the purchase price restored to the extent of such recovery or such additional costs, but without interest. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. Section 2.20 Taxes. (a) Payments Free and Clear. Any and all payments by the Company under this Agreement or any other Financing Document shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, and the Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Administrative Agent or such Lender, as the case may be, is a citizen or resident or in which such Lender has a permanent establishment (or is otherwise engaged in the active conduct of its banking business through an office or a branch) which is such Lender's applicable Lending Office, (ii) the jurisdiction (or any political 40 subdivision thereof) in which the Administrative Agent or such Lender is organized, or (iii) any jurisdiction (or political subdivision thereof) in which such Lender or the Administrative Agent is presently doing business which taxes are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities so arising out of payments by the Company being hereinafter referred to as "Taxes"). If the Company shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Lender or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) Other Taxes. In addition, the Company agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment and Acceptance or any other Financing Document (hereinafter referred to as "Other Taxes"). (c) Indemnification. The Company will indemnify each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including, but not limited to, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.20) paid by such Lender or the Administrative Agent (on their behalf or on behalf of any Lender), as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Any payment pursuant to such indemnification shall be made within 30 days after the date any Lender or the Administrative Agent, as the case may be, makes written demand therefor. If a Lender or the Administrative Agent shall become aware that it is entitled to claim a refund from a Governmental Authority in respect of Taxes or Other Taxes as to which it has been indemnified by the Company, or with respect to which the Company has paid additional amounts, pursuant to this Section 2.20, it shall promptly notify the Company of the availability of such claim and shall, within 30 days after receipt of a request by the Company, make a claim to such Governmental Authority for such refund at the Company's expense. If a Lender or the Administrative Agent receives a refund in respect of any Taxes or Other Taxes with respect to which the Company has paid additional amounts pursuant to this Section 2.20, it shall within 30 days from the date of such receipt pay over such refund to the Company (but only to the extent of indemnity payments made, or additional amounts paid, by the Company under this Section 2.20 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Lender or the Administrative Agent and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that the Company, upon the request of such Lender or the Administrative Agent, agrees to repay the amount paid over to the Company (plus penalties, interest or other charges payable to the relevant Governmental Authority) to such Lender or the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such refund to such Governmental Authority. 41 (d) Receipts. Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Company in respect of any payment to any Lender or the Administrative Agent, the Company will furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof. (e) Survival. Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of principal and interest hereunder. (f) Lender Representations and Agreements. As of the date on which any Lender becomes a party hereto, such Lender represents that it is either (i) a corporation organized under the laws of the United States of America or any state thereof (ii) entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement or (iii) entitled to complete exemption from United States withholding tax on interest imposed on or with respect to any payments of interest to be made pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America or (C) because it is a recipient of portfolio interest within the meaning of Section 871(h) or 881(c) of the Code. Each Lender that is not a corporation organized under the laws of the United States of America or any state thereof shall: (x) provide to the Company and the Administrative Agent on or before the date of any payment by the Company hereunder, or on the date of its delivery of the Assignment and Acceptance pursuant to which it becomes a Lender, and at such other times as required by United States law or as the Company or the Administrative Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form 4224 (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the "Form 4224 Certification"), or (B) Internal Revenue Service Form 1001 (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the "Form 1001 Certification"). In addition, each Lender agrees that if it previously filed a Form 4224 Certification it will deliver to the Company and the Administrative Agent a new Form 4224 Certification prior to the first payment date occurring in each of its subsequent taxable years (or such other date as may be required in compliance with applicable law); and if it previously filed a Form 1001 Certification, it will deliver to the Company and the Administrative Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification (or such other date as may be required in compliance with applicable law); or (y) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) furnish to the Company on or before the date of any payment by the Company, with a copy to the Administrative Agent, (A) a certificate 42 substantially in the form of Exhibit H (any such certificate a "U.S. Tax Compliance Certificate") and (B) two accurate and complete original signed copies of Internal Revenue Service Form W-8, or successor applicable form certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Code with respect to payments of interest to be made under this Agreement, any Notes or other Financing Documents (and to deliver to the Company and the Administrative Agent two further copies of such form on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Company or the Administrative Agent for filing and completing such forms) and (ii) agree, to the extent legally entitled to do so, upon reasonable request by the Company, to provide to the Company (for the benefit of the Company and the Administrative Agent) such other forms as may be reasonably required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments of interest under this Agreement, any Notes or other Financing Documents, provided that in determining the reasonableness of a request under this clause (iii) such Lender shall be entitled to consider the cost (to the extent unreimbursed by the Company) which would be imposed on such Lender of complying with such request. Each Lender also agrees to deliver to the Company and the Administrative Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States withholding tax on any payments hereunder, provided that the circumstances of the Lender at the relevant time and applicable laws permit it to do so. Except as provided immediately below, if a Lender is organized under the laws of a jurisdiction outside the United States of America, unless the Company and the Administrative Agent have received a Form 1001 Certification, Form 4224 Certification, or an Internal Revenue Service Form W-8 and a U.S. Tax Compliance Certificate, as applicable, satisfactory to them indicating that all payments, or in the case of a Lender providing such forms as are required under Section 2.20(f)(y) hereof, all payments of interest, to be made to such Lender hereunder are not subject to United States withholding tax, the Company shall be entitled to withhold taxes from such payments at the applicable statutory rate, provided that such withholding shall not increase the amount of payments for the account of such Lender to be made by the Company pursuant to Subsection 2.20(a). If a Lender determines, as a result of any change in either (i) applicable law, regulation or treaty, or in any official application thereof or (ii) its circumstances, that it is unable to submit any form or certificate that it is obligated to submit pursuant to this Section, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify the Company and the Administrative Agent of such fact and the Company shall be entitled to withhold taxes from such payments at the applicable statutory rate, it being understood that such withholding shall increase the amount of payments for the account of such Lender to be made by the Company pursuant to Section 2.20(a). Each Lender agrees to indemnify and hold the Administrative Agent harmless from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by the Administrative Agent (i) as a result of such Lender's failure to submit any form or certificate that it is required to provide pursuant to this Section or (ii) as a result of the Administrative Agent's reliance on any such form or certificate which such Lender has 43 provided to it pursuant to this Section. Each Person that shall become a Lender or a Participant pursuant to Section 8.07 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section, provided that in the case of a Participant the obligations of such Participant were it a Lender except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. (g) Efforts to Avoid or Reduce. Any Lender claiming any additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or the Administrative Agent or to change the jurisdiction of its applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. Section 2.21 Pro Rata Treatment. Subject to the terms of the Intercreditor Agreement and except as otherwise provided in Sections 2.10(a) and (b), each payment on account of principal of and interest on any Loans shall be allocated by the Administrative Agent pro rata according to the respective outstanding principal amounts of such Loans then held by the Lenders. Subject to the terms of the Intercreditor Agreement, all proceeds (including proceeds from the realization upon the Collateral) received after acceleration of the maturity of the Loans, shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the Financing Documents; second, to other Lender Indebtedness until repaid in full pro rata to each Lender in accordance with its Total Credit Percentage; and, third, to any other Person entitled to receive such proceeds in accordance with applicable law. ARTICLE III CONDITIONS TO BORROWINGS AND TO PURCHASE, RENEWAL AND REARRANGEMENT The obligation of each Lender to make a Loan hereunder is subject to the satisfaction of the following conditions: Section 3.01 Closing. The Company shall have delivered to the Administrative Agent (unless waived by the Administrative Agent) at least three Business Days' advance written notice of the proposed Effective Date, which shall be a Business Day and the same day as the Closing Date, for the delivery of all instruments, certificates and opinions referred to in Section 3.02 not theretofore delivered. Section 3.02 Conditions Precedent to Loans. At the time of the making by such Lender of its Loans hereunder, all obligations of the Company hereunder to the Administrative Agent or any Lender incurred prior to such Loans, shall have been paid in full, and the Administrative Agent shall have received the following, each in form and substance reasonably satisfactory to the Agents and the Lenders, with an original thereof for 44 the Administrative Agent and with sufficient copies thereof for each Lender (except that in the case of the Notes, the originals thereof will be delivered to the respective Lenders): (a) Notes - A duly completed and executed Note for each Lender and in each case dated as of the Closing Date and payable to the order of such Lender. (b) Resolutions and Incumbency Certificates - (i) certified copies of the resolutions of the Boards of Directors of the Company, Holdco, and any of the Company's Subsidiaries that are parties to any Financing Document, dated, as to the Company, as of the Closing Date, and as to Holdco and the Company's Subsidiaries, as of the Effective Date, and approving, as appropriate, the Loans, the Notes, this Agreement and the other Financing Documents, and all other documents, if any, to which the Company, Holdco or such Subsidiary is a party and evidencing corporate authorization with respect to such documents; (ii) a certificate of the Secretary or an Assistant Secretary of the Company dated as of the Closing Date and certifying (A) the name, title and true signature of each officer of such Person authorized to execute the Notes, this Agreement, and the other Financing Documents to which it is a party, (B) the name, title and true signature of each officer of such Person authorized to provide the certifications required pursuant to this Agreement including, but not limited to, certifications required pursuant to Section 5.02, the Borrowing Request and (C) that attached thereto is a true and complete copy of the articles of incorporation and bylaws of the Company, as amended to date, and a recent good standing certificate; and (iii) a certificate of the Secretary or an Assistant Secretary of Holdco and of each Subsidiary that is a party to any Financing Document, in each case, dated as of the Effective Date and certifying (x) the name, title and true signature of each officer of Holdco or such Subsidiary, as the case may be, authorized to execute each such Financing Document to which it is a party, and (y) that attached thereto is a true and complete copy of the articles of incorporation and bylaws of Holdco or such Subsidiary, as the case may be, as amended to date, and a recent good standing certificate for Holdco or such Subsidiary, as the case may be. (c) Opinions of Counsel - The following opinions of counsel, in each case addressed to each of the Agents and the Lenders and covering such other matters as any Administrative Agent or the Lenders may reasonably request: (i) Andrews & Kurth L.L.P., counsel to Holdco, the Company and the Subsidiary Guarantors substantially in the form of Exhibit D-1 hereto; and (ii) Local counsel to the Company dated as of the Closing Date and substantially in the form of Exhibits D-2 through D-4 as to the laws of Canada and the States of Georgia and Florida. 45 (d) The Security Instruments and Guaranties - (i) Security Agreement executed by Sterling Fibers substantially in the Form of Exhibit E-1 and dated as of the Closing Date; (ii) Santa Rosa Deed of Trust executed by Sterling Fibers substantially in the form of Exhibit E-2 and dated as of the Closing Date; (iii) Limited Guaranty Agreement (Santa Rosa) executed by Sterling Fibers substantially in the form of Exhibit E-3 and dated as of the Closing Date; (iv) Collateral Assignment (Intercompany Loans and Accounts) executed by Sterling Fibers substantially in the form of Exhibit E-4 dated as of the Closing Date; (v) Second Lien Deed of Trust executed by the Company substantially in the form of Exhibit E-5 dated as of the Closing Date; (vi) Guaranty Agreement dated as of the Closing Date executed by the Subsidiary Guarantors in favor of the Original Administrative Agent, the Administrative Agent, the Administrative Agent For Combined Lenders, the Documentation Agent, the Documentation Agent (as defined in the Original Credit Agreement), the Issuing Banks (as defined in the Original Credit Agreement), and the Combined Lenders; (vii) Subrogation and Contribution Agreement dated as of the Closing Date executed by the Company and the Subsidiary Guarantors; (viii) Second Amendment and Supplement to Security Agreement dated as of the Closing Date executed by the Company, granting to the Administrative Agent For Combined Lenders a first priority security interest in all personal Property described therein, as security for the indebtedness defined therein as the "Obligations"; (ix) First Amendment and Supplement to Security Agreements dated as of the Closing Date executed by each of the Subsidiary Guarantors, granting to the Administrative Agent For 46 Combined Lenders a first priority security interest in all personal Property described therein of each such Person, as security for the indebtedness respectively defined therein as the "Obligations"; (x) Second Amendment and Supplement to Security Agreement (Pledge) dated as of the Closing Date executed by Holdco granting to the Administrative Agent For Combined Lenders a first priority security interest in 100% of the capital stock of the Company, as security for the Combined Lender Indebtedness; (xi) Second Amendment and Supplement to Security Agreement (Pledge) dated as of the Closing Date executed by the Company granting to the Administrative Agent For Combined Lenders a first priority security interest in 100% of the Capital Stock of the Company's directly owned U.S. Subsidiaries, as security for the Combined Lender Indebtedness; (xii) First Amendment and Supplement to Security Agreement (Pledge) dated as of the Closing Date executed by Sterling Canada granting to the Administrative Agent For Combined Lenders a first priority security interest in 65% of the capital stock of Sterling Pulp and Sterling NRO and 100% of the capital stock of Sterling Pulp Chemicals US, Inc., as security for the Combined Lender Indebtedness; (xiii) First Amendment and Supplement to Security Agreement (Pledge) dated as of the Closing Date executed by Sterling Pulp Chemicals US, Inc. granting to the Administrative Agent For Combined Lenders a first priority security interest in 100% of the capital stock of Sterling Pulp Chemicals, Inc., as security for the Combined Lender Indebtedness; (xiv) First Amendment and Supplement to the Leasehold Deed to Secure Debt and Security Agreement covering the leasehold estate under the Valdosta Lease and dated as of the Closing Date; (xv) Second Amendment and Supplement to Collateral Assignment (Intercompany Loans and Accounts) dated as of the Closing Date executed by the Company, assigning to the Administrative Agent For Combined Lenders the Company's rights, titles and interests in and to all intercompany loans and accounts owing to the Company by any of its Subsidiaries, whether or not evidenced by promissory notes or other instruments, as security for the Combined Lender Indebtedness; (xvi) First Amendment and Supplement to Collateral Assignments (Intercompany Loans and Accounts) dated as of the Closing Date executed by each Subsidiary Guarantor, assigning to the Administrative Agent For Combined Lenders such Subsidiary Guarantor's rights, titles and interests in and to all intercompany loans and accounts owing to such Subsidiary Guarantor by the Company or any of its other Subsidiaries, whether or not evidenced by promissory notes or other instruments, as security for the Combined Lender Indebtedness; (xvii) First Amendment and Supplement to Security Agreement (Pledge-Bonds) dated as of the Closing Date executed by Sterling Canada granting to the Administrative Agent For Combined Lenders a first priority security interest in the Valdosta Bonds; (xviii) Second Amendment and Supplement to Collateral Assignment (ESOP) dated as of the Closing Date executed by the Company in favor of the Administrative Agent For Combined Lenders; (xix) Security Agreement (ESOP) dated as of the Closing Date; 47 (xx) Financing Statements, as appropriate, or other filings with Governmental Authorities to perfect the security interests created by the instruments delivered under clauses (i) through (xix) above; (xxi) Stock certificates and corresponding stock powers to perfect the Administrative Agent For Combined Lenders' security in the capital stock pledged by the Company pursuant to the instrument delivered under clauses (xi), (xii), (xiii) and (xiv) above; (xxii) all Property in which the Administrative Agent For Combined Lenders shall, at such time, be entitled to have a Lien pursuant to this Agreement or any other Financing Document shall have been physically delivered to the possession of the Administrative Agent For Combined Lenders to the extent that such possession is necessary for the purpose of perfecting such Lien in such Collateral; and (xxiii) the Intercreditor Agreement dated as of the Closing Date. (e) Insurance. A certificate of insurance coverage, dated as of the Effective Date evidencing that the Company and its Subsidiaries are carrying insurance in accordance with Section 5.01(e) hereof. In addition, the Administrative Agent shall have received evidence satisfactory to the Administrative Agent that none of the improved real estate Collateral is situated in an area that has been identified by the Director of the Federal Emergency Management Agency (as to such Collateral located in the United States of America) or any other Governmental Authority as an area having special flood hazards. Should it be determined, however, that any of the real estate Collateral is situated in an area identified as having special flood hazards, the Administrative Agent shall have received a copy of the applicable flood insurance policies (or policy applications), in form and substance satisfactory to the Required Lenders, indicating that the maximum limits of coverage have been obtained and that the full premium therefor has been paid in full. (f) Title Insurance; Survey. Mortgagee's Policy of Title Insurance in form and substance satisfactory to the Administrative Agent For Combined Lenders insuring the Lien on the Santa Rosa Plant in Santa Rosa County, Florida granted pursuant to the Santa Rosa Deed of Trust in the amount of $14,500,000 and a current survey covering the Santa Rosa Plant. (g) Consummation of AFB Acquisition. The AFB Acquisition shall have been consummated in accordance with the terms of the Purchase Agreement and the Purchase Agreement shall not have been amended or modified other than with express written consent of the Required Lenders (except for amendments that do not materially change the terms of the AFB Acquisition as contemplated in the Purchase Agreement as of December 23, 1996), subject only to the funding of the Loans. All conditions precedent to the AFB Acquisition set forth in the Purchase Agreement shall have been satisfied and shall not have been amended, modified or waived since December 23, 1996 without the express written consent of the Lenders. All representations and warranties made by the Cytec Parties in the Purchase Agreement shall be true and correct as of the Effective Date in all material respects and shall not have been amended, modified or waived since the Closing Date without the express written consent of the Lenders. All documents, instruments, agreements, transfers, 48 conveyances and bills of sale necessary for the AFB Acquisition shall be in form reasonably satisfactory to the Administrative Agent. (h) Appraisals. Appraisals shall have been completed, at the expense of the Company, determining the value-in-use of the real and personal Property to be acquired in the AFB Acquisition. (i) Lien Searches. Lien searches reflecting no prior Liens on the Collateral other than Liens set forth on Schedule 5.04(b). (j) Financial Statements and Projections. The financial condition of the Company reflected in the financial information and projections of the Company that were delivered to the Lenders on or before January 6, 1997, by the Company have not changed in such a way as to materially and adversely affect the prospects of the Company or otherwise cause or result in a Material Adverse Effect (after giving effect to the AFB Acquisition). (k) AFB Pilko Report. A copy of the AFB Pilko Report and a certificate of the Company, dated as of the Effective Date, to the effect that to the Company's best knowledge, no relevant facts, conditions or circumstances pertaining to environmental claims or liabilities shall have arisen that would cause the AFB Pilko Report, if deemed to have been delivered on the Effective Date, to contain any material misstatement of fact, or any omission of any material fact necessary to make the AFB Pilko Report accurate, complete and not misleading, except to the extent that any such fact, condition, or circumstance could not reasonably be expected to have a Material Adverse Effect. (l) Albright Indemnity. The Albright Indemnity shall remain legal, valid and binding in all respects as of the Effective Date. (m) Additional Equity. Evidence of the receipt by Holdco of at least $10,000,000 of new common equity comprised of (i) at least $9,700,000 of additional cash equity (and contributed by Holdco to the Company and contributed or loaned by the Company to Sterling Fibers of such cash equity) and (ii) up to $300,000 of Equity Notes, in each case on terms and conditions satisfactory to the Administrative Agent. (n) Issuance of Preferred Stock. Evidence satisfactory to the Administrative Agent of the issuance by Holdco of 100,000 shares of Preferred Stock to Cytec Industries on terms and conditions as set forth in Exhibit C. (o) Amendment to Original Credit Agreement. An executed copy of the First Amendment to Credit Agreement in form and substance satisfactory to the Administrative Agent. (p) Conditions to Funding Under the Original Credit Agreement. A certificate from the Company certifying that the conditions precedent set forth in Section 3.03(a), (b) and (c) of the Original Credit Agreement are satisfied as of the Effective Date. 49 (q) Annual Budget. A copy of the annual budget of the Company and its Subsidiaries (consolidating on the basis of the principal lines of business of the Company and its Subsidiaries) setting forth in reasonable detail the projected revenues and expenses of the Company for the Fiscal Year ending on September 30, 1997 (which budget does not include provision for the AFB Acquisition). (r) No Default. Both before and after giving effect to the Loans and the proposed use of proceeds thereof, there shall exist no Default; (s) Representations and Warranties. Both before and after giving effect to the Loans and the proposed use of proceeds thereof, all representations and warranties contained herein and in the other Financing Documents executed and delivered on or after the date hereof shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loan (unless such representation and warranty is expressly limited to an earlier date or is no longer true and correct solely as a result of transactions not prohibited by the Financing Documents); and (t) Documentation. The Administrative Agent shall have received such other documents as the Administrative Agent (or any Lender acting through the Administrative Agent) may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent. The Borrowing Request submitted by the Company, and the acceptance by the Company of the proceeds of such Borrowing (but not including continuations or conversions pursuant to Section 2.11), shall constitute a representation and warranty by the Company, as of the date of such Borrowing, that the conditions specified in Subsections 3.02(p) and (r) have been satisfied. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement, the Company represents and warrants to the Lenders (which representations and warranties (i) will survive the delivery of the Notes and (ii) made by the Company as of the Closing Date are made assuming that the AFB Acquisition had occurred on or before the Closing Date) that: Section 4.01 Corporate Existence. The Company and each of its Subsidiaries are corporations duly organized, legally existing and in good standing under the laws of the jurisdictions in which they are incorporated and are duly qualified as foreign corporations in all jurisdictions wherein the Property owned or the business transacted by them makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. Section 4.02 Corporate Power and Authorization. The Company is authorized and empowered to create and issue the Notes; the Company and each of its Subsidiaries are duly authorized and empowered to 50 execute, deliver and perform the Financing Documents, including this Agreement, to which they respectively are parties; and all corporate action on the Company's part requisite for the due creation and issuance of the Notes on the Company's and each of its Subsidiaries' respective part requisite for the due execution, delivery and performance of the Financing Documents, including this Agreement, to which the Company and each of its Subsidiaries respectively are parties has been duly and effectively taken. Section 4.03 Binding Obligations. This Agreement does, and the Notes and other material Financing Documents to which the Company and each of its Subsidiaries respectively are parties upon their creation, issuance, execution and delivery will, when issued and delivered under this Agreement, constitute legal, valid and binding obligations of the Company and each such Subsidiary that is a party thereto, respectively, and will be enforceable in accordance with their respective terms (except that enforcement may be subject to any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights and subject to the availability of equitable remedies). Section 4.04 No Legal Bar or Resultant Lien. The execution, delivery and performance of the Notes and the other Financing Documents, including this Agreement, to which the Company or any of its Subsidiaries is a party do not and will not violate or create a default under any provisions of the articles or certificate of incorporation or bylaws of the Company or any of its Subsidiaries, or any contract, agreement, instrument or Governmental Requirement to which the Company or any of its Subsidiaries is subject, or result in the creation or imposition of any Lien upon any Properties of the Company or any of its Subsidiaries, other than those violations and defaults that would not have a Material Adverse Effect upon the Company's or such Subsidiaries' use of such Properties or those permitted by this Agreement. Section 4.05 No Consent. The Company's and each of its Subsidiaries' respective execution, delivery and performance of the Notes and the other Financing Documents, including this Agreement, to which the Company and each such Subsidiary respectively are parties, and the consummation of the AFB Acquisition, do not require notice to or filing or registration with, or the authorization, consent or approval of or other action by any other Person, including, but not limited to, any Governmental Authority, except those obtained or made or where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 51 Section 4.06 Financial Information. (a) Audited Financial Statements. The audited consolidated balance sheets of the Company and its Subsidiaries as of September 30, 1995 and 1996, and the related audited consolidated statements of income, retained earnings and cash flows for the years then ended, including in each case the related schedules and notes, reported on by, in the case of the 1995 financial statements, Arthur Andersen LLP, and in the case of the 1996 financial statements, Deloitte & Touche LLP, true copies of which have been previously delivered to each of the Lenders, fairly present the consolidated financial condition of the Company and its Subsidiaries as of the dates thereof and the consolidated results of operations for such periods, in accordance with GAAP applied on a consistent basis. (b) No Material Adverse Effect. Since September 30, 1995, there has been no event or occurrence that could reasonably be expected to have a Material Adverse Effect. Section 4.07 Investments and Guaranties. Neither the Company nor any of its Subsidiaries has made investments in or advances to any Person or guaranties of the obligations of any Person that is not a Subsidiary of the Company, except those permitted by Section 5.04, reflected in the Financial Statements or described in Schedule 4.07. Section 4.08 Litigation. Except as set forth in Schedule 4.08, there is no material action, suit or proceeding, or any material governmental investigation or any arbitration, in each case pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any material Property of any thereof before any court or arbitrator or any Governmental Authority. There is no action, suit or proceeding, or any governmental investigation or any arbitration, in each case pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any material Property of any thereof before any court or arbitrator or any Governmental Authority which (i) challenges the validity of this Agreement, any Note, the Subsidiary Guaranty or any of the other Financing Documents or (ii) could reasonably be expected to have a Material Adverse Effect. Section 4.09 Use of Proceeds. The Company will use the proceeds of the Loans only for the purposes specified in the Introductory Statement to this Agreement. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock (within the meaning of Regulations, G, U or X) and no part of the proceeds of any Loan hereunder will be used to buy or carry any Margin Stock in violation of Regulation G, U, or X. Neither the Company nor any Person acting on behalf of the Company has taken or will take any action which could reasonably be expected to cause the Notes or any of the Financing Documents, including this Agreement, to violate Regulations G, U or X or any other regulation of the Board of Governors of the Federal Reserve System, in each case as now in effect or as the same may hereinafter be in effect. 52 Section 4.10 Employee Benefits. (a) Except as could not reasonably be expected to have a Material Adverse Effect (i) the Company, its Subsidiaries and each ERISA Affiliate have complied in all material respects with all applicable laws regarding each Plan (including, where applicable, ERISA, the Code, the Pension Benefits Act (Ontario), and the Income Tax Act (Canada)); (ii) each Plan is, and has been, maintained and administered in substantial compliance with its terms, applicable collective bargaining agreements, and all applicable laws (including, where applicable, ERISA, the Code, the Pension Benefits Act (Ontario), and the Income Tax Act (Canada)); and (iii) no act, omission or transaction has occurred which could result in imposition on the Company, any Subsidiary of the Company or any ERISA Affiliate (whether directly or indirectly) of (A) either a civil penalty assessed pursuant to Subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (B) breach of fiduciary duty liability damages under Section 409 of ERISA. (b) There exists no material outstanding liability of the Company, any of its Subsidiaries or any ERISA Affiliate with respect to any Plan that has been terminated. No material liability to the PBGC (other than for the payment of current premiums which are not past due) by the Company, any Subsidiary of the Company or any ERISA Affiliate has been or is expected by the Company, any Subsidiary of the Company or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Termination Event with respect to any Plan has occurred or is reasonably expected to occur (other than an event described in clause (i) or (ii) of the definition of "ERISA Termination Event" that could not reasonably be expected to have a Material Adverse Effect). (c) Full payment when due has been made of all amounts which the Company, any of its Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan (excluding any nonpayment involving an amount that is not material), and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan. (d) With respect to any Plan that is a pension plan subject to the Pension Benefits Act (Ontario), such Plan is fully funded, on a going concern basis, in accordance with its terms and regulatory requirements as outlined by the Pension Benefits Act (Ontario), administrative requirements of the Pension Commission of Ontario and the most recent actuarial report filed with the Pension Commission of Ontario in respect of such Plan except to the extent any failure to do so could not reasonably be expected to have a Material Adverse Effect. (e) The actuarial present value of the benefit liabilities (computed on an accumulated benefit obligation basis in accordance with GAAP) under all Plans in the aggregate that are subject to Title IV of ERISA does not, as of the end of the most recently ended fiscal year of such Plans, exceed the current value of the assets of all Plans in the aggregate that are allocable to such benefit liabilities by (i) an amount that could reasonably be expected to cause a Material Adverse Effect, if such excess is the result of a change in market conditions, and (ii) more than $10,000,000 if such excess is for any other reason. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in Section 4041 of ERISA. 53 (f) Except as expressly permitted pursuant to Sections 5.04(i)(v) and (vi), neither the Company, any Subsidiary of the Company nor any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six-year period sponsored, maintained or contributed to, (i) any "multiemployer plan" (as defined in Section 3(37) or 4001(a)(3) of ERISA) or (ii) any "multi-employer pension plan" (as defined in the Pension Benefits Act (Ontario)). (g) Neither the Company, any Subsidiary of the Company nor any ERISA Affiliate is required to provide security to a Plan pursuant to Section 401(a)(29) of the Code. (h) The execution and delivery of the Financing Documents and the Secondary ESOP Loan Documents, the consummation of the Transactions and the transactions provided for in and contemplated by the Secondary ESOP Loan Documents, and the lending of funds pursuant to the provisions of the Financing Documents and the Secondary ESOP Loan Documents will not involve or give rise to any non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. Section 4.11 Taxes; Governmental Charges. The Company and its Subsidiaries have filed all tax returns and reports required to be filed and have paid all taxes, assessments, fees and other governmental charges levied upon any of them or upon any of their respective Properties or income which are due and payable, including interest and penalties, except where failure to so pay or file would not have a Material Adverse Effect, or have provided adequate reserves for the payment thereof if required in accordance with GAAP for the payment thereof, except such interest and penalties as are being contested in good faith by appropriate actions or proceedings and for which adequate reserves for the payment thereof as required by GAAP have been provided. Section 4.12 Titles, etc. The Company and its Subsidiaries have indefeasible title to their respective material (individually or in the aggregate) Properties, and with respect to leased Properties, indefeasible title to the leasehold estate with respect thereto, pursuant to valid and enforceable leases, free and clear of all Liens except (i) Liens disclosed to the Lenders in Schedule 4.12, (ii) in addition to the Liens disclosed in Schedule 4.12, other Liens and minor irregularities in title which do not materially interfere with the occupation, use and enjoyment by the Company or any Subsidiary of the Company of any of their respective Properties in the normal course of business as presently conducted or materially impair the value thereof for such business, and (iii) Liens otherwise permitted or contemplated by this Agreement or the other Financing Documents. Section 4.13 Defaults. Neither the Company nor any of its Subsidiaries is in default nor has any event or circumstance occurred which, but for the passage of time or the giving of notice, or both, would constitute a default (in any respect that would have a Material Adverse Effect) under any loan or credit agreement, indenture, mortgage, deed of trust, security agreement or other instrument or agreement evidencing or pertaining to any Indebtedness of the Company or any of its Subsidiaries, or under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound, except as disclosed to the Lenders in Schedule 4.13. No Default hereunder has occurred and is continuing. 54 Section 4.14 Casualties; Taking of Properties. Since September 30, 1995, neither the business nor the Properties of the Company or any of its Subsidiaries have been affected in a manner that has had or would have a Material Adverse Effect as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any domestic or foreign government or any agency thereof, riot, activities of armed forces or acts of God or of any public enemy. Section 4.15 Compliance with the Law. Neither the Company nor any of its Subsidiaries: (a) is in violation of any Governmental Requirement; and (b) has failed to obtain any license, permit, right-of-way, franchise or other right or governmental authorization necessary to the ownership of any of their respective Properties or the conduct of their respective business; which violation or failure would have (in the event that such a violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Section 4.16 No Material Misstatements. No written information, exhibit, schedule or report prepared by or on behalf of the Company and furnished to the Agent or the Lenders by or at the direction of the Company or any of its Subsidiaries in connection with the negotiation of this Agreement contained any material misstatement of fact or, when such statement is considered with all other written statements furnished to the Lenders in that connection, omitted to state a material fact or any fact necessary to make the statement contained therein not misleading; provided, that, the financial information with respect to the Company's projections, copies of which have been furnished to each Lender prior to the Closing Date, were prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed by the Company to be reasonable in all material respects at the time made. Section 4.17 Investment Company Act. The Company is not an "investment company" or a company "controlled" by an "investment company" that is incorporated in or organized under the laws of the United States or any "State," as those terms are defined in the Investment Company Act of 1940, as amended. The execution and delivery by the Company and its Subsidiaries of this Agreement and the other Financing Documents to which they respectively are parties and their respective performance of the obligations provided for therein, will not result in a violation of the Investment Company Act of 1940, as amended. Section 4.18 Public Utility Holding Company Act. The Company is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 4.19 Subsidiaries. As of the Effective Date, the Company has no Subsidiaries except those shown in Schedule 4.19 hereto, which schedule is complete and accurate. The Company owns, either directly or indirectly, 100% of all stock of the Subsidiaries listed in such Schedule. 55 Section 4.20 Insurance. All policies of fire, liability, workmen's compensation, casualty, flood, business interruption and other forms of insurance owned or held by the Company, and each of its Subsidiaries are sufficient for compliance with all requirements of law and of all agreements to which the Company or any of its Subsidiaries is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage in at least such amounts and against at least such risks (but including in any event public liability) as are usually insured against in the same general area by companies engaged in the same or a similar business for the assets and operations of the Company and each of its Subsidiaries; and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. All such material policies are in full force and effect, all premiums with respect thereto have been paid in accordance with their respective terms, and no notice of cancellation or termination has been received with respect to any such policy. Neither the Company nor any of its Subsidiaries maintains any formalized self-insurance program with respect to its assets or operations or material risks with respect thereto in excess of $5,000,000 in the aggregate. The certificate of insurance delivered to the Lenders pursuant to Section 3.02(e) contains an accurate and complete description of all material policies of insurance owned or held by the Company and each of its Subsidiaries on the Effective Date. Section 4.21 Environmental Matters. Except as disclosed to the Lenders in the AFB Pilko Report or the Original Pilko Report: (a) Environmental Laws, etc. Neither any Property of the Company or its Subsidiaries nor the operations conducted thereon violate any applicable order of any court or Governmental Authority or Environmental Laws, which violation could reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to result in remedial obligations having a Material Adverse Effect assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the relevant Property. (b) No Litigation. Without limitation of Subsection (a) above, no Property of the Company or its Subsidiaries nor the operations currently conducted thereon or by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws, which violation, action, suit, investigation, inquiry or proceeding could reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to result in remedial obligations having a Material Adverse Effect assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the relevant Property. (c) Notices, Permits, etc. All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed by the Company or its Subsidiaries in connection with the operation or use of any and all Property of the Company or its Subsidiaries, including but not limited to past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed except to the extent the failure to obtain or file such notices, permits, licenses or similar authorizations could not reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to result in remedial obligations having a 56 Material Adverse Effect assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the relevant Property. (d) Hazardous Substances Carriers. All hazardous substances or solid waste generated at any and all Property of the Company or its Subsidiaries have in the past been transported, treated and disposed of only by carriers maintaining valid permits under RCRA and any other Environmental Law, except to the extent the failure to have such substances or waste transported, treated or disposed by such carriers could not reasonably be expected to have a Material Adverse Effect, and only at treatment, storage and disposal facilities maintaining valid permits under RCRA and any other Environmental Law, which carriers and facilities have been and are operating in compliance with such permits, except to the extent the failure to have such substances or waste treated, stored or disposed at such facilities, or the failure of such carriers or facilities to so operate, could not reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to result in remedial obligations having a Material Adverse Effect assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the relevant Property. (e) Hazardous Substances Disposal. The Company and its Subsidiaries have taken all reasonable steps necessary to determine and have determined that no hazardous substances or solid waste have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Property of the Company or its Subsidiaries except in compliance with Environmental Laws, except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to result in remedial obligations having a Material Adverse Effect assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the relevant Property. (f) No Contingent Liability. The Company and its Subsidiaries have no material contingent liability in connection with any release or threatened release of any hazardous substance or solid waste into the environment other than such contingent liabilities at any one time and from time to time which could reasonably be expected to exceed $10,000,000 in excess of applicable insurance coverage and for which adequate reserves for the payment thereof as required by GAAP have not been provided, or which could reasonably be expected to result in remedial obligations having a Material Adverse Effect assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such release or threatened release. Section 4.22 Solvency. The Company and its Subsidiaries, taken as a whole, and the Company and each of its material Subsidiaries are Solvent, both before and after taking into account the AFB Acquisition. Section 4.23 Material Contracts. As of the Effective Date, each of the Material Contracts is in full force and effect. Neither the Company nor any of its Subsidiaries is in default under or in breach of any term or condition of any Material Contract that would have a Material Adverse Effect, nor is it aware of any default 57 under or breach of any term or condition of any Material Contract by any other party thereto that would have a Material Adverse Effect. Section 4.24 Employee Matters. Except as set forth on Schedule 4.24, as of the Effective Date, none of the Company or its Subsidiaries, or any of their respective employees, is subject to any collective bargaining agreement. There are no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of the Company, threatened against the Company or its Subsidiaries, or their respective employees, which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. Except as set forth in Schedule 4.24, none of the Company nor any of its Subsidiaries is subject to an employment contract. Section 4.25 Senior Indebtedness. The Lender Indebtedness constitutes "Senior Debt" of the Company under and as defined in the Senior Subordinated Notes Indenture. ARTICLE V COVENANTS Section 5.01 Certain Affirmative Covenants. So long as any Lender has any Commitment hereunder or any Loan remains unpaid, the Company will at all times comply with the following covenants: (a) Maintenance and Compliance, etc. The Company will and will cause each of its Subsidiaries to (i) except as permitted by Section 5.04(c), preserve and maintain its corporate existence, and (ii) except where failure to do so could not reasonably be expected to have a Material Adverse Effect, observe and comply with all Governmental Requirements. (b) Payment of Taxes and Claims, etc. The Company will pay, and cause each of its Subsidiaries to pay, (i) all material taxes, assessments and governmental charges imposed upon it or upon its Property, and (ii) all material claims (including, but not limited to, claims for labor, materials, supplies or services) which could reasonably be expected, if unpaid, to become a Lien upon its Property, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate action or proceedings and the Company has established adequate reserves in accordance with GAAP with respect thereto. (c) Further Assurances. The Company will and will cause each of its Subsidiaries to cure promptly any defects in the creation and issuance of the Notes, and the execution and delivery of the Financing Documents, including this Agreement. The Company at its expense will, as promptly as practical, execute and deliver to the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, upon request all such other and further documents, agreements and instruments (or cause any of its Subsidiaries to take such action) in compliance with or performance of the covenants and agreements of the Company or any of its Subsidiaries in the Financing Documents, including this Agreement, or to further evidence and more fully describe the Collateral, or to correct any omissions in the Financing Documents, or more fully to state the security obligations set out 58 herein or in any of the Financing Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Financing Documents, or to make any recordings, to file any notices, or obtain any consents, all as may be necessary or appropriate in connection therewith. (d) Performance of Obligations. The Company will pay the Notes according to the reading, tenor and effect thereof; and the Company will do and perform every act and discharge all of the obligations provided to be performed and discharged by the Company under the Financing Documents, including this Agreement, at the time or times and in the manner specified, and cause each of its Subsidiaries to take such action with respect to their obligations to be performed and discharged under the Financing Documents to which they respectively are parties. (e) Insurance. The Company will and will cause each of its Subsidiaries to maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to their respective Properties and business against such liabilities, casualties, risks and contingencies and in such types (including business interruption insurance and flood insurance) and amounts as is customary in the case of Persons engaged in the same or similar businesses and similarly situated and in accordance with any Governmental Requirement. In the case of any fire, accident or other casualty causing loss or damage to any Properties of the Company used in generating cash flow or required by applicable law, the proceeds of such policies in excess of $100,000 per occurrence shall be used to promptly repair or replace any such damaged Properties as required by applicable law, and otherwise shall be used in the Company's sole discretion, (i) to reasonably promptly repair or replace the damaged Property, (ii) to prepay the Loans in accordance with Section 2.10(b), or (iii) to reinvest in other Properties that, in the good faith judgment of the Company, meet the Company's capital investment criteria. The Company will obtain endorsements to the policies pertaining to all physical Properties in which the Administrative Agent For Combined Lenders or the Lenders shall have a Lien under the Financing Documents, naming the Administrative Agent For Combined Lenders as a loss payee and containing provisions that such policies will not be cancelled without 30 days prior written notice having been given by the insurance company to the Administrative Agent. (f) Accounts and Records. The Company will keep and will cause each of its Subsidiaries to keep proper books of record and account in accordance with GAAP. (g) Right of Inspection. The Company will permit and will cause each of its Subsidiaries to permit any officer, employee or agent of the Administrative Agent (and during the continuance of any Default, any of the Lenders) to visit and inspect any of the Properties of the Company or any of its Subsidiaries, examine the Company's or any such Subsidiary's books of record and accounts, take copies and extracts therefrom, and discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the Company's or such Subsidiary's officers, accountants and auditors, as often and all at such reasonable times during normal business hours as may be reasonably requested by the Administrative Agent or any of the Lenders. (h) Operation and Maintenance of Property. The Company will, and will cause each of its Subsidiaries to, operate its Properties or cause its Properties to be operated and maintained (i) in accordance with prudent industry practice in all material 59 respects and in compliance in all material respects with the terms and provisions of all applicable leases, contracts and agreements and (ii) except where the noncompliance therewith could not reasonably be expected to cause or result in a Material Adverse Effect, in compliance with all applicable laws of the jurisdiction in which such Properties may be situated, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the ownership and operation of such Properties. (i) Additional Subsidiaries; Permitted Acquisitions; Additional Liens. (i) If at any time after the Effective Date the Company or its Subsidiaries create or acquire any one or more additional Subsidiaries: (A) the Company shall, and shall cause its U.S. Subsidiaries, to execute and deliver to the Administrative Agent, at the time of such new Subsidiary's creation or acquisition, additional pledge agreements granting a security interest in, (1) if such new Subsidiary is a U.S. Subsidiary, 100% of the capital stock of, and other equity interest in, such Subsidiary owned by the Company or any such U.S. Subsidiary, respectively, or (2) if such new Subsidiary is not a U.S. Subsidiary, 65% or the capital stock of, and other equity interest in, such Subsidiary owned by the Company or any such U.S. Subsidiary, respectively, in each case in substantially the same form as the Pledge Agreement executed by the Company or its U.S. Subsidiaries, as applicable, in connection with this Agreement; and (B) if such new Subsidiary is a wholly-owned (directly or indirectly) U.S. Subsidiary, the Company shall cause such new Subsidiary to execute and deliver to the Administrative Agent, at the time of such Subsidiary's creation or acquisition, (1) a guaranty agreement in substantially the same form as the Guaranty Agreement executed by the Subsidiary Guarantors in connection with this Agreement, and (2) appropriate mortgages and security agreements and the like covering such Subsidiary's Property; provided that, if such new Subsidiary does not have, but only for so long as such new Subsidiary does not have, assets of more than $50,000, the Company shall not be required to comply with this Section 5.01(i) with respect to such Subsidiary. (ii) If at any time after the Effective Date the Company or any of its Subsidiaries makes a Permitted Acquisition with respect to a Person that is not a Subsidiary, the Company shall, and shall cause its U.S. Subsidiaries, to execute and deliver to the Administrative Agent at the time of such Permitted Acquisition, additional pledge agreements granting a security interest in 100% of the capital stock of, or other equity interest in, such Person owned by the Company or any such U.S. Subsidiary, respectively, in each case in substantially the same form as the Pledge Agreement executed by the Company or its U.S. Subsidiaries, as applicable, in connection with this Agreement. (iii) In connection with the execution and delivery of any guaranty agreement, pledge agreement, mortgage, security agreement or similar agreement pursuant to this Section 5.01(i), the Company shall, or shall cause the relevant Subsidiary to, deliver to the Lenders such corporate resolutions, certificates, legal opinions and such other related documents as shall be reasonably 60 requested by the Required Lenders and consistent with the relevant forms and types thereof delivered on the Effective Date or as shall be otherwise reasonably acceptable to the Required Lenders. Each guaranty agreement, pledge agreement, mortgage, security agreement and the like delivered pursuant to this Section 5.01(i) shall be deemed to be a Security Instrument from and after the date of execution thereof. Section 5.02 Reporting Covenants. . So long as any Lender has any Commitment hereunder or any Loan remains unpaid, the Company will furnish the following to the Administrative Agent (which shall provide copies to each Lender) and, in the case of Sections 5.02(a), (b), (d), (e), (g), (i), (j), (k) and (l) to each of the Lenders: (a) Annual Financial Statements. . As soon as available and in any event within 90 days after the end of each Fiscal Year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and accompanied by a report thereon of independent public accountants of recognized national standing, which such report shall state that such consolidated financial statements present fairly the consolidated financial condition as at the end of such Fiscal Year, and the consolidated results of operations and cash flows for such Fiscal Year, of the Company and its Subsidiaries in accordance with GAAP, applied on a consistent basis. At the same time, a consolidating balance sheet of the Company and its Subsidiaries as at the end of such year and related consolidating statements of income and cash flows for such Fiscal Year (in each case consolidating on the basis of principal lines of business of the Company and its Subsidiaries), accompanied by a certification thereon of a Responsible Officer, stating that such consolidating financial statements form the basis of the Company's consolidated financial statements and are fairly stated in all material respects when considered in relation thereto. (b) Quarterly Financial Statements. As soon as available and in any event within 45 days after the end of each Fiscal Quarter of the Company, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter and the related consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for such Fiscal Quarter and for the portion of the Company's Fiscal Year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous Fiscal Year, all in reasonable detail and certified by a Responsible Officer that such financial statements are complete and correct and fairly present the consolidated financial condition as at the end of such Fiscal Quarter, and the consolidated results of operations and cash flows for such Fiscal Quarter and such portion of the Company's Fiscal Year, of the Company and its Subsidiaries in accordance with GAAP (subject to normal, year-end adjustments). At the same time, a consolidating balance sheet of the Company and its Subsidiaries at the end of such Fiscal Quarter and related consolidating statements of income and cash flows, for the portion of the Company's Fiscal Year ended at such quarter (in each case consolidating on the basis of principal lines of business of the Company and its Subsidiaries), accompanied by a certification from a Responsible Officer that such consolidating financial statements form the basis of the Company's consolidated financial statements and are fairly stated in all material respects when considered in relation thereto. 61 (c) Monthly Financial Statements. As soon as available and in any event within 30 days after the end of each calendar month of the Company, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such month and the related consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for such calendar month and for the portion of the Company's Fiscal Year ended at the end of such month, setting forth in each case in comparative form the figures for the corresponding month and the corresponding portion of the Company's previous Fiscal Year, all in reasonable detail and certified by a Responsible Officer that such financial statements are complete and correct and fairly present the consolidated financial condition as at the end of such calendar month, and the consolidated results of operations and cash flows for such calendar month and such portion of the Company's Fiscal Year, of the Company and its Subsidiaries in accordance with GAAP (subject to normal, year-end adjustments). At the same time, a consolidating balance sheet of the Company and its Subsidiaries at the end of such calendar month and related consolidating statements of income and cash flows, for the portion of the Company's Fiscal Year ended at such month (in each case consolidating on the basis of principal lines of business of the Company and its Subsidiaries), accompanied by a certification from a Responsible Officer that such consolidating financial statements form the basis of the Company's consolidated financial statements and are fairly stated in all material respects when considered in relation thereto. (d) No Default/Compliance Certificate. Together with the financial statements required pursuant to subsections (a) and (b) above, a certificate of the Company, signed by a Responsible Officer (i) stating that a review of such financial statements during the period covered thereby and of the activities of the Company and its Subsidiaries has been made under such Responsible Officer's supervision with a view to determining whether the Company and its Subsidiaries have fulfilled all of their obligations under this Agreement, the other Financing Documents, and the Notes; (ii) stating that the Company and its Subsidiaries have fulfilled their obligations under such instruments and that all representations made in this Agreement continue to be true and correct (or specifying the nature of any change), or if there shall be a Default or Event of Default, specifying the nature and status thereof and the Company's proposed response thereto; (iii) demonstrating in reasonable detail compliance (including, but not limited to, showing all material calculations) as at the end of such Fiscal Year or such Fiscal Quarter with Subsections 5.03(a), 5.03(b), 5.03(c), and 5.03(d); (iv) demonstrating in reasonable detail compliance (including, but not limited to, showing all material calculations) as at the end of the Fiscal Year with Sections 5.04(o) and 5.04(e)(x), describing by category (utilizing the same categories as are used by the Company in its internal financial reports) any Permitted Acquisitions and any Capital Expenditures made by the Company or any Subsidiary as of the end of such Fiscal Year and attaching thereto a Notice of Designation of Retained Cash Flow Usage dated as of the end of the preceding Fiscal Quarter; and (v) containing or accompanied by such financial or other details, information and material as the Administrative Agent may reasonably request to evidence such compliance. (e) Management Letters. Together with the financial statements required pursuant to subsection (a) above, copies of each management letter issued to the Company by such accountants promptly following consideration or review by the Board of Directors of the Company, or any committee thereof (together with any response thereto prepared by the Company). 62 (f) Title Information. Within a reasonable time after a request by the Administrative Agent, additional title information in form and substance acceptable to the Required Lenders as is reasonably necessary covering the Collateral so that the Lenders shall have received, together with the title information previously received by the Lenders, satisfactory title information covering all of the Collateral. (g) Events or Circumstances with respect to Collateral. Promptly after the occurrence of any event or circumstance concerning or changing any of the Collateral that would have a Material Adverse Effect, notice of such event or circumstance in reasonable detail. (h) Notice of Certain Events. Promptly after the Company learns of the receipt or occurrence of any of the following, a certificate of the Company, signed by a Responsible Officer specifying (i) any official notice of any violation, possible violation, non-compliance or possible non- compliance, or claim made by any Governmental Authority pertaining to all or any part of the Properties of the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect; (ii) any event which constitutes a Default or Event of Default, together with a detailed statement specifying the nature thereof and the steps being taken to cure such Default or Event of Default; (iii) the receipt of any notice from, or the taking of any other action by, the holder of any promissory note, debenture or other evidence of indebtedness in excess of $5,000,000 of the Company or any of its Subsidiaries with respect to a claimed default, together with a detailed statement specifying the notice given or other action taken by such holder and the nature of the claimed default and what action the Company or its Subsidiary is taking or proposes to take with respect thereto; (iv) any default or noncompliance of any party to any of the Financing Documents with any of the terms and conditions thereof or any notice of termination or other proceedings or actions which could reasonably be expected to adversely affect any of the Financing Documents; (v) the creation, dissolution, merger or acquisition of any Subsidiary of the Company with material operations; (vi) any event or condition not previously disclosed to the Administrative Agent, which violates any Environmental Law and which could potentially, in the Company's reasonable judgment, have a Material Adverse Effect; (vii) any material amendment to, termination of, or material default under a Material Contract or any execution of, or material amendment to, termination of, or material default under, any material collective bargaining agreement; (viii) any event or condition which may reasonably be expected to have a Material Adverse Effect; (ix) the occurrence, with respect to Albright, of any of the events described in Section 6.08 or the failure of the Albright Indemnity to continue to be in full force and effect; or (x) the occurrence, with respect to any of the Cytec Parties, of any of the events described in Section 6.08 or the failure of the Cytec Indemnity to continue to be in full force and effect. (i) Shareholder Communications, Filings. Promptly upon the mailing, filing, or making thereof, copies of all registration statements, periodic reports and other documents (excluding the related exhibits except to the extent expressly requested by the Administrative Agent) filed by the Company with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange. 63 (j) Litigation. Promptly after the occurrence thereof, notice of the institution of or any material adverse development in any action, suit or proceeding or any governmental investigation or any arbitration, before any court or arbitrator or any governmental or administrative body, agency or official, against the Company, Holdco, or any Subsidiary Guarantor or any material Property of any thereof, in which the amount involved is material and is not covered by insurance or which could reasonably be expected to have a Material Adverse Effect. (k) ERISA. Promptly after (i) the Company's obtaining knowledge of the occurrence thereof, notice that an ERISA Termination Event or a "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any Plan has occurred, which such notice shall specify the nature thereof, the Company's proposed response thereto (and, if applicable, the proposed response thereto of any Subsidiary of the Company and of any ERISA Affiliate) and, where known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, (ii) the Company's obtaining knowledge thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan, and (iii) the filing thereof with any Governmental Authority (if requested by the Administrative Agent), copies of each annual and other report (including applicable schedules) with respect to each Plan or any trust created thereunder. (l) Insurance Coverage. Upon request, a summary of the insurance coverages of the Company and its Subsidiaries in form and substance reasonably satisfactory to the Administrative Agent; upon renewal of any insurance policy, a copy of an insurance certificate summarizing the terms of such policy; and upon request of the Administrative Agent, copies of the applicable policies. (m) Annual Budget. Not later than the 60th day after each Fiscal Year end commencing September 30, 1997, an annual budget of the Company and it Subsidiaries (consolidating on the basis of principal lines of business of the Company and its Subsidiaries), reviewed by the Board of Directors of the Company, setting forth in reasonable detail, the projected revenues and expenses of the Company for the following Fiscal Year. (n) Excess Cash Flow Certificate. On or before the 100th day after each September 30th, commencing on September 30, 1997, the Company's preliminary calculation of its Excess Cash Flow for the Fiscal Year ended on such September 30th, in accordance with Section 2.10(a). (o) Other Information. With reasonable promptness, such other information about the business and affairs and financial condition of the Company or its Subsidiaries as the Administrative Agent may reasonably request from time to time. Section 5.03 Financial Covenants. So long as any Lender has any Commitment hereunder or any Loan remains unpaid, the Company will, at all times: (a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio of not less than the ratio for each Rolling Period indicated below: 64 Each Rolling Period ending Ratio -------------------------- ----- December 31, 1996 1.75 March 31, 1997 1.75 June 30, 1997 2.00 September 30, 1997 1.90 Each Rolling Period during the Fiscal Years ending Ratio ----------------------- ----- September 30, 1998 2.00 September 30, 1999 2.25 September 30, 2000 2.50 Each Rolling Period thereafter Ratio ---------- ----- 2.50 (b) Current Ratio. Maintain a Current Ratio of not less than (i) 1.20 to 1.00, from January 1, 1997, through September 30, 1998, and (ii) 1.25 to 1.00 at all times after October 1, 1998. (c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of not less than the ratio for each Rolling Period indicated below: Each Rolling Period during the period beginning January 1, 1997 through September 30, 1998 Ratio ------------------------------- ----- 1.05 Each Rolling Period during the Fiscal Years ending Ratio ----------------------- ----- September 30, 1999 1.10 September 30, 2000 1.15 September 30, 2001 1.20 Each Rolling Period thereafter Ratio ---------- ----- 1.20 (d) Leverage Ratio. Maintain a Leverage Ratio of not greater than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio -------------------------- ----- December 31, 1996 5.25 March 31, 1997 5.60 65 June 30, 1997 5.60 September 30, 1997 5.25 December 31, 1997 5.00 March 31, 1998 5.00 June 30, 1998 4.75 September 30, 1998 4.75 Each Rolling Period during the Fiscal Years ending Ratio ----------------------- ----- September 30, 1999 4.50 September 30, 2000 4.00 September 30, 2001 3.50 September 30, 2002 3.00 Each Rolling Period thereafter Ratio ---------- ----- 3.00 The Company shall be deemed to be in compliance with the covenants contained in this Section 5.03 at any time so long as the then most recent financial statements prepared by the Company (for internal use or otherwise) and made available to the Lenders show, or provide a basis for ascertaining, such compliance and no Responsible Officer has obtained any information that causes such Responsible Officer to reasonably conclude that the Company is not in compliance with the covenants contained in this Section 5.03. Section 5.04 Certain Negative Covenants. So long as any Lender has any Commitment hereunder or any Loan remains unpaid, the Company will not: (a) Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Indebtedness, other than: (i) the Lender Indebtedness in the principal amount not to exceed $81,000,000 as reduced by all payments and prepayments thereof; (ii) Indebtedness outstanding on the date hereof which is set forth on Schedule 5.04(a), provided that any such Indebtedness indicated on Schedule 5.04(a) as "Indebtedness to be Repaid" shall have been repaid on or before the Effective Date; (iii) accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business and guaranties by the Company or any Subsidiary in the ordinary course of business of any such obligations incurred by any other Subsidiary; (iv) Indebtedness owing by (A) the Company or a Subsidiary Guarantor to Canadian Subsidiaries not to exceed $5,000,000 in the aggregate, (B) Canadian Subsidiaries 66 to the Company or a Subsidiary Guarantor not to exceed (1) $120,000,000 in the aggregate provided that such Indebtedness may only arise from a transfer to one or more U.S. Subsidiaries or the Company of existing Indebtedness owing as of the Effective Date to one or more Canadian Subsidiaries and which does not under any circumstances involve consideration for such transfer other than an exchange of such Indebtedness for equity, plus (2) Indebtedness permitted pursuant to Section 5.04(e)(vii); (C) any Subsidiary Guarantor to the Company or any other Subsidiary Guarantor, (D) the Company to any Subsidiary Guarantor; and (E) any Canadian Subsidiary to any other Canadian Subsidiary; (v) obligations for current taxes, assessments and other governmental charges and taxes, assessments or other governmental charges which are not yet due or are being contested in good faith by appropriate action or proceeding promptly initiated and diligently conducted, if such reserve as shall be required by GAAP shall have been made therefor; (vi) Capital Lease Obligations not to exceed $1,000,000 at any one time; (vii) Indebtedness not exceeding U.S. $15,000,000 under the Canadian Facility (and the "Bankers' Acceptances" provided for therein) so long as the documentation with respect thereto is reasonably satisfactory to the Administrative Agent. (viii) Indebtedness evidenced by the Senior Subordinated Notes; (ix) Indebtedness owing pursuant to Hedge Agreements entered into in the ordinary course of business for the purpose of hedging against fluctuations in interest rates (on money borrowed by the Company), commodity prices and foreign exchange rates; (x) Indebtedness (other than short-term Indebtedness for borrowed money) created, incurred, assumed or guaranteed after the date hereof not otherwise permitted pursuant to this Subsection 5.04(a), provided that the aggregate outstanding principal amount of such Indebtedness, together with obligations (calculated based upon the net present value of all future lease payments at an assumed discount rate of 12%) in respect of the transactions described in Section 5.04(g), shall not exceed $20,000,000 at any one time outstanding; and (xi) Indebtedness not exceeding the principal amount of $454,000,000 under the Original Credit Agreement less the aggregate amount of permanent reductions of the Revolving Credit Commitments thereunder and payments or prepayments of the Original Term Loans. (b) Liens. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on any of its Property now owned or hereafter acquired to secure any Indebtedness of the Company, any Subsidiary or any other Person, other than: 67 (i) Liens existing on the date hereof and set forth on Schedule 5.04(b); provided that any such Liens indicated on Schedule 5.04(b) as "Liens to be Released" shall have been released of record within 10 days after the Effective Date; (ii) Liens securing the Lender Indebtedness and Liens on Property of the Canadian Subsidiaries securing the Indebtedness under the Canadian Facility to the extent permitted pursuant to Section 5.04(a); (iii) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action or proceedings and with respect to which adequate reserves are being maintained; (iv) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen, repairmen, workmen, and other Liens imposed by law created in the ordinary course of business for amounts which are not past due for more than 30 days or which are being contested in good faith by appropriate action or proceedings and with respect to which adequate reserves in accordance with GAAP are being maintained; (v) Liens incurred or deposits or pledges made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, old age or other similar obligations, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (vi) minor irregularities in title, easements, rights-of-way, restrictions, servitudes, permits, reservations, exceptions, conditions, covenants and other similar charges or encumbrances not materially interfering with the occupation, use and enjoyment by the Company or any of its Subsidiaries of any of their respective Properties in the normal course of business or materially impairing the value thereof; (vii) any obligations or duties affecting any of the Property of the Company or its Subsidiaries to any municipality or public authority with respect to any franchise, grant, license or permit which do not materially impair the use of such Property for the purposes for which it is held; (viii) Liens upon Property acquired by the Company, other than as a Permitted Acquisition, after the Effective Date with the proceeds of no greater than $10,000,000 of Indebtedness permitted pursuant to Section 5.04(a)(x); provided that (A) such Lien was created solely for the purpose of securing such Indebtedness, (B) and the principal amount of such Indebtedness does not exceed the fair value of such Property at the time of its acquisition; 68 (ix) Liens securing not more than $1,000,000 in the aggregate existing on any real or personal property of any Person at the time it becomes a Subsidiary after the Effective Date pursuant to a Permitted Acquisition; (x) extensions, renewals or replacements of any Lien referred to in Subsections 5.04(b)(i), (ii) and (ix), provided that the principal amount of the Indebtedness or obligation secured thereby is not increased and that any such extension, renewal or replacement is limited to the Property originally encumbered thereby; (xi) with respect to Property located in Canada, reservations, limitations, provisos and conditions in any original grant from the Crown or any freehold lessor of any of the properties of the Company or its Subsidiaries; (xii) Liens resulting from operation of law with respect to any judgments or orders not constituting a Default; and (xiii) Liens securing Indebtedness under the Original Credit Agreement. (c) Mergers, Sales, etc. Merge into or with or consolidate with, or permit any of its Subsidiaries to merge into or with or consolidate with, any other Person, or sell, lease or otherwise dispose of, or permit any of its Subsidiaries to sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or any part of its Property to any other Person. Notwithstanding the foregoing limitations: (i) the Company and its Subsidiaries may (A) sell inventory, and other similar assets in the ordinary course of business, (B) sell, transfer or otherwise dispose of personal property (including, but not limited to, pipe, equipment, machinery and vehicles) in the ordinary course of business or when, in the reasonable judgment of the Company, such property is no longer used or useful in the conduct of its business or the business of its Subsidiaries, and (C) in addition to clauses (A) and (B), sell, lease, or otherwise dispose of (1) up to $5,000,000 in fair-market value of their Property in the aggregate during any Fiscal Year, and (2) more than $5,000,000, but less than $10,000,000 in fair-market value of their Property in the aggregate during any Fiscal Year, provided that the Company shall either prepay the Loans pursuant to Section 2.10(a)(iii) or promptly reinvest the Net Proceeds (in excess of $5,000,000) from such sale in Properties that, in the good-faith judgment of the Company, meet the Company's capital investment criteria; (ii) (A) any Subsidiary Guarantor may merge into or with or consolidate with any other Subsidiary Guarantor or the Company (and, in the case of the Company, so long as the Company is the surviving entity), (B) any Canadian Subsidiary may merge into or with or consolidate with any other Canadian Subsidiary, (C) Sterling NRO may be liquidated into Sterling Canada, and (D) any Canadian Subsidiary may merge with or into or consolidate with any Subsidiary Guarantor so long as (1) the Subsidiary Guarantor is the surviving entity and 69 (2) the Canadian Subsidiary was Solvent immediately prior to the time of such merger or consolidation; and (iii) any Subsidiary Guarantor may transfer Property to any other Subsidiary Guarantor or to the Company, and any Canadian Subsidiary may transfer Property to the Company, any Subsidiary Guarantor, or any other Canadian Subsidiary. (d) Dividends, etc. Declare or pay any dividend on its capital stock, make any payment to purchase, redeem, retire or otherwise acquire any of its capital stock or any option, warrant, or other right to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders, make any distribution of its assets, capital stock, warrants, rights, options, obligations or securities to its stockholders, or permit any of its Subsidiaries to do so, except that: (i) the Company may declare and deliver dividends payable solely in shares of its capital stock or in options, warrants or rights to purchase shares of capital stock; (ii) the Company may make contributions to the ESOP on behalf of the employees of the Company or its Subsidiaries in the aggregate amount in any Fiscal Year not to exceed 8% of payroll expense during such Fiscal Year attributable to employees of the Company and its Subsidiaries who are eligible to participate in the ESOP; (iii) any Subsidiary of the Company other than any U.S. Subsidiary of a Canadian Subsidiary may declare and deliver dividends to the Company or any wholly-owned Subsidiary of the Company, and any Canadian Subsidiary may redeem shares of its own capital stock; (iv) the Company may declare and deliver in any Fiscal Year Permitted Holdco Dividends so long as, at the time of payment of such dividend (both before and after giving effect to the payment thereof), the Company satisfies the conditions precedent to the making of Loans set forth in Section 3.03; and (v) the Company may declare and make a non-cash dividend or make a return of capital to Holdco in the form of cancellation by the Company of the Indebtedness of Holdco referred to in Section 5.04(e)(viii). (e) Investments, Loans, etc. Make or permit any loans to or investments in any Person, or permit any of its Subsidiaries to make or permit any loans to or investments in any Person, other than: (i) investments, loans or advances, the material details of which have been set forth in either the Financial Statements or Schedule 4.07 hereto; 70 (ii) investments in direct obligations of the United States of America or any agency thereof or, in the case of Canadian Subsidiaries, investments in direct obligations of Canada, in each case with maturities of one year or less from the date of acquisition; (iii) investments in certificates of deposit of maturities less than one year, issued by commercial banks in the United States having capital and surplus in excess of $500,000,000 and having short-term credit ratings of at least A1 and P1 by Standard & Poor's Ratings Group and Moody's Investors Service, Inc., respectively; (iv) investments in commercial paper of maturities of not more than 270 days rated at least A1 and P1 by Standard & Poor's Ratings Group and Moody's Investors Service, Inc., respectively; (v) investments in securities that are obligations of the United States government purchased by the Company or any Subsidiary of the Company under repurchase agreements pursuant to which arrangements are made with selling financial institutions (being a financial institution having unimpaired capital and surplus of not less than $500,000,000 and with short-term credit ratings of at least A1 and P1 by Standard & Poor's Ratings Group and Moody's Investors Service, Inc., respectively) for such financial institutions to repurchase such securities within 30 days from the date of purchase by the Company or such Subsidiary, and other similar short-term investments made in connection with the Company's or any of its Subsidiary's cash management practices; provided that the Company shall take possession of all securities purchased by the Company or any Subsidiary under repurchase agreements and shall adhere to customary margin and mark- to-market procedures with respect to fluctuations in value; (vi) investments in any security issued by an investment company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8) that is a money market fund in compliance with all applicable requirements of SEC Rule 2a-7 (17 CFR 270.2a-7); (vii) (A) investments in or loans or advances to Canadian Subsidiaries made after August 21, 1996 not to exceed $10,000,000 in the aggregate, and (B) loans or advances to, or investments in, Guarantor Subsidiaries; (viii) a loan by the Company to Holdco approximately in the amount of $450,000,000 on August 21, 1996 to be used by Holdco solely for consummation of the SCI Acquisition and related transaction costs; (ix) the Secondary ESOP Loan and any renewals or replacements thereof or reborrowing thereunder in a total principal amount not to exceed $8,500,000 at any time; 71 (x) Permitted Acquisitions in an amount not to exceed (after giving effect thereto) Cumulative Retained Cash Flow as of the date any such Permitted Acquisition is made; (xi) routine loans or advances to employees in the ordinary course of business not to exceed $25,000 at any time outstanding to any one employee and $500,000 in the aggregate; (xii) loans in an aggregate amount not to exceed $500,000 to finance the purchase of homes by employees who have been relocated by the Company or any Subsidiary; (xiii) investments, after August 21, 1996, in additional Valdosta Bonds issued to finance the completion of the Company's plant in Valdosta, Georgia, so long as the Administrative Agent For Combined Lenders has a first priority, perfected Lien thereon to secure the Combined Lender Indebtedness; (xiv) participations (for a tenor of not more than 90 days) in loans to Persons having short-term credit ratings of at least A1 and P1 by Standard & Poor's Ratings Group and Moody's Investors Service, Inc., respectively; (xv) the AFB Acquisition; (xvi) other investments, loans, or advances in an aggregate amount not to exceed $1,000,000 outstanding at any one time. (f) Lease Payments. Create, incur, assume or suffer to exist, nor permit any of its Subsidiaries to create, incur, assume or suffer to exist, any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal), whether directly or as a guarantor, if, after giving effect thereto, the aggregate amount of all payments required to be made by the Company and its Subsidiaries on a consolidated basis pursuant to such leases or lease agreements (excluding payments in respect of Capital Lease Obligations and obligations described in Section 5.04(g) to the extent permitted by this Agreement) would exceed $5,000,000 in any Fiscal Year. (g) Sales and Leasebacks. Except as permitted by Section 5.04(a)(x), enter into, or permit any of its Subsidiaries to enter into, any arrangement, directly or indirectly, with any Person whereby the Company or any such Subsidiary shall sell or transfer any Property, whether now owned or hereafter acquired, and whereby the Company or any such Subsidiary shall then or thereafter rent or lease as lessee such Property or any part thereof or other Property which the Company or any such Subsidiary intends to use for substantially the same purpose or purposes as the Property sold or transferred. (h) Nature of Business. Permit any material change to be made in the character of its business or the business of any Subsidiary as carried on at the date hereof, except as may be permitted pursuant to this Agreement. 72 (i) ERISA Compliance. (i) Engage in, or permit a Subsidiary of the Company or any ERISA Affiliate to engage in, any transaction in connection with which the Company, a Subsidiary of the Company or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to Sections 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code, except where such assessment or imposition could not reasonably be expected to have Material Adverse Effect; (ii) Terminate, or permit a Subsidiary of the Company or any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could reasonably be expected to result in any material liability of the Company, a Subsidiary of the Company or any ERISA Affiliate to the PBGC or any other Governmental Authority; (iii) Fail to make, or permit a Subsidiary of the Company or any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Company, a Subsidiary of the Company or any ERISA Affiliate is required to pay as contributions thereto, except where the failure to make such payments could not reasonably be expected to have Material Adverse Effect; (iv) Permit to exist, or allow a Subsidiary of the Company or any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code, whether or not waived, with respect to any Plan; (v) Contribute to or assume an obligation to contribute to, or permit a Subsidiary of the Company (other than a Subsidiary acquired as permitted pursuant to Section 5.04(i)(vi)) or any ERISA Affiliate to contribute to or assume an obligation to contribute to, any "multiemployer plan" as such term is defined in Section 3(37) or 4001(a)(3) of ERISA or any "multi-employer pension plan" as such term is defined in the Pension Benefits Act (Ontario); (vi) Acquire, or permit a Subsidiary of the Company or any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Company or a Subsidiary of the Company or with respect to any ERISA Affiliate of the Company or a Subsidiary of the Company if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (A) any "multiemployer plan" as such term is defined in Section 3(37) or 4001(a)(3) of ERISA, or (B) any "multi-employer pension plan" as such term is defined in the Pension Benefits Act (Ontario); provided that, the Company may acquire any such Person if (1) such Person is acquired as a Permitted Acquisition, (2) such Person would not become an ERISA Affiliate, and (3) neither the Company nor any of its other Subsidiaries has any legal liability to perform such Person's obligations or assume such Person's liabilities. 73 (vii) Fail to pay, or cause to be paid, to the PBGC in a timely manner, and without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to Sections 4006 and 4007 of ERISA, except where such failure could not reasonably be expected to have a Material Adverse Effect; (viii) Amend, or permit a Subsidiary of the Company or any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Company, a Subsidiary of the Company or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Code; (ix) Incur, or permit a Subsidiary of the Company or any ERISA Affiliate to incur, a material liability to or on account of a Plan under Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; or (x) Permit, or allow a Subsidiary of the Company or any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities (computed on an accumulated benefit obligation basis in accordance with GAAP) under all Plans in the aggregate to exceed the current value of the assets of all Plans in the aggregate that are allocable to such benefit liabilities by (A) an amount that could reasonably be expected to cause a Material Adverse Effect, if such excess is the result of a change in market conditions, and (B) more than $10,000,000 if such excess is for any other reason. (j) Sale or Discount of Receivables. Discount or sell (with or without recourse), or permit any of its Subsidiaries to discount or sell (with or without recourse), any of its or its Subsidiaries' notes receivable or accounts receivable, other than notes receivable and accounts receivable discounted or sold without recourse and in the ordinary course of business of the Company and its Subsidiaries (as conducted as of the Effective Date) in an aggregate amount not to exceed $15,000,000 in any Fiscal Year. (k) Negative Pledge Agreements. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any contract, agreement or understanding (other than this Agreement, the other Financing Documents, the Original Credit Agreement or as set forth on Schedule I to the respective Security Agreements delivered by the Company and its Subsidiaries) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any Property of the Company or its Subsidiaries, or which requires the consent of or notice to other Persons in connection therewith, other than agreements (that do not provide for borrowed money Indebtedness) entered into in the ordinary course of business that restrict assignment by the Company of its rights thereunder; provided that the Company shall use its best efforts to negotiate such restrictions so as not to limit the right of the Company to grant a Lien on the Company's rights thereunder in favor of the Administrative Agent For Combined Lenders on behalf of the Lenders as security for the Lender Indebtedness. (l) Transactions with Affiliates. Enter into any transaction or series of transactions, or permit any of its Subsidiaries to enter into any transaction or series of transactions, with Affiliates 74 of the Company or its Subsidiaries which involve an outflow of money or other Property from the Company or its Subsidiaries to an Affiliate of the Company or its Subsidiaries, including but not limited to repayment of Indebtedness, management fees, compensation, salaries, asset purchase payments or any other type of fees or payments similar in nature, other than on terms and conditions substantially as favorable to the Company and its Subsidiaries as would be obtainable by the Company and its Subsidiaries in a reasonably comparable arm's-length transaction with a Person other than an Affiliate of the Company or its Subsidiaries. Notwithstanding the foregoing, the restrictions set forth in this Section 5.04(l) shall not apply to: (i) the payment of reasonable and customary fees to directors of the Company who are not employees of the Company, (ii) any other transaction with any employee, officer or director of the Company or any of its Subsidiaries pursuant to employee benefit plans and compensation arrangements in amounts customary for corporations similarly situated to the Company or any such Subsidiary and entered into the ordinary course of business and approved by the Board of Directors of the Company or any committee thereof or the Board of Directors of such Subsidiary, (iii) the cancellation of Indebtedness described in Section 5.04(e)(viii), (iv) the payment of fees to TSG in connection with the AFB Acquisition which have been disclosed prior to the Effective Date to the Administrative Agent in writing, or (v) any other transactions with Affiliates that do not in the aggregate involve the payment of more than $1,000,000 during any twelve- month period. (m) Unconditional Purchase Obligations. Enter into or be a party to, or permit any of its Subsidiaries to enter into or be a party to, any material contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services, except any such contract for the purchase of power entered into by the Company or any Subsidiary in the ordinary course of its business. (n) Stock. Authorize or issue (i) any Voting Stock to any Person other than Holdco or (ii) any preferred stock or other equity securities having a mandatory redemption right existing with regard thereto. (o) Capital Expenditures. Make, or permit any of its Subsidiaries to make, Capital Expenditures in any Fiscal Year for the Company and its Subsidiaries on a consolidated basis in excess of the sum of (i), (ii) and (iii) below: (i) The Company may make Capital Expenditures in any Fiscal Year pursuant to the following schedule: Maximum Scheduled Fiscal Year Ending Capital Expenditures ------------------ -------------------- September 30, 1997 $50,000,000 September 30, 1998 $45,000,000 September 30, 1999 and $35,000,000 each Fiscal Year thereafter 75 (ii) Up to 50% of the amount listed above for any Fiscal Year but not expended in such Fiscal Year may be carried forward and expended during the next Fiscal Year (but not any other Fiscal Year). (iii) In addition to Capital Expenditures permitted by Sections 5.04(o)(i) and (ii), the Company may make Capital Expenditures in an amount (after giving effect thereto) not to exceed Cumulative Retained Cash Flow, as of the date any such Capital Expenditure is made. (iv) In addition to Capital Expenditures permitted by Sections 5.04(o)(i), (ii) and (iii), for the period from the Effective Date through September 30, 1996, the Company and its Subsidiaries may make Capital Expenditures in an amount not to exceed $18,000,000. Capital Expenditures that are not designated as Capital Expenditures from Retained Cash Flow pursuant to a Notice of Designated Retained Cash Flow Usage, are deemed to apply first to Carry-Forward Capital Expenditures and last to Scheduled Capital Expenditures. (p) Modifications to Senior Subordinated Notes; No Voluntary Prepayments. (i) Amend, modify, or waive any covenant contained in the Senior Subordinated Notes or the Senior Subordinated Notes Indenture if the effect of such amendment, modification, or waiver would be to make the terms of the Senior Subordinated Notes or the Senior Subordinated Notes Indenture materially more onerous on the Company; (ii) Amend, modify, or waive any provision of the Senior Subordinated Notes or the Senior Subordinated Notes Indenture which (A) subjects the Company to any additional material obligation, (B) increases the principal of or rate of interest on any Senior Subordinated Note, (C) accelerates the date fixed for any payment of principal or interest on any Senior Subordinated Note, (D) would change the percentage of holders of such Senior Subordinated Notes required for any such amendment, modification, or waiver from the percentage required on the Effective Date, or (E) relates to the subordination provisions thereof; or (iii) make any voluntary prepayment of, or optionally redeem, or make any payment in defeasance of, any part of the Senior Subordinated Notes. (q) Intercompany Transactions. Create and will not permit any of its Subsidiaries to, create or otherwise cause or permit to exist or become effective, except as may be expressly permitted or required by the Financing Documents, any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to (i) pay dividends or make any other distribution to the Company or any of its Subsidiaries in respect of such Subsidiary's capital stock or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any indebtedness owed to the Company or any of its Subsidiaries, (iii) make any loan or advance to the Company or any of its Subsidiaries, or (iv) sell, lease or transfer any of its Property to the Company or any of its Subsidiaries. 76 (r) Modification of Original Credit Agreement. Subject to the terms of the Intercreditor Agreement, amend, modify or waive any provision of the Original Credit Agreement unless, if there is a corresponding provision in this Agreement, there is a substantially similar amendment, modification or waiver made under this Agreement. (s) Modification or Amendment of the AFB Earnout Agreement. Amend, modify or waive any provision of the AFB Earnout Agreement if the effect of such amendment, modification or waiver would be to increase any amount payable thereunder. ARTICLE VI EVENTS OF DEFAULT Upon the occurrence and during the continuance of any of the following specified events (each an "Event of Default"): Section 6.01 Payments. (a) The Company shall fail to pay when due (including, but not limited to, by mandatory prepayment required pursuant to Section 2.10) any principal of any Loan or any Note or any Original Loan or any Reimbursement Obligation (as defined in the Original Credit Agreement); or (b) the Company shall fail to pay when due any interest on any Loan or Note or any Original Loan, any fee or any other amount payable hereunder, under the Fee Letter, any other Financing Document or under the Original Credit Agreement or the Original Fee Letter, and such failure to pay shall continue unremedied for a period of five days; Section 6.02 Covenants Without Notice. The Company shall fail to observe or perform any covenant or agreement contained in Subsections 5.01(e), (g) and (i), Section 5.03 or Section 5.04 (other than Subsections 5.04(b)(iii)-(v) hereof). Section 6.03 Other Covenants. The Company shall fail to observe or perform any covenant or agreement contained in (a) Subsections 5.02(a), (b), (c), (d), (f), (g), (h), (j), (k) or (m) or Subsections 5.04(b)(iii)-(v), and, if capable of being remedied, such failure shall remain unremedied for 10 days after the earlier of (i) the Company's obtaining knowledge thereof, or (ii) written notice thereof shall have been given to the Company by any Lender or the Administrative Agent; and (b) this Agreement, other than those referred to in Sections 6.01, 6.02, or clause (a) of this Section 6.03, and, if capable of being remedied, such failure shall remain unremedied for 30 days after the earlier of (i) the Company's obtaining knowledge thereof, or (ii) written notice thereof shall have been given to the Company by any Lender or the Administrative Agent; Section 6.04 Other Financing Document Obligations. Default is made in the due observance or performance by Holdco, the Company or any Subsidiary of the Company of any of the covenants or agreements contained in any Financing Document other than this Agreement, and such default continues unremedied beyond the expiration of any applicable grace period which may be expressly allowed under such Financing Document; 77 Section 6.05 Representations. Any representation, warranty or statement made or deemed to be made by Holdco, the Company or any Subsidiary of the Company or any of Holdco's, such Company's, or Subsidiary's officers herein or in any other Financing Document, or in any certificate, request or other document furnished pursuant to or under this Agreement or any other Financing Document, shall have been incorrect in any material respect as of the date when made or deemed to be made; Section 6.06 Non-Payments of Other Indebtedness. The Company or any of its Subsidiaries shall fail to make any payment or payments of principal of or interest on any Indebtedness of the Company or such Subsidiary (other than (i) the Combined Lender Indebtedness and (ii) any trade account subject to a bona fide dispute and the trade creditor has neither filed a lawsuit nor caused a Lien to be placed upon any Property of the Company or such Subsidiary) in excess of $10,000,000 in the aggregate when due (whether at stated maturity, by acceleration, on demand or otherwise) after giving effect to any applicable grace period; Section 6.07 Defaults Under Other Agreements. The Company or any of its Subsidiaries shall fail to observe or perform any covenant or agreement contained in any agreement(s) or instrument(s) relating to Indebtedness of the Company or such Subsidiary of $10,000,000 or more in the aggregate within any applicable grace period, or any other event shall occur, if the effect of such failure or other event is to accelerate, or to permit the holder of such Indebtedness or any other Person to accelerate, the maturity of $10,000,000 or more in the aggregate of such Indebtedness; or $10,000,000 or more in the aggregate of any such Indebtedness shall be, or if as a result of such failure or other event may be, required to be prepaid (other than by a regularly scheduled required prepayment) in whole or in part prior to its stated maturity; Section 6.08 Bankruptcy. Holdco, the Company or any of its Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against Holdco, the Company or any of its Subsidiaries and the petition is not controverted within 10 days, or is not stayed or dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or any substantial part of the property of Holdco, the Company or any of its Subsidiaries; or Holdco, the Company or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Holdco, the Company or such Subsidiary or there is commenced against Holdco, the Company or any of its Subsidiaries any such proceeding which remains unstayed or undismissed for a period of 60 days; or Holdco, the Company or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Holdco, the Company or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its Property to continue undischarged or unstayed for a period of 60 days; or Holdco, the Company or any of its Subsidiaries makes a general assignment for the benefit of creditors; or Holdco, the Company or any of its Subsidiaries shall fail to pay, or shall state in writing that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or Holdco, the Company or any of its Subsidiaries shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate action is taken by Holdco, the Company or any of its Subsidiaries for the purpose of effecting any of the foregoing; 78 Section 6.09 Money Judgment. Judgments or orders for the payment of money involving in the aggregate at any time a liability (net of any insurance proceeds or indemnity payments actually received in respect thereof prior to or within 60 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) of more than $10,000,000, or that would otherwise have a Material Adverse Effect shall be rendered against the Company or any of it Subsidiaries and such judgment or order shall continue unsatisfied in accordance with the terms of such judgment or order (in the case of a money judgment) and in effect for a period of 60 days during which execution shall not be effectively stayed or deferred (whether by action of a court, by agreement or otherwise); Section 6.10 Discontinuance of Business. Except as a result of any merger permitted by Section 5.04(c), the Company or any material Subsidiary shall cease to be principally engaged in the businesses and operations in which it was principally engaged on the Effective Date; Section 6.11 Financing Documents. Any Material Provision of any of the Financing Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable (except as enforceability may be limited as stated in Section 4.03) in accordance with its terms, or, in the case of any of the Security Instruments, cease to create a valid and perfected Lien of the priority contemplated thereby on any of the collateral purported to be covered thereby, or the Company or any of its Subsidiaries (or any other Person who may have granted or purported to grant such Lien) shall so state in writing. As used in this Section 6.11, "Material Provision" shall mean (i) with respect to this Agreement, the Notes, or any Subsidiary Guaranty, any material term, covenant, or agreement set forth therein, and (ii) with respect to any other Financing Document, any provision if the validity and enforceability thereof is necessary for such Financing Document to accomplish its stated, or clearly intended, purpose or otherwise necessary in order for any Lender to enforce any material right or remedy under any Financing Document; Section 6.12 Change of Control. The occurrence of a Change of Control; Section 6.13 Purchase Agreement Representations and Warranties. Any representation or warranty made or deemed made by any Cytec Party in the Purchase Agreement shall be or have been incorrect in any respect as of December 23, 1996 that could reasonably be expected to have a Material Adverse Effect; Section 6.14 Albright Indemnity. (a) The occurrence, with respect to Albright, of any of the events described in Section 6.08 or the failure of the Albright Indemnity to continue to be in full force and effect, (b) the occurrence of any event or the existence of any condition that would have been covered by the Albright Indemnity, and (c) the existence of (a) and (b), collectively, could reasonably be expected to have a Material Adverse Effect; Section 6.15 Default Under Senior Secured Discount Notes. Holdco shall fail to observe or perform any covenant or agreement contained in the Senior Secured Discount Notes or the Senior Secured Discount Notes Indenture within any applicable grace period, if the effect of such failure or other event is to accelerate, or to permit the holders of the Senior Secured Discount Notes or any other Person to accelerate, the maturity thereof; 79 Section 6.16 Senior Indebtedness. The Senior Subordinated Notes shall cease, for any reason, to be validly subordinated to the Lender Indebtedness, as provided in the Senior Subordinated Notes Indenture or the Company, any Affiliate of the Company, the trustee in respect of the Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes shall so assert in writing; Section 6.17 Equity Note Contributions. Failure of Holdco to contribute to the Company and the Company to contribute or loan to Sterling Fibers at least $300,000 of additional cash equity within 90 days of the Effective Date irrespective of the amount collected on the Equity Notes during such period; or Section 6.18 Cytec Indemnity. (a) The occurrence, with respect to any of the Cytec Parties, of any of the events described in Section 6.08 or the failure of the Cytec Indemnity to continue to be in full force and effect, (b) the occurrence of any event or the existence of any condition that would have been covered by the Cytec Indemnity, and (c) the existence of (a) and (b), collectively, could reasonably be expected to have a Material Adverse Effect; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written or telex request of the Required Lenders, shall, by written notice to the Company, take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Lender or the holder of any Note, to enforce its claims against the Company: declare the entire principal amount of and all accrued interest on all Lender Indebtedness then outstanding to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest, notice of protest or dishonor, notice of acceleration, notice of intent to accelerate or other notice of any kind, all of which are hereby expressly waived by the Company, and thereupon take such action as it may deem desirable under and pursuant to the Financing Documents; provided, that, if an Event of Default specified in Section 6.08 shall occur, the result which would occur upon the giving of written notice by the Administrative Agent to the Company, shall occur automatically without the giving of any such notice. ARTICLE VII THE AGENTS Section 7.01 Appointment of Administrative Agent. Each Lender (and each Secured Affiliate by and through its affiliated Lender) and the Documentation Agent hereby designates Texas Commerce Bank National Association, as Administrative Agent (and further designates Texas Commerce Bank National Association, in its capacity as "Administrative Agent" under the Original Credit Agreement, as Administrative Agent For Combined Lenders) to act as herein specified and as specified in the other Financing Documents. Each Lender (and each Secured Affiliate by and through its affiliated Lender) and the Documentation Agent hereby irrevocably authorizes the Administrative Agent and the Administrative Agent For Combined Lenders to take such action on its behalf under the provisions of this Agreement, the Notes, and the other Financing Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, by the terms hereof and thereof and such other powers as are reasonably incidental 80 thereto. The Administrative Agent or the Administrative Agent For Combined Lenders may perform any of its duties hereunder by or through its agents or employees. Section 7.02 Limitation of Duties of Administrative Agent and the Administrative Agent For Combined Lenders. The Administrative Agent and the Administrative Agent For Combined Lenders shall have no duties or responsibilities except those expressly set forth with respect to the Administrative Agent and the Administrative Agent For Combined Lenders in this Agreement and as specified in the other Financing Documents. None of the Administrative Agent, the Administrative Agent For Combined Lenders nor any of their respective officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Administrative Agent and the Administrative Agent For Combined Lenders shall be mechanical and administrative in nature; neither the Administrative Agent nor the Administrative Agent For Combined Lenders shall have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent or the Administrative Agent For Combined Lenders any obligations in respect of this Agreement except as expressly set forth herein. Section 7.03 Lack of Reliance on the Administrative Agent, the Administrative Agent For Combined Lenders and the Documentation Agent. (a) Independent Investigation. Independently and without reliance upon the Administrative Agent, the Administrative Agent For Combined Lenders or the Documentation Agent, each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company in connection with the taking or not taking of any action in connection herewith, and (ii) its own appraisal of the creditworthiness of the Company, and, except as expressly provided in this Agreement, and the other Financing Documents the Administrative Agent, the Administrative Agent For Combined Lenders and the Documentation Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the consummation of the transactions contemplated herein or at any time or times thereafter. (b) Agents Not Responsible. The Administrative Agent, the Administrative Agent For Combined Lenders and the Documentation Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement, the Notes or the other Financing Documents or the financial condition of the Company or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Notes or the other Financing Documents, or the financial condition of the Company, or the existence or possible existence of any Default or Event of Default. Section 7.04 Certain Rights of the Administrative Agent. If the Administrative Agent or the Administrative Agent For Combined Lenders shall request instructions from the Required Lenders with respect 81 to any act or action (including the failure to act) in connection with this Agreement, the Notes and the other Financing Documents, the Administrative Agent or the Administrative Agent For Combined Lenders shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, shall have received instructions from the Required Lenders; and neither the Administrative Agent nor the Administrative Agent For Combined Lenders shall incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent or the Administrative Agent For Combined Lenders as a result of the Administrative Agent or the Administrative Agent For Combined Lenders acting or refraining from acting under this Agreement, the Notes and the other Financing Documents in accordance with the instructions of the Required Lenders, or to the extent required by Section 8.02, all of the Lenders. Section 7.05 Reliance by Administrative Agent. The Administrative Agent and the Administrative Agent For Combined Lenders shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other documentary teletransmission or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person. The Administrative Agent and the Administrative Agent For Combined Lenders may consult with legal counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 7.06 INDEMNIFICATION OF ADMINISTRATIVE AGENT, ADMINISTRATIVE AGENT FOR COMBINED LENDERS AND DOCUMENTATION AGENT. TO THE EXTENT THE ADMINISTRATIVE AGENT OR THE DOCUMENTATION AGENT IS NOT REIMBURSED AND INDEMNIFIED BY THE COMPANY, EACH LENDER WILL REIMBURSE AND INDEMNIFY THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS OR THE DOCUMENTATION AGENT, AS APPLICABLE, IN PROPORTION TO ITS TOTAL CREDIT PERCENTAGE, FOR AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING REASONABLE COUNSEL FEES AND DISBURSEMENTS) OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS OR THE DOCUMENTATION AGENT IN PERFORMING ITS DUTIES HEREUNDER, IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT AND BY REASON OF THE ORDINARY NEGLIGENCE OF THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS AND THE DOCUMENTATION AGENT; PROVIDED THAT NO LENDER SHALL BE LIABLE TO THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS OR THE DOCUMENTATION AGENT FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM, AS TO THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT , AS TO THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS, THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS OR, AS TO THE DOCUMENTATION AGENT, THE DOCUMENTATION AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Section 7.07 The Administrative Agent, the Administrative Agent For Combined Lenders and Documentation Agent in their Individual Capacity. With respect to their obligations under this Agreement, the Loans made by it and the Notes issued to it, the Administrative Agent, the Administrative Agent For 82 Combined Lenders and Documentation Agent shall have the same rights and powers hereunder as any other Lender or holder of a Note and may exercise the same as though it were not performing the duties, if any, specified herein; and the terms "Lenders," "Required Lenders," "Tranche A Term Loan Lenders," "Tranche B Term Loan Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent, the Administrative Agent For Combined Lenders and Documentation Agent in their individual capacity. The Administrative Agent, the Administrative Agent For Combined Lenders and Documentation Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust, financial advisory or other business with the Company or any affiliate of the Company as if it were not performing the duties, if any, specified herein, and may accept fees and other consideration from the Company for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. Section 7.08 May Treat Lender as Owner. The Company, the Administrative Agent and the Administrative Agent For Combined Lenders may deem and treat each Lender as the owner of such Lender's Note for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the owner of a Note shall be conclusive and binding on any subsequent owner, transferee or assignee of such Note or any promissory note or notes issued in exchange therefor. Section 7.09 Successor Administrative Agent or Administrative Agent For Combined Lenders. (a) Administrative Agent or Administrative Agent For Combined Lenders Resignation. The Administrative Agent or the Administrative Agent For Combined Lenders may resign at any time by giving written notice thereof to the Lenders and the Company and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right, upon five days' notice to the Company, to appoint a successor Administrative Agent or Administrative Agent For Combined Lenders, subject to the approval of the Company, such approval not to be unreasonably withheld. If no successor Administrative Agent or the Administrative Agent For Combined Lenders shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent or, in the case of the Administrative Agent For Combined Lenders, within 30 days after its giving of notice of resignation or of the Required Lenders' removal of the retiring Administrative Agent For Combined Lenders, then, upon five days' notice to the Company, the retiring Administrative Agent or the retiring Administrative Agent For Combined Lenders, as applicable, may, on behalf of the Lenders, appoint a successor Administrative Agent or successor Administrative Agent For Combined Lenders, as applicable, (subject to approval of the Company, such approval not to be unreasonably withheld), which shall be a bank which maintains an office in the United States, or a commercial bank organized under the laws of the United States of America or of any State thereof, or any Affiliate of such bank, having a combined capital and surplus of at least $250,000,000. (b) Rights, Powers, etc. Upon the acceptance of any appointment as Administrative Agent or the Administrative Agent For Combined Lenders hereunder by a successor Administrative 83 Agent or successor Administrative Agent For Combined Lenders, as applicable, such successor Administrative Agent or successor Administrative Agent For Combined Lenders, as applicable, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent or the retiring Administrative Agent For Combined Lenders, as applicable, and the retiring Administrative Agent and the retiring Administrative Agent For Combined Lenders, as applicable, shall be discharged from its duties and obligations under this Agreement and the other Financing Documents. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent or the resignation or removal of any Administrative Agent For Combined Lenders as Administrative Agent For Combined Lenders, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, under this Agreement. Section 7.10 Documentation Agent. The Documentation Agent has no duties hereunder in its capacity as Documentation Agent. Section 7.11 The Administrative Agent For Combined Lenders. The resignation or removal of the Administrative Agent For Combined Lenders shall not affect the rights, duties and obligations of the Administrative Agent For Combined Lenders as "Administrative Agent" under the Original Credit Agreement. ARTICLE VIII MISCELLANEOUS Section 8.01 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including, telecopy or similar teletransmission or writing) and shall be given to such party at its address or telecopy number set forth on the signature pages hereof or such other address or telecopy number as such party may hereafter specify by notice to the Administrative Agent and the Company. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (ii) if given by any other means (including, but not limited to, by air courier), when delivered at the address specified in this Section; provided that notices to the Administrative Agent shall not be effective until actually and physically received. Section 8.02 Amendments and Waivers. Neither this Agreement nor any other Financing Document, nor any terms hereof or thereof, may be amended, supplemented or modified except in accordance with the provisions of this Section. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent shall, from time to time, (x) enter into with the Company, written amendments, supplements or modifications hereto and to the other Financing Documents for the purpose of adding any provisions to this Agreement or to the other Financing Documents or changing in any manner the rights or obligations of the Lenders or the Company hereunder or thereunder or (y) waive at the Company's request, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Financing Documents or any Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall: 84 (a) reduce the amount or extend the scheduled date of maturity of any Loan or any scheduled installment thereof or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or modify any provision that provides for the ratable sharing by the Lenders of any payment or prepayment of Lender Indebtedness to provide for a non-ratable sharing thereof or the right of the Term Lenders to decline acceptance of prepayment or increase the amount or extend the expiration date of any Lender's Commitments or amend, modify or waive any provision of Section 2.19, in each case without the prior written consent of each Lender directly affected thereby; (b) change the currency in which any Loan is payable or amend, modify or waive any provision of this Section 8.02 or reduce the percentage specified in the definition of Required Lenders, in each case without the written consent of all of the Lenders; (c) release (A) any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty or (B) any of the Collateral, without the written consent of all of the Lenders, except as expressly permitted hereby, provided that the Administrative Agent shall release (without consent from the Lenders) any Collateral sold, transferred or otherwise disposed of as permitted by Section 5.04(c); or (d) amend, modify or waive any provision of Article VII without the written consent of the Administrative Agent, and of the Documentation Agent, if affected thereby. Any waiver and any amendment, supplement or modification pursuant to this Section 8.02 shall apply to each of the Lenders and shall be binding upon the Company, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Company, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Financing Documents, and any Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default, or impair any right consequent thereon. Section 8.03 No Waiver; Remedies Cumulative. No failure or delay on the part of the Company or the Administrative Agent or any Lender or any holder of any Note in exercising any right or remedy under this Agreement or any other Financing Document and no course of dealing between the Company and the Administrative Agent or any Lender or any holder of any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy under the Notes, this Agreement or any other Financing Document preclude any other or further exercise thereof or the exercise of any other right or remedy under the Notes, this Agreement or any other Financing Document. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Company, the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Company not required under the Notes, this Agreement or any other Financing Document in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand. 85 Section 8.04 Payment of Expenses, Indemnities, etc. The Company agrees to (and shall be liable for): (a) Expenses. Whether or not the transactions hereby contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agents in the administration (both before and after the execution hereof and including advice of counsel for the Administrative Agent and the Administrative Agent For Combined Lenders as to the rights and duties of the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, and the Lenders with respect thereto) of, and in connection with the preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and, after a Default, refinancing, renegotiation or restructuring of, this Agreement, the Notes, and the other Financing Documents and any amendment, waiver or consent relating thereto (including, but not limited to, the reasonable fees and disbursements of counsel for the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, and in the case of enforcement for any of the Lenders) and promptly reimburse the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, for all amounts expended, advanced, or incurred by the Administrative Agent or the Administrative Agent For Combined Lenders, as applicable, or the Lenders to satisfy any obligation of the Company, Holdco, or the Subsidiary Guarantors under this Agreement or any other Financing Document; (B) INDEMNIFICATION. INDEMNIFY THE AGENTS AND EACH LENDER, EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES FROM, HOLD EACH OF THEM HARMLESS AGAINST, AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, ANY AND ALL ACTIONS, SUITS, PROCEEDINGS (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES), CLAIMS, COSTS, LOSSES, LIABILITIES, DAMAGES OR EXPENSES OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE COMPANY OR ANY SUBSIDIARY OF THE COMPANY OF THE PROCEEDS OF ANY OF THE LOANS; OR (II) ANY OTHER ASPECT OF THIS AGREEMENT, THE NOTES, AND THE FINANCING DOCUMENTS, INCLUDING BUT NOT LIMITED TO THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL (INCLUDING ALLOCATED COSTS OF INTERNAL COUNSEL) AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM, AND INCLUDING ALL ACTIONS, SUITS, PROCEEDINGS (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES), CLAIMS, COSTS, LOSSES, LIABILITIES, DAMAGES OR EXPENSES ARISING BY REASON OF ORDINARY NEGLIGENCE OF ANY OF THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS, THE DOCUMENTATION AGENT AND EACH LENDER, EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES; PROVIDED, HOWEVER, THE PROVISIONS OF THIS SECTION 8.04(B) SHALL NOT APPLY TO ANY ACTION, SUITS, PROCEEDINGS, CLAIMS, COSTS, LOSSES, LIABILITIES, DAMAGES, OR EXPENSES TO THE EXTENT, BUT ONLY TO THE EXTENT, CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SEEKING INDEMNIFICATION; 86 (C) ENVIRONMENTAL INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE AGENTS AND THE LENDERS, EACH PERSON CLAIMING BY, THROUGH, UNDER OR ON ACCOUNT OF ANY OF THE FOREGOING AND THE RESPECTIVE DIRECTORS, OFFICERS, COUNSEL, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS OF EACH OF THE FOREGOING FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES (WHICH RELATE TO OR ARISE AS A RESULT OF THE LOANS OR ANY FINANCING DOCUMENT) TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT AND INCLUDING ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES (WHICH RELATE TO OR ARISE AS A RESULT OF THE LOANS OR ANY FINANCING DOCUMENT) ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS, THE DOCUMENTATION AGENT AND THE LENDERS, EACH PERSON CLAIMING BY, THROUGH, UNDER OR ON ACCOUNT OF ANY OF THE FOREGOING AND THE RESPECTIVE DIRECTORS, OFFICERS, COUNSEL, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS OF EACH OF THE FOREGOING (1) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ANY OF THEIR RESPECTIVE PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR RESPECTIVE PROPERTIES, (2) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE COMPANY OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (3) DUE TO PAST OWNERSHIP BY THE COMPANY OR ANY OF ITS SUBSIDIARIES OF ANY OF THEIR RESPECTIVE PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR RESPECTIVE PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR RESPECTIVE PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (4) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES, OR (5) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER FINANCING DOCUMENT; PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 8.04(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING PRIMARILY FROM THE ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE AGENT FOR COMBINED LENDERS, THE DOCUMENTATION AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED ACTUAL PHYSICAL POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE); AND (D) ENVIRONMENTAL WAIVER. WITHOUT LIMITING THE FOREGOING PROVISIONS, THE COMPANY HEREBY DOES WAIVE, RELEASE AND COVENANT NOT TO BRING AGAINST ANY OF THE PERSONS INDEMNIFIED IN THIS SECTION 8.04 ANY DEMAND, CLAIM, COST RECOVERY ACTION OR LAWSUIT THEY MAY NOW OR HEREAFTER HAVE OR ACCRUE (WHICH RELATE TO OR ARISE AS A RESULT OF THE LOANS OR ANY FINANCING DOCUMENT) ARISING FROM (1) ANY ENVIRONMENTAL LAW NOW OR HEREAFTER ENACTED (INCLUDING THOSE APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES) UNLESS THE ACTS OR OMISSIONS OF ANY SUCH PERSON OR THEIR RESPECTIVE SUCCESSORS AND ASSIGNS ARE THE PRIMARY CAUSE OF THE CIRCUMSTANCES GIVING RISE TO SUCH DEMAND, COST RECOVERY ACTION OR LAWSUIT, (2) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED 87 OR OPERATED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES, OR (3) THE BREACH OR NON-COMPLIANCE BY THE COMPANY WITH ANY ENVIRONMENTAL LAW OR ENVIRONMENTAL COVENANT APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, UNLESS THE ACTS OR OMISSIONS OF SUCH PERSON, ITS SUCCESSORS AND ASSIGNS ARE THE PRIMARY CAUSE OF THE CIRCUMSTANCES GIVING RISE TO SUCH DEMAND, CLAIM, COST RECOVERY ACTION OR LAWSUIT. If and to the extent that the obligations of the Company under this Section are unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. The Company's obligations under this Section shall survive any termination of this Agreement and the payment of the Notes. Section 8.05 Right of Setoff. In addition to and not in limitation of all rights of offset that any Lender may have under applicable law, each Lender or other holder of a Note, or any other Lender Indebtedness shall, upon the occurrence of any Event of Default and at any time during the continuance thereof and whether or not such Lender or such holder has made any demand or the Company's obligations are matured, have the right at any time and from time to time, without notice to the Company (any such notice being expressly waived by the Company) to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by any Lender to or for the credit or the account of the Company against any and all of the Lender Indebtedness owing to such Lender then outstanding, subject to the provisions of Section 2.19. Section 8.06 Benefit of Agreement. The Notes, this Agreement and the other Financing Documents shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Company may not assign or transfer any of its interest hereunder or thereunder without the prior written consent of the Lenders. Section 8.07 Successors and Assigns; Participations and Assignments. (a) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks, financial institutions, or investment funds ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, or any other interest of such Lender hereunder and under the other Financing Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan (and any Note evidencing such Loan) for all purposes under this Agreement and the other Financing Documents and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Financing Documents. Any agreement pursuant to which any Lender shall sell any such participating interest shall provide that such Lender shall retain the sole right and responsibility to exercise such Lender's rights and enforce the Company's obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Financing Documents, provided that such participation agreement may provide that such Lender will not agree to any amendment, supplement, 88 modification or waiver described in clause (i) or (ii) of the proviso to the second sentence of Section 8.02(a) without the consent of the Participant. The Company agrees that each Lender shall be entitled to the benefits of Sections 2.15, 2.16, 2.18, 2.20 and 8.04 without regard to whether it has granted any participating interests, and that all amounts payable to a Lender under such Sections shall be determined as if such Lender had not granted any such participating interests. Each Participant shall have the rights of set-off against the Lender Indebtedness and similar rights or Liens to the same extent as may be available to the Administrative Agent or the Lenders. (b) Branch Offices, Affiliates, Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of such Lender. (c) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time and from time to time assign to any Lender or any Affiliate thereof, or, with the prior written consent of the Company and the Administrative Agent (which in each case shall not be unreasonably withheld), to an additional bank, financial institution or investment fund (an "Assignee") all or any part of its rights and obligations under this Agreement and any Notes, including, without limitation, its Loans pursuant to an Assignment and Acceptance, substantially in the form of Exhibit F (each an "Assignment and Acceptance"), executed by such Assignee, such assigning Lender (and, in the case of any Assignee that is not then a Lender or an Affiliate thereof, by the Company and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that (i) (unless the Company and the Administrative Agent otherwise consent in writing) no such transfer to an Assignee (other than a Lender, Original Lender or any Affiliate thereof) shall be in a principal amount less than (A) $5,000,000 for a transfer by any Tranche B Term Loan Lender, and (B) $10,000,000 in the aggregate for a transfer by any Tranche A Term Loan Lender (or, if less than the applicable amount required by clause (A) or (B), the full amount of such assigning Lender's Loans) and (ii) if any Lender assigns all or any part of its rights and obligations under this Agreement to one of its Affiliates in connection with or in contemplation of the sale or other disposition of its interest in such Affiliate, the Company's and the Administrative Agent's prior written consent shall be required for such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Loans, as set forth therein, and (y) the assigning Lender thereunder shall be released from its obligations under this Agreement to the extent that such obligations shall have been expressly assumed by the Assignee pursuant to such Assignment and Acceptance (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto but shall nevertheless continue to be entitled to the benefits of Sections 2.16, 2.18, 2.20 and 8.04). Notwithstanding the foregoing, no Assignee, which as of the date of any assignment to it pursuant to this Section 8.07(c) would be entitled to receive any greater payment under Section 2.16 or 2.20 than the assigning Lender would have been entitled to receive as of such date under such Sections with respect to the rights assigned, shall be entitled to receive such payments unless the Company has expressly consented in writing to waive the benefit of this provision at the time of the Assignment. 89 (d) The Administrative Agent, on behalf of the Company, shall maintain at its address referred to in Section 8.01 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the principal amount of the Loans owing to, and any Notes evidencing such Loans owned by, each Lender from time to time. Notwithstanding anything in this Agreement to the contrary, the Company, the Administrative Agent, the Administrative Agent For Combined Lenders and the Lenders shall treat each Person whose name is recorded in the Register as the owner of any Loan and any Notes recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Notwithstanding anything in this Agreement to the contrary, no assignment under Section 8.07(c) of any rights or obligations under or in respect of the Loans or the Notes evidencing such Loans shall be effective unless and until the Administrative Agent shall have recorded the assignment in the Register pursuant to this Section 8.07(e). Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Company and the Administrative Agent), together with payment to the Administrative Agent of a registration and processing fee of $3,500 (which fee need not be paid in the case of any assignment to an Affiliate of the assigning Lender and which shall not be a cost subject to reimbursement under Section 8.04 or otherwise hereunder), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give prompt notice of such acceptance and recordation to the Lenders and the Company. On or prior to such effective date, the assigning Lender shall surrender any outstanding Notes held by it, all or a portion of which are being assigned, and the Company, shall, upon the request to the Administrative Agent by the assigning Lender or the Assignee, as applicable, execute and deliver to the Administrative Agent (in exchange for the outstanding Notes of the assigning Lender) a new Tranche A Term Note and/or Tranche B Term Note, as the case may be, to the order of such Assignee in an amount equal to (i) in the case of a Tranche A Term Note, the amount of such Assignee's Tranche A Term Loans and (ii) in the case of a Tranche B Term Note, the amount of such Assignee's Tranche B Term Loans, in each case with respect to the relevant Loan after giving effect to such Assignment and Acceptance and, if the assigning Lender has retained a Loan hereunder, a new Tranche A Term Note and/or Tranche B Term Note, as the case may be, to the order of the assigning Lender in an amount equal to (i) in the case of a Tranche A Term Note, the amount of such Lender's Tranche A Term Loans and (ii) in the case of a Tranche B Term Note, the amount of such Assignee's Tranche B Term Loans, in each case with respect to the relevant Loan after giving effect to such Assignment and Acceptance. Any such new Notes shall be dated such effective date and shall otherwise be in the form of the Note replaced thereby. Any Notes surrendered by the assigning Lender shall be returned by the Administrative Agent to the Company marked "canceled". (f) The Company authorizes each Lender to disclose to any participant or Assignee (each, a "Transferee") and any prospective Transferee, provided, that, any such Transferee or potential Transferee has signed a confidentiality agreement substantially similar to the provisions of Section 8.13, any and all information in such Lender's possession concerning the Company and its Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement 90 or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company and its Affiliates prior to becoming a party to this Agreement. No assignment or participation made or purported to be made to any Transferee shall be effective without the prior written consent of the Company if it would require it to make any filing with any Governmental Authority or qualify any Loan or Note under the laws of any jurisdiction, and the Company shall be entitled to request and receive such information and assurances as it may reasonably request from any Lender or any Transferee to determine whether any such filing or qualification is required or whether any assignment or participation is otherwise in accordance with applicable law. (g) Any Lender may at any time grant, pledge or assign a security interest in all or a portion of its rights under this Agreement to secure obligations of such Lender, including any such grant, pledge or assignment to a Federal Reserve Bank, and this Section 8.07 shall not apply to any such grant, pledge or assignment of a security interest; provided that no such grant, pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. Section 8.08 Governing Law; Submission to Jurisdiction; Etc. (A) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, OR ANY SIMILAR SUCCESSOR PROVISION THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES)AND TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. (B) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE OTHER FINANCING DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, BUT NOT LIMITED TO, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. (C) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE LAW, EACH OF THE COMPANY, THE AGENTS AND THE LENDERS (i) IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO ANY FINANCING DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVE ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR COUNSEL FOR ANY 91 PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER FINANCING DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BASED UPON, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. (d) Designation of Process Agent. The Company hereby irrevocably designates CT Corporation System, with an office on the date hereof at 1633 Broadway, New York, New York, 10019, as the designee, appointee and process agent of the Company to receive, for and on behalf of the Company, service of process in such respective jurisdictions in any legal action or proceeding with respect to this Agreement, the Notes, or the other Financing Documents. It is understood that a copy of such process served on such agent will be promptly forwarded by mail to the Company at its address set forth opposite its signature below, but the failure of the Company to receive such copy shall not affect in any way the service of such process. The Company further irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Company at its said address, such service to become effective 30 days after such mailing. (e) Service of Process. Nothing herein shall affect the right of the Administrative Agent or any Lender or any holder of a Note to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. Section 8.09 Independent Nature of Lenders' Rights. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. Section 8.10 Invalidity. In the event that any one or more of the provisions contained in the Notes, this Agreement or in any other Financing Document shall, for any reason, be held invalid, illegal or unenforceable in any respect, (i) the Company agrees that such invalidity, illegality or unenforceability shall not affect any other provision of the Notes, this Agreement or any other Financing Document and (ii) the Company and the Administrative Agent (acting on behalf and at the direction of the Lenders) will negotiate in good faith to amend such provision so as to be legal, valid, and enforceable. Section 8.11 Renewal, Extension or Rearrangement. All provisions of this Agreement and of any other Financing Documents relating to the Notes or other Lender Indebtedness shall apply with equal force and effect to each and all promissory notes hereafter executed which in whole or in part represent a renewal, extension for any period, increase or rearrangement of any part of the Lender Indebtedness originally represented by the Notes, or of any part of such other Lender Indebtedness. Section 8.12 Interest. It is the intention of the parties hereto to conform strictly to usury laws applicable to the Administrative Agent, the Documentation Agent and the Lenders (collectively, the "Financing Parties") and the Transactions. Accordingly, if the Transactions would be usurious as to any Financing Party 92 under laws applicable to it, then, notwithstanding anything to the contrary in the Notes, this Agreement or in any other Financing Document or agreement entered into in connection with the Transactions or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Financing Party that is contracted for, taken, reserved, charged or received by such Financing Party under the Notes, this Agreement or under any of such other Financing Documents or agreements or otherwise in connection with the Transactions shall under no circumstances exceed the maximum amount allowed by such applicable law, (ii) in the event that the maturity of the Notes is accelerated for any reason, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Financing Party may never include more than the maximum amount allowed by such applicable law, and (iii) excess interest, if any, provided for in this Agreement or otherwise in connection with the Transactions shall be cancelled automatically by such Financing Party and, if theretofore paid, shall be credited by such Financing Party on the principal amount of the Company's Indebtedness to such Financing Party (or, to the extent that the principal amount of the Company's Indebtedness to such Financing Party shall have been or would thereby be paid in full, refunded by such Financing Party to the Company). The right to accelerate the maturity of the Notes does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and the Financing Parties do not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to the Financing Parties for the use, forbearance or detention of sums included in the Lender Indebtedness shall, to the extent permitted by law applicable to such Financing Party, be amortized, prorated, allocated and spread throughout the full term of the Notes until payment in full so that the rate or amount of interest on account of the Lender Indebtedness does not exceed the applicable usury ceiling, if any. As used in this Section, the terms "applicable law" or "laws applicable to any Financing Party" shall mean the law of any jurisdiction whose laws may be mandatorily applicable notwithstanding other provisions of this Agreement, or law of the United States of America applicable to any Financing Party and the Transactions which would permit such Financing Party to contract for, charge, take, reserve or receive a greater amount of interest than under such jurisdiction's law. To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to any Financing Party for the purpose of determining the Highest Lawful Rate, such Financing Party hereby elects to determine the applicable rate ceiling under such Article by the indicated (weekly) rate ceiling from time to time in effect, subject to such Financing Party's right subsequently to change such method in accordance with applicable law. Section 8.13 Confidential Information. The Administrative Agent and each Lender agree that all documentation and other information made available by the Company to the Administrative Agent or such Lender under the terms of this Agreement shall (except to the extent such documentation or other information is publicly available or hereafter becomes publicly available other than by action of the Administrative Agent or such Lender, or was theretofore known or hereinafter becomes known to the Administrative Agent or such Lender independent of any disclosure thereto by the Company) be held in the strictest confidence by the Administrative Agent or such Lender and used solely in the administration and enforcement of the Loans from time to time outstanding from such Lender to the Company and in the prosecution of defense of legal proceedings arising in connection herewith; provided that (i) the Administrative Agent or such Lender may disclose documentation and information to the Administrative Agent and/or to any other Lender which is a party to this Agreement or any Affiliates thereof or to any party to the Original Credit Agreement or any Affiliates thereof, and (ii) the Administrative Agent or such Lender may disclose such documentation or other information to any other bank or other Person to which such Lender sells or proposes to make an assignment or sell a participation in its Loans hereunder if such other bank or Person, prior to such disclosure, agrees in 93 writing to be bound by the terms of a confidentiality agreement substantially similar to the provisions of this Section 8.13. Notwithstanding the foregoing, nothing contained herein shall be construed to prevent the Administrative Agent or a Lender from (a) making disclosure of any information (i) if required to do so by applicable law or regulation, (ii) to any governmental agency or regulatory body (including any self-regulatory agency or body) having or claiming to have authority to regulate or oversee any aspect of such Lender's business or that of such Lender's corporate parent or affiliates in connection with the exercise of such authority or claimed authority, (iii) pursuant to any subpoena or if otherwise compelled in connection with any litigation or administrative proceeding, (iv) to correct any false or misleading information which may become public concerning such Person's relationship to the Company, or (v) to the extent the Administrative Agent or such Lender or its counsel deems necessary or appropriate to effect or preserve its security for any Lender Indebtedness or to enforce any remedy provided in the Financing Documents, the Notes or this Agreement or otherwise available by law; or (b) making, on a confidential basis, such disclosures as such Lender reasonably deems necessary or appropriate to its legal counsel or accountants (including outside auditors). If the Administrative Agent or such Lender is compelled to disclose such confidential information in a proceeding requesting such disclosure, the Administrative Agent or such Lender shall seek to obtain assurance that such confidential treatment will be accorded such information; provided, however, that the Lender shall have no liability for the failure to obtain such treatment. Section 8.14 ENTIRE AGREEMENT. THE NOTES, THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE AGENTS OR THE LENDERS AND THE OTHER RESPECTIVE PARTIES HERETO AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 8.15 Attachments. The exhibits, schedules and annexes attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein, except that in the event of any conflict between any of the provisions of such exhibits and the provisions of this Agreement, the provisions of this Agreement shall prevail. Section 8.16 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original but all of which shall together constitute one and the same instrument. Section 8.17 Survival of Indemnities. The Company's obligations under Sections 2.16, 2.18, 2.20 and 8.04 shall survive the payment in full of the Loans. Section 8.18 Headings Descriptive. The headings of the several sections and subsections of this Agreement, and the Table of Contents, are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 8.19 Satisfaction Requirement. If any agreement, certificate, instrument or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any party, 94 the determination of such satisfaction shall be made by such party in its sole and exclusive judgment exercised reasonably and in good faith. SECTION 8.20 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEYS IN ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS." Section 8.21 Secured Affiliate. For purposes of this Agreement and all other Financing Documents (other than applicable Hedge Agreements), if a Secured Affiliate of a Lender has entered into one or more Hedge Agreements with the Company or any its Subsidiaries, then to the extent that such Secured Affiliate has rights or obligations (or if the affiliated Lender, rather than the Secured Affiliate, were the counter-party to the applicable Hedge Agreement, such rights or obligations that such Lender has) hereunder or under any other Financing Document (other than applicable Hedge Agreements), such affiliated Lender shall be the agent and attorney-in-fact for such Secured Affiliate with regard to any such rights and obligations, or deemed rights and obligations, as if such Lender were the counter-party to the applicable Hedge Agreement including, but not limited to, the following: (a) all distributions or payments in respect of Collateral owing to such Secured Affiliate shall be distributed or paid to such Lender, (b) all representations, statements or disclaimers made herein or in any Financing Document by or to such Lender shall be deemed to have been made by or to such Secured Affiliate, (c) all obligations incurred by such Lender that would have been incurred by the Secured Affiliate if it were a party hereto (including, but not limited to, obligations under Section 7.06) shall be the obligations of such Lender, and such Lender, as the agent and attorney-in-fact of its Secured Affiliate, will make any and all payments owing to the Administrative Agent with respect to such obligations or deemed obligations of its Secured Affiliate. Each such Lender represents, warrants and covenants to and with the Administrative Agent that such Lender has, or at all applicable times will have, full power and authority to act as agent and attorney-in-fact for its Secured Affiliates. Under no circumstance shall any Secured Affiliate have any voting rights hereunder and the voting rights of any affiliated Lender shall not be increased by virtue of the obligations owing to any such Secured Affiliate. Section 8.22 Intercreditor Agreement. The Administrative Agent is hereby authorized and directed to execute and deliver on behalf of the Lenders an intercreditor agreement of even date herewith (as amended, modified or supplemented, the "Intercreditor Agreement") in the form of Exhibit G. Until the Original Lender Indebtedness has been indefeasibly paid in full, to the extent the Intercreditor Agreement modifies or 95 supplements any terms or provisions hereof, it shall constitute an amendment and modification to, and supplement of, this Agreement. Each Lender that is now, or hereafter becomes, a party to this Agreement agrees to be bound by the terms and provisions of the Intercreditor Agreement. Section 8.23 Merger of Credit Agreement. The Lenders agree that this Agreement and the Original Credit Agreement may be combined into one agreement, subject to the Required Lenders approving the documentation to be executed in connection therewith. 96 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of the date first above written. COMPANY: STERLING CHEMICALS, INC. By: /s/ JIM P. WISE ----------------------------------------- Jim P. Wise Vice President, Finance and Chief Financial Officer Address: 1200 Smith Street, Suite 1900 Houston, Texas 77002 Attention: Mr. Jim P. Wise Telephone: (713) 654-9599 Telecopy: (713) 654-9552 With Copy To: Attention: Mr. Stewart H. Yonts Telephone: (713) 654-9547 Telecopy: (713) 654-9552 ADMINISTRATIVE AGENT, TEXAS COMMERCE BANK DOCUMENTATION AGENT, NATIONAL ASSOCIATION AND THE LENDERS: Individually, as a Lender and as Administrative Agent By: /s/ P. STAN BURGE ----------------------------------------- P. Stan Burge Vice President Address: c/o Chase Securities Inc. 712 Main Street Houston, Texas 77002 Attention: Ms. Martha Gurwit Telephone: (713) 216-6387 Telecopy: (713) 216-4986 With Copy To: Attention: Ms. Debra Harris Telephone: (713) 216-4117 Telecopy: (713) 216-5733 [Signature Page - 1] CREDIT SUISSE FIRST BOSTON, as Documentation Agent By: /s/ JAMES P. MORAN ----------------------------------------- Name: James P. Moran Title: Director By: /s/ J. SCOTT KARRO ----------------------------------------- Name: J. Scott Karro Title: Associate Address: 11 Madison Avenue, 19th Floor New York, New York 10010-3629 Attention: Mr. James P. Moran Telephone: (212) 325-9176 Telecopy: (212) 325-8350 CREDIT SUISSE FIRST BOSTON, individually as a Lender By: /s/ JAMES P. MORAN ----------------------------------------- Name: James P. Moran Title: Director By: /s/ J. SCOTT KARRO ----------------------------------------- Name: J. Scott Karro Title: Associate Address: 11 Madison Avenue, 19th Floor New York, New York 10010-3629 Attention: Ms. Yvette McQueen Telephone: (212) 325-9096 Telecopy: (212) 325-8319 [Signature Page - 2] ABN AMRO BANK N.V. Houston Agency By: ABN AMRO NORTH AMERICA, INC. as Agent By: /s/ GORDON CHANG ------------------------------------ Name: Gordon Chang Title: Vice President & Director By: /s/ MICHAEL W. DePRIEST ------------------------------------ Name: Michael W. DePriest Title: Vice President & Director Address: Three Riverway, Suite 1700 Houston, Texas 77056 Attention: Mr. Gordon Chang Telephone: (713) 964-3322 Telecopy: (713) 629-7533 [Signature Page - 3] THE BANK OF NOVA SCOTIA By: /s/ M. D. SMITH ----------------------------------------- Name: M. D. Smith Title: Agent Address: Atlanta Agency 600 Peachtree Street Northeast Suite 2700 Atlanta, Georgia 30308 Attention: Mr. F.C.H. Ashby Telephone: (404) 877-1500 Telecopy: (404) 888-8998 With Copy To: 1100 Louisiana Street, Suite 3000 Houston, Texas 77002 Attention: Mr. Bryan Bulawa Telephone: (713) 759-3427 Telecopy: (713) 752-2425 [Signature Page - 4] BANK OF SCOTLAND By: /s/ CATHERINE M. ONIFFREY ----------------------------------------- Name: Catherine M. Oniffrey Title: Vice President Bank of Scotland Address: 565 Fifth Avenue New York, New York 10017 Attention: Mr. John Kelly Telephone: (212) 450-0830 Telecopy: (212) 682-5720 [Signature Page - 5] BHF-BANK AKTIENGESELLSCHAFT By: /s/ JOHN SYKES ----------------------------------------- Name: John Sykes Title: Assistant Vice President By: /s/ PERRY FORMAN ----------------------------------------- Name: Perry Forman Title: Vice President Address: 590 Madison Avenue New York , New York 10022-2540 Attention: Ms. Linda Pace Telephone: (212) 756-5915 Telecopy: (212) 756-5536 [Signature Page - 6] THE FIRST NATIONAL BANK OF CHICAGO By: /s/ DIXON P. SCHULTZ ----------------------------------------- Name: Dixon P. Schultz Title: Vice President Address: One First National Plaza, MS 0634, 1-10 Chicago, Illinois 60670 Attention: Mr. Mike Lorenzi Telephone: (312) 732-8573 Telecopy: (312) 732-4840 With Copy To: 1100 Louisiana Street, Suite 3200 Houston, Texas 77002 Attention: Ms. Dixon Schultz Telephone: (713) 654-7329 Telecopy: (713) 654-7370 [Signature Page - 7] THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ DAN HUGHES ----------------------------------------- Name: Dan Hughes Title: Vice President Address: 5420 LBJ Freeway Two Lincoln Centre, #200 Dallas, Texas 75240 Attention: Mr. Dan Hughes Telephone: (972) 455-1665 Telecopy: (972) 455-1690 [Signature Page - 8] HIBERNIA NATIONAL BANK By: /s/ COLLEEN SMITH ----------------------------------------- Name: Colleen Smith Title: Vice President Address: 313 Carondelet Street, 13th Floor New Orleans, Louisiana 70130 Attention: Ms. Trudy Nelson Telephone: (504) 533-3213 Telecopy: (504) 533-5434 [Signature Page - 9] NATIONAL BANK OF CANADA By: /s/ LARRY L. SEARS ----------------------------------------- Name: Larry L. Sears Title: Group Vice President By: /s/ DOUG CLARK ----------------------------------------- Name: Doug Clark Title: Vice President Address: 125 West 55th Street 23rd Floor New York, New York 10019 Attention: Ms. Eleanor Valentine Telephone: (212) 632-8820 Telecopy: (212) 632-8736 With Copy To: 2121 San Jacinto, #1850 Dallas, Texas 75201 Attention: Mr. Douglas Clark Telephone: (214) 871-1265 Telecopy: (214) 871-2015 [Signature Page - 10] OCTAGON CREDIT INVESTORS LOAN PORTFOLIO (a unit of The Chase Manhattan Bank) By: /s/ JOYCE C. DeLUCCA ----------------------------------------- Name: Joyce C. DeLucca Title: Managing Director Address: 380 Madison Avenue, 12th Floor New York, New York 10017 Attention: Ms. Joyce Delucca Telephone: (212) 622-3104 Telecopy: (212) 622-3797 With Copy To: One Chase Manhattan Plaza New York, New York 10081 Attention: Mr. Joseph Nerich Telephone: (212) 552-7247 Telecopy: (212) 552-5642 [Signature Page - 11] VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: /s/ JEFFREY W. MAILLET ----------------------------------------- Name: Jeffrey W. Maillet Title: Senior Vice President & Director Address: One Parkview Plaza Oakbrook Terrace, Illinois 60181 Attention: Mr. Jeffrey Maillet Telephone: (630) 684-6438 Telecopy: (630) 684-6740/6741 [Signature Page - 12] PARIBAS CAPITAL FUNDING LLC By: /s/ ----------------------------------------- Name: Title: Address: 787 Seventh Avenue, 32nd Floor New York, New York 10019 Attention: Mr. Thomas Liu Telephone: (212) 841-2295 Telecopy: (212) 841-2363 [Signature Page - 13] MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ ANTHONY R. CLEMENTE ----------------------------------------- Name: Anthony R. Clemente Title: Authorized Signatory Address: 800 Scudders Mill Road - Area 2C Plainsboro, New Jersey 08536 Attention: Ms. Jill Montanye Telephone: (609) 282-3102 Telecopy: (609) 282-2550 With Copy To: Custodian Bank: Bank of New York 90 Washington Street, 12th Floor New York, New York 10286 Attention: Ms. Michelle Moore Telephone: (212) 495-2929 Telecopy: (212) 495-2935/2936/2937 MLAM Accounting 500 College Road - 4E Plainsboro, New Jersey 08536 Attention: Mr. John Dugan Telephone: (212) 282-7705 Telecopy: (212) 282-7616 [Signature Page - 14] EX-4.4 5 EXHIBIT 4.4 EXHIBIT 4.4 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment") dated as of March 31, 1997 (the "Second Amendment Effective Date") is made and entered into by and among STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually, as an Issuing Bank and as Administrative Agent and CREDIT SUISSE FIRST BOSTON (formerly known as Credit Suisse), individually, as an Issuing Bank and as Documentation Agent and the other financial institutions signatories hereto. INTRODUCTORY STATEMENT ---------------------- The Company has entered into a credit agreement dated as of June 21, 1996, among the Company, Texas Commerce Bank National Association, individually, as an Issuing Bank and as Administrative Agent, Credit Suisse First Boston (formerly known as Credit Suisse), individually, as an Issuing Bank and as Documentation Agent, and the financial institutions parties thereto, as amended by the First Amendment to Credit Agreement (the "First Amendment") dated as of January 31, 1997 (as amended by the First Amendment and this Second Amendment, the "Credit Agreement"). The parties to the Credit Agreement and the parties to that certain Credit Agreement dated as of January 31, 1997, by and among the Company, Texas Commerce Bank National Association, individually, and as Administrative Agent, Credit Suisse First Boston, individually, and as Documentation Agent, and the financial institutions parties thereto (the "AFB Acquisition Credit Agreement") have entered into an Intercreditor Agreement dated as of January 31, 1997 (the "Intercreditor Agreement") pursuant to which the parties thereto agreed to share the proceeds of prepayments of term loans made by the Company in accordance with the terms thereof. The Company intends to issue at least $150,000,000 of additional senior subordinated notes and will use the proceeds of such senior subordinated notes to voluntarily prepay Term Loans pursuant to Section 2.10(c) of the Credit Agreement and Section 3.02(b) of the Intercreditor Agreement. The Company has requested an increase in the Revolving Credit Commitments in an aggregate amount not to exceed $25,000,000. The Company has requested that certain covenants in the Credit Agreement be modified and amended. The Company, the Administrative Agent, the Documentation Agent, the Issuing Banks, the Subsidiary Guarantors and the Lenders have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended. AGREEMENT Section 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning assigned such terms in the Credit Agreement. Section 2. Amendments to the Credit Agreement. On and after satisfaction of the conditions set forth in Section 3 below, the Credit Agreement shall be amended as follows: (a) The following new definitions are hereby added to Section 1.01 of the Credit Agreement: "Additional Senior Subordinated Notes" shall mean the additional senior subordinated notes issued pursuant to the Additional Senior Subordinated Notes Indenture, as amended, in an amount of at least $150,000,000 issued by the Company. "Additional Senior Subordinated Notes Indenture" shall mean that certain Sterling Chemicals, Inc. $150,000,000 Senior Subordinated Notes Due 2007 Indenture with Fleet National Bank, as Trustee. "Second Amendment" shall mean the Second Amendment to Credit Agreement dated as of March 31, 1997, among the Company, the Administrative Agent, the Documentation Agent, the Issuing Banks and the Lenders. "Second Amendment Effective Date" shall mean March 31, 1997. "Senior Debt" shall mean, as to any Person, all Funded Indebtedness of such Person, less any subordinated Indebtedness with terms of subordination substantially similar to the terms of subordination of the Senior Subordinated Notes and the Additional Senior Subordinated Notes. "Senior Debt Leverage Ratio" shall mean, on any day, the ratio of (a) Senior Debt of the Company and its Subsidiaries on a consolidated basis as of the date of determination to (b) EBITDA for the Rolling Period ending on the most recent Quarterly Date as of the date of determination. (b) The following definitions set forth in Section 1.01 of the Credit Agreement are hereby amended in their entirety to read as follows: "Agreement" shall mean this Credit Agreement, as amended by the First Amendment to Credit Agreement and the Second Amendment to Credit Agreement, and as further amended, modified or supplemented. "Cumulative Retained Cash Flow" shall mean an amount equal to the difference of (a) Retained Cash Flow for all then previous Fiscal Years, on a cumulative basis, minus (b) Designated Retained Cash Flow Usage, on a cumulative basis, in each case from the date that is the first day to occur after the next occurring principal payment required pursuant to Section 2.05(b) after giving effect to the application of the prepayment by the Company of the proceeds of the Additional Senior Subordinated Notes pursuant to Section 2.10(c). For the period beginning on August 22, 1996 and ending on the date that is the first day to occur after the next occurring principal payment required pursuant to Section 2.05(b) after giving 2 effect to the application of the prepayment by the Company of the proceeds of the Additional Senior Subordinated Notes pursuant to Section 2.10(c), the Cumulative Retained Cash Flow shall equal zero. (c) Section 2.10(b) of the Credit Agreement is hereby amended by adding a new clause (v) to read in its entirety as follows: (v) Prior to the date that is the first day to occur after the next occurring principal payment required pursuant to Section 2.05(b) after giving effect to the application of the prepayment by the Company of the proceeds of the Additional Senior Subordinated Notes pursuant to Section 2.10(c), the Company shall use its Retained Cash Flow to prepay or repay first the outstanding Revolving Credit Loans and second to prepay the Combined Term Loans, such prepayments to be applied as provided in Section 2.10(b)(iv). (d) Section 2.10(c) of the Credit Agreement is hereby amended by inserting the following proviso in the fifth sentence of such Section immediately after the words "respective installments of principal thereof" as they appear in clause (i)(A)(y) of such sentence in such Section: "; provided, however, that with respect to the proceeds of the Additional Senior Subordinated Notes received by the Administrative Agent as a prepayment by the Company pursuant to this Section 2.10(c), 50% of such proceeds shall be applied pro rata to scheduled amortization payments of the Tranche A Term Loans, the Tranche B Term Loans and the AFB Loans in the order of maturity thereof and the balance of such proceeds shall be applied pro rata to the respective remaining installments of principal thereof." (e) Section 5.03(a) of the Credit Agreement is hereby amended to read in its entirety as follows: " (a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio of not less than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio December 31, 1996 1.75 March 31, 1997 1.75 June 30, 1997 1.75 September 30, 1997 1.50 Each Rolling Period during the Fiscal Year ending Ratio September 30, 1998 1.35 Each Rolling Period ending Ratio December 31, 1998 1.50 March 31, 1999 1.50 June 30, 1999 2.25 September 30, 1999 2.25 3 Each Rolling Period Ratio thereafter 2.50" (f) Section 5.03(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of not less than the ratio for each Rolling Period indicated below: Each Rolling Period during the period beginning January 1, 1997 Ratio through September 30, 1997 1.05 The Rolling Period ending Ratio December 31, 1997 1.00 Each Rolling Period during the period beginning January 1, Ratio 1998 through September 30, 1998 1.05 Each Rolling Period during the period beginning October 1, 1998 Ratio through September 30, 1999 1.10 Each Rolling Period during the Fiscal Years ending Ratio September 30, 2000 1.15 September 30, 2001 1.20 Each Rolling Period Ratio thereafter 1.20" (g) Section 5.03(d) of the Credit Agreement is hereby amended to read in its entirety as follows: "(d) Leverage Ratio. Maintain a Leverage Ratio of not greater than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio December 31, 1996 5.25 March 31, 1997 6.35 June 30, 1997 7.00 September 30, 1997 7.00 December 31, 1997 7.00 March 31, 1998 7.00 June 30, 1998 7.00 4 September 30, 1998 7.00 December 31, 1998 6.50 March 31, 1999 6.00 June 30, 1999 4.50 September 30, 1999 4.50 Each Rolling Period during the Fiscal Years ending Ratio September 30, 2000 4.00 September 30, 2001 3.50 September 30, 2002 3.00 Each Rolling Period Ratio thereafter 3.00" (h) Section 5.03 of the Credit Agreement is hereby amended by adding a new clause (e) to such Section to read in its entirety as follows: "(e) Senior Debt Leverage Ratio. Maintain a Senior Debt Leverage Ratio of not greater than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio March 31, 1997 3.50 June 30, 1997 3.50 September 30, 1997 3.50 December 31, 1997 3.50 March 31, 1998 3.25 June 30, 1998 3.25 September 30, 1998 3.25 Each Rolling Period during the Fiscal Years ending Ratio September 30, 1999 3.00 September 30, 2000 3.00 September 30, 2001 3.00 September 30, 2002 3.00 Each Rolling Period Ratio thereafter 3.00" (i) Section 5.04(a) of the Credit Agreement is hereby amended: (i) by amending clause (i) of such Section to read in its entirety as follows: 5 (i) the Lender Indebtedness in the principal amount not to exceed the outstanding Term Loans and the Revolving Credit Commitments less the aggregate amount of permanent reductions of the Revolving Credit Commitments and payments or prepayments of the Term Loans; (ii) by deleting the word "and" at the end of clause (x) of such Section, by changing the period at the end of clause (xi) to read "; and" and by adding the following new clause (xii) to read in its entirety as follows: (xii) Indebtedness evidenced by the Additional Senior Subordinated Notes. (j) Sections 5.04(p)(i), (ii) and (iii) of the Credit Agreement are hereby amended in their entirety as follows: (i) Amend, modify, or waive any covenant contained in the Senior Subordinated Notes, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture or the Additional Senior Subordinated Notes Indenture if the effect of such amendment, modification, or waiver would be to make the terms of the Senior Subordinated Notes, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture or the Additional Senior Subordinated Notes Indenture materially more onerous to the Company; (ii) Amend, modify, or waive any provision of the Senior Subordinated Notes, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture or the Additional Senior Subordinated Notes Indenture which (A) subjects the Company to any additional material obligation, (B) increases the principal of or rate of interest on any Senior Subordinated Note or any Additional Senior Subordinated Note, (C) accelerates the date fixed for any payment of principal or interest on any Senior Subordinated Note or any Additional Senior Subordinated Note, (D) would change the percentage of holders of such Senior Subordinated Notes or such Additional Senior Subordinated Notes required for any such amendment, modification, or waiver from the percentage required on the Effective Date, or (E) relates to the subordination provisions thereof; or (iii) make any voluntary prepayment of, or optionally redeem, or make any payment in defeasance of, any part of the Senior Subordinated Notes or the Additional Senior Subordinated Notes. (k) Section 6.16 of the Credit Agreement is hereby amended to read in its entirety as follows: Section 6.16 Senior Indebtedness. The Senior Subordinated Notes or the Additional Senior Subordinated Notes shall cease, for any reason, to be validly subordinated to the Lender Indebtedness, as provided in the Senior Subordinated Notes Indenture and the Additional Senior Subordinated Indenture or the Company, any Affiliate of the Company, the trustee in respect of the Senior Subordinated Notes or the Additional Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes or the Additional Senior Subordinated Notes shall so assert in writing; 6 (l) Annex I to the Credit Agreement is hereby replaced in its entirety by Annex I as attached to this Second Amendment to reflect an aggregate increase in the Revolving Credit Commitments not to exceed $25,000,000. Section 3. Effectiveness of Amendments Contained in Section 2 of this Second Amendment. If, but only if, the Administrative Agent has received as a prepayment from the Company pursuant to the provisions of Section 2.10(c) of the Credit Agreement the proceeds of the Additional Senior Subordinated Notes in an aggregate principal amount equal to at least $150,000,000, then shall all the amendments contained in Section 2 hereof become effective. If the Administrative Agent does not receive such prepayment from the Company then the amendments contained in Section 2 of this Second Amendment shall be of no force and effect whatsoever. Section 4. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Financing Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Lenders may now have or may have in the future under or in connection with the Credit Agreement, the Financing Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Financing Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this Second Amendment and any of the foregoing documents, the terms of this Second Amendment shall be controlling. Section 5. Conditions Precedent and Effectiveness. This Second Amendment shall not be effective until: (a) this Second Amendment has been executed and delivered by the Required Lenders; (b) a certified copy of the resolutions of the Board of Directors of the Company dated as of the Second Amendment Effective Date has been delivered to the Administrative Agent, such resolutions approving, the $25,000,000 increase in the Revolving Credit Commitment, the new Revolving Credit Notes evidencing the increase in the Revolving Credit Commitment, the prepayment described in Section 3 of this Second Amendment, the Additional Senior Subordinated Notes, this Second Amendment, the First Amendment to AFB Acquisition Credit Agreement, and all other documents, if any, to which the Company is a party and evidencing corporate authorization with respect to such documents; (c) the delivery of the new Revolving Credit Notes, as appropriate; (d) the delivery of an opinion of counsel from Andrews & Kurth L.L.P., addressed to each of the Agents and the Lenders and covering such other matters as any Administrative Agent or the Lenders may reasonably request; and (e) the execution and delivery of this Second Amendment by the Subsidiary Guarantors and the Company. Section 6. Representations and Warranties. Except as affected by the transactions contemplated in the Credit Agreement and this Second Amendment, each of the representations and warranties made by the Company and the Subsidiary Guarantors in or pursuant to the Financing Documents, including the Credit Agreement, shall be true and correct in all material respects as of the Second Amendment Effective Date, as if made on and as of such date. Section 7. No Default. No Default or Event of Default shall have occurred and be continuing as of the Second Amendment Effective Date. Section 8. Adoption, Ratification and Confirmation of Credit Agreement. Each of the Company, the Administrative Agent, the Documentation Agent, the Issuing Banks and the Lenders signatories hereto does hereby adopt, ratify and confirm the Credit Agreement, as amended hereby, and 7 acknowledges and agrees that the Credit Agreement, as amended hereby, is and remains in full force and effect. Section 9. Ratification and Affirmation of Subsidiary Guaranty. Each of the Subsidiary Guarantors hereby expressly (i) acknowledges the terms of this Second Amendment, (ii) acknowledges, renews and extends its continued liability under the Guaranty Agreement dated as of January 31, 1997, in favor of the Agents, the Issuing Banks, the Lenders, TCB as administrative agent under the AFB Acquisition Credit Agreement, the Documentation Agent (as defined in the AFB Acquisition Credit Agreement) and the AFB Lenders, as amended, supplemented or otherwise modified, and agrees that such Guaranty Agreement remains in full force and effect; and (iii) agrees with the Administrative Agent, the Documentation Agent, each Issuing Bank, each Lender, TCB as administrative agent under the AFB Acquisition Credit Agreement, the Documentation Agent (as defined in the AFB Acquisition Credit Agreement and each AFB Lender to promptly pay when due all amounts owing or to be owing by it under such Guaranty Agreement pursuant to the terms and conditions thereof. Additionally, Sterling Fibers hereby expressly (i) acknowledges the terms of this Second Amendment, (ii) acknowledges, renews and extends its continued liability under the Limited Guaranty Agreement (Santa Rosa) dated as of January 31, 1997, in favor of the Agents, the Issuing Banks, the Lenders, TCB as administrative agent under the AFB Acquisition Credit Agreement, the Documentation Agent (as defined in the AFB Acquisition Credit Agreement) and the AFB Lenders, as amended, supplemented or otherwise modified, and agrees that such Limited Guaranty Agreement remains in full force and effect; and (iii) agrees with the Administrative Agent, the Documentation Agent, each Issuing Bank, each Lender, TCB as administrative agent under the AFB Acquisition Credit Agreement, the Documentation Agent (as defined in the AFB Acquisition Credit Agreement and each AFB Lender to promptly pay when due all amounts owing or to be owing by it under such Limited Guaranty Agreement pursuant to the terms and conditions thereof. Section 10. Payment of Expenses. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agent and the Documentation Agent harmless from and against liability for the payment of all reasonable out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this Second Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Financing Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 11. Governing Law. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE CREDIT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, OR ANY SIMILAR SUCCESSOR PROVISIONS THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES) AND TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. Section 12. Descriptive Headings, etc. The descriptive headings of the several Sections of this Second Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 13. Entire Agreement. This Second Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all 8 prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this Second Amendment. Section 14. Counterparts. This Second Amendment may be executed in any number of counterparts (including by telecopy) and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 15. Amendment to Intercreditor Agreement. The Administrative Agent is hereby authorized and directed to execute and deliver on behalf of the Lenders an amendment to the Intercreditor Agreement of even date herewith in the form of Exhibit A to this Second Amendment. 9 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. COMPANY: STERLING CHEMICALS, INC., formerly known as STX CHEMICALS CORP. By: __________________________________________ Jim P. Wise Vice President and Chief Financial Officer ADMINISTRATIVE AGENT TEXAS COMMERCE BANK DOCUMENTATION AGENT NATIONAL ASSOCIATION ISSUING BANKS Individually, as an Issuing Bank and as Administrative Agent AND THE LENDERS: By: __________________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON (formerly known as Credit Suisse) as Documentation Agent By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: [Signature Page-1] CREDIT SUISSE FIRST BOSTON (formerly known as Credit Suisse) Individually, as an Issuing Bank and as a Lender By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: ABN AMRO BANK N.V. Houston Agency By: ABN AMRO NORTH AMERICA, INC. as Agent By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: THE BANK OF NOVA SCOTIA By: __________________________________________ Name: Title: BANK OF SCOTLAND By: __________________________________________ Name: Title: [Signature Page-2] BANQUE PARIBAS By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: BHF-BANK AKTIENGESELLSCHAFT By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: CIBC INC. By: __________________________________________ Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: __________________________________________ Name: Title: [Signature Page-3] FIRST SOURCE FINANCIAL LLP By: FIRST SOURCE FINANCIAL, INC. as its Agent/Manager By: ______________________________________ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: __________________________________________ Name: Title: THE CIT GROUP/BUSINESS CREDIT, INC. By: __________________________________________ Name: Title: COMERICA BANK By: __________________________________________ Name: Title: CREDITANSTALT CORPORATE FINANCE, INC. By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: [Signature Page-4] HIBERNIA NATIONAL BANK By: __________________________________________ Name: Title: MERITA BANK LTD. New York Branch By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: NATIONAL BANK OF CANADA By: __________________________________________ Name: Title: By: __________________________________________ Name: Title: THE SANWA BANK, LIMITED, DALLAS AGENCY By: __________________________________________ Name: Title: THE FUJI BANK, LIMITED By: __________________________________________ Name: Title: [Signature Page-5] THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: __________________________________________ Name: Title: OCTAGON CREDIT INVESTORS LOAN PORTFOLIO (a unit of The Chase Manhattan Bank), (formerly known as CHL HIGH YIELD LOAN PORTFOLIO (a unit of Chemical Bank)) By: __________________________________________ Name: Title: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: __________________________________________ Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: __________________________________________ Name: Title: ML CBO IV (CAYMAN) LTD. By: PROTECTIVE ASSET MANAGEMENT L.L.C. AS COLLATERAL MANAGER By: ____________________________________ Name: Title: [Signature Page-6] VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: __________________________________________ Name: Title: PARIBAS CAPITAL FUNDING LLC By: __________________________________________ Name: Title: BANKERS TRUST COMPANY By: __________________________________________ Name: Title: RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By its Managing Director ABN TRUSTCOMPANY (NEDERLAND) B.V. By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: AERIES FINANCE LTD. By: __________________________________________ Name: Title: [Signature Page-7] CAPTIVA FINANCE LTD. By: __________________________________________ Name: Title: CERES FINANCE LTD. By: __________________________________________ Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P. as Investment Advisor By: ____________________________________ Name: Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: ____________________________________ Name: Title: [Signature Page-8] SUBSIDIARY GUARANTORS: STERLING CHEMICALS INTERNATIONAL, INC. STERLING CHEMICALS ENERGY, INC. By: __________________________________________ Jim P. Wise Vice President STERLING CANADA, INC. STERLING PULP CHEMICALS US, INC. STERLING PULP CHEMICALS, INC. STERLING FIBERS, INC. By: __________________________________________ Jim P. Wise Vice President - Finance [Signature Page-9] ANNEX I COMMITMENTS REVOLVING CREDIT LENDERS COMMITMENTS - ------- ----------- Texas Commerce Bank National Association $ 9,759,380.11 Credit Suisse First Boston $ 9,759,380.12 Credit Lyonnais New York Branch $ 5,872,756.93 ABN AMRO Bank N.V. $ 8,351,549.75 The Bank of Nova Scotia $ 6,872,756.93 Bank of Scotland $ 9,372,756.93 Banque Paribas $ 6,872,756.93 BHF-Bank Aktiengesellschaft $ 6,893,964.11 CIBC, Inc. $ 2,610,114.19 The First National Bank of Chicago $ 7,372,756.93 First Source Financial LLP $ 7,372,756.93 The CIT Group/Business Credit, Inc. $ 6,893,964.11 Hibernia National Bank $ 8,893,964.11 Comerica Bank $ 3,262,642.74 Creditanstalt Corporate Finance, Inc. $ 4,262,642.74 The Fuji Bank, Limited $ 3,262,642.74 The Long Term Credit Bank of Japan, Limited, New York Branch $ 3,262,642.74 Merita Bank, Limited $ 4,893,964.11 National Bank of Canada $ 5,893,964.11 The Sanwa Bank, Limited, Dallas Agency $ 3,262,642.74 TOTAL $125,000,000.00 EXHIBIT A TO SECOND AMENDMENT TO CREDIT AGREEMENT [FORM OF] [FIRST AMENDMENT TO INTERCREDITOR AGREEMENT] THIS FIRST AMENDMENT TO INTERCREDITOR AGREEMENT ("First Amendment") dated as of March 31, 1997 (the "First Amendment Effective Date") is made and entered into by and among (i) the banks and other financial institutions (the "Original Lenders") which are or may from time to time become parties to the Original Credit Agreement (as hereinafter defined) , TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as their Administrative Agent (the "Original Administrative Agent"); (ii) the banks and other financial institutions (the "AFB Lenders") which are or may from time to time become parties to the AFB Acquisition Credit Agreement (as hereinafter defined), by TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as their administrative agent (the "AFB Administrative Agent") to the AFB Acquisition Credit Agreement (as hereinafter defined) and STERLING CHEMICALS, INC., a Delaware corporation (the "Company"). INTRODUCTORY STATEMENT ---------------------- The Company has entered into a credit agreement dated as of June 21, 1996, among the Company, Texas Commerce Bank National Association, individually, as an Issuing Bank and as Administrative Agent, Credit Suisse First Boston (formerly known as Credit Suisse), individually, as an Issuing Bank and as Documentation Agent, and the financial institutions parties thereto, as amended by the First Amendment to Credit Agreement dated as of January 31, 1997 (as amended from time to time, the "Original Credit Agreement"). The parties to the Original Credit Agreement and the parties to that certain Credit Agreement dated as of January 31, 1997, by and among the Company, Texas Commerce Bank National Association, individually, and as Administrative Agent, Credit Suisse First Boston, individually, and as Documentation Agent, and the financial institutions parties thereto (as amended, the "AFB Acquisition Credit Agreement") have entered into an Intercreditor Agreement dated as of January 31, 1997 (the "Intercreditor Agreement") pursuant to which the parties thereto agreed to share the proceeds of prepayments of term loans made by the Company in accordance with the terms thereof. The Company intends to issue at least $150,000,000 of additional senior subordinated notes and will use the proceeds of such senior subordinated notes to voluntarily prepay the Combined Term Loans (as defined in the Intercreditor Agreement) pursuant to Section 2.10(c) of the Original Credit Agreement, Section 2.10(b) of the AFB Acquisition Credit Agreement and Section 3.02(b) of the Intercreditor Agreement. The Company has requested that certain covenants in the AFB Acquisition Credit Agreement be modified and amended and the Original Administrative Agent and the Administrative Agents, acting on behalf of the Combined Lenders (as defined in the Intercreditor Agreement) have determined that corresponding changes and modifications need to be made in the Intercreditor Agreement.. The Company, the AFB Administrative Agent, the Original Administrative Agent and the Combined Lenders have agreed, on the terms and conditions herein set forth, that the Intercreditor Agreement be amended. AGREEMENT Section 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning assigned such terms in the Intercreditor Agreement. Section 2. Amendments to the Intercreditor Agreement. On and after satisfaction of the conditions set forth in Section 3 below, the Intercreditor Agreement shall be amended as follows: (a) The following new definitions are hereby added to Section 1.01 of the Intercreditor Agreement: "First Amendment to AFB Acquisition Credit Agreement" shall mean the First Amendment to Credit Agreement dated as of March 31, 1997, among the AFB Administrative Agent, the Documentation Agent under the AFB Acquisition Credit Agreement, the AFB Lenders signatories thereto and the Company. "First Amendment to Intercreditor Agreement" shall mean the First Amendment to Intercreditor Agreement dated as of March 31, 1997, among the AFB Administrative Agent, the Original Administrative Agent, the Combined Lenders, and the Company. "First Amendment Effective Date" shall mean March 31, 1997. "Second Amendment to Original Credit Agreement" shall mean the Second Amendment to Credit Agreement dated as of March 31, 1997, among the Original Administrative Agent, the Original Lenders signatories thereto, the Documentation Agent under the Original Credit Agreement and the Company. (b) The following definitions set forth in Section 1.01 of the Intercreditor Agreement are hereby amended in their entirety to read as follows: "AFB Acquisition Credit Agreement" shall mean the credit agreement dated as of even date herewith by and among the Company, the AFB Lenders, the AFB Administrative Agent, and Credit Suisse First Boston, as documentation agent, as 2 amended by the First Amendment to AFB Acquisition Credit Agreement and as amended, supplemented or modified from time to time . "Intercreditor Agreement" shall mean this Intercreditor Agreement, as amended by the First Amendment to Intercreditor Agreement and as further amended, modified or supplemented. "Original Credit Agreement" shall mean the credit agreement dated as of June 21, 1996, by and among the Company, the Lenders, the Original Administrative Agent and Credit Suisse First Boston (formerly known as Credit Suisse), as documentation agent, as amended by the First Amendment to Original Credit Agreement, the Second Amendment to Original Credit Agreement, and as further amended, supplemented or modified from time to time. (c) Section 3.02(b) of the Intercreditor Agreement is hereby amended by inserting the following proviso in the fifth sentence of such Section immediately after the words "respective installments of principal thereof" as they appear in clause (i)(A)(y) of such sentence in such Section: "; provided, however, that with respect to the proceeds of the Additional Senior Subordinated Notes received by the Administrative Agents as a prepayment by the Company pursuant to Section 2.10(b) of the AFB Acquisition Credit Agreement, Section 2.10(c) of the Original Credit Agreement and this Section 3.02.(b), 50% of such proceeds shall be applied pro rata to scheduled amortization payments of the Original Tranche A Term Loans, the Original Tranche B Term Loans and the AFB Loans in the order of maturity thereof and the balance of such proceeds shall be applied pro rata to the respective remaining installments of principal thereof." Section 3. Effectiveness of Amendments Contained in Section 2 of this First Amendment. If, but only if, the Administrative Agents has received as a prepayment from the Company pursuant to the provisions of Section 2.10(b) of the AFB Acquisition Credit Agreement, Section 2.10(c) of the Original Credit Agreement and Section 3.02(b) of the Intercreditor Agreement the proceeds of the Additional Senior Subordinated Notes in an aggregate principal amount equal to at least $150,000,000, then shall all the amendments contained in Section 2 hereof become effective. If the Administrative Agents do not receive such prepayment from the Company then the amendments contained in Section 2 of this First Amendment shall be of no force and effect whatsoever. Section 4. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Intercreditor Agreement or any of the other Financing Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Combined Lenders may now have or may have in the future under or in connection with the Intercreditor Agreement, the Financing Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Intercreditor Agreement or any other documents or instruments executed in connection therewith are and shall remain in full 3 force and effect. In the event of a conflict between this First Amendment and any of the foregoing documents, the terms of this First Amendment shall be controlling. Section 5. Conditions Precedent and Effectiveness. This First Amendment shall not be effective until: (a) the First Amendment to AFB Acquisition Credit Agreement has been executed and delivered by the Required Lenders thereof; (b) the Second Amendment to Original Credit Agreement has been executed and delivered by the Required Lenders thereof; (c) this First Amendment has been executed and delivered by Texas Commerce Bank National Association, acting in its capacity as the Original Administrative Agent (and in such capacity as Administrative Agent for the Combined Lenders) and on behalf of the Original Lenders and as the AFB Administrative Agent and on behalf of the AFB Lenders; and (d) this First Amendment has been joined and delivered by the Company. Section 6. No Default. No Default or Event of Default under either of the Original Credit Agreement or the AFB Acquisition Credit Agreement shall have occurred and be continuing as of the First Amendment Effective Date. Section 7. Adoption, Ratification and Confirmation of Intercreditor Agreement. Each of the Company, the Administrative Agents, the Documentation Agents, and the Combined Lenders does hereby adopt, ratify and confirm the Intercreditor Agreement, as amended hereby, and acknowledges and agrees that the Intercreditor Agreement, as amended hereby, is and remains in full force and effect. Section 8. Payment of Expenses. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agents and the Documentation Agents harmless from and against liability for the payment of all reasonable out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this First Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agents, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Intercreditor Agreement and the other Financing Documents. The provisions of this Section shall survive the termination of the Intercreditor Agreement and the repayment of the Combined Loans. Section 9. Governing Law. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE INTERCREDITOR AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, OR ANY SIMILAR SUCCESSOR PROVISIONS THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES) AND TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. Section 10. Descriptive Headings, etc. The descriptive headings of the several Sections of this First Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 4 Section 11. Entire Agreement. This First Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this First Amendment. Section 12. Counterparts. This First Amendment may be executed in any number of counterparts (including by telecopy) and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. 5 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent under the Original Credit Agreement (and in such capacity, as Administrative Agent For Combined Lenders) and on behalf of the Original Lenders and as Administrative Agent under the AFB Acquisition Credit Agreement and on behalf of the AFB Lenders By:_________________________________ Name: Title: JOINDER: STERLING CHEMICALS, INC. (as Company under the Original Credit Agreement and under the AFB Acquisition Credit Agreement) By:______________________________ Name: Jim P. Wise Title: Vice President and Chief Financial Officer [Signature Page - 1] EX-4.5 6 EXHIBIT 4.5 EXHIBIT 4.5 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") dated as of March 31, 1997 (the "First Amendment Effective Date") is made and entered into by and among STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually, and as Administrative Agent and CREDIT SUISSE FIRST BOSTON, individually, and as Documentation Agent and the other financial institutions signatories hereto. INTRODUCTORY STATEMENT ---------------------- The Company has entered into a credit agreement dated as of June 21, 1996, among the Company, Texas Commerce Bank National Association, individually, as an Issuing Bank and as Administrative Agent, Credit Suisse First Boston (formerly known as Credit Suisse), individually, as an Issuing Bank and as Documentation Agent, and the financial institutions parties thereto, as amended by the First Amendment to Credit Agreement (the "First Amendment") dated as of January 31, 1997 (as amended by the First Amendment and otherwise, the "Original Credit Agreement"). The parties to the Original Credit Agreement and the parties to that certain Credit Agreement dated as of January 31, 1997, by and among the Company, Texas Commerce Bank National Association, individually, and as Administrative Agent, Credit Suisse First Boston, individually, and as Documentation Agent, and the financial institutions parties thereto (the "Credit Agreement") have entered into an Intercreditor Agreement dated as of January 31, 1997 (the "Intercreditor Agreement") pursuant to which the parties thereto agreed to share the proceeds of prepayments of term loans made by the Company in accordance with the terms thereof. The Company intends to issue at least $150,000,000 of additional senior subordinated notes and will use the proceeds of such senior subordinated notes to voluntarily prepay Loans pursuant to Section 2.10(b) of the Credit Agreement and Section 3.02(b) of the Intercreditor Agreement. The Company has requested an increase in the Revolving Credit Commitments under the Original Credit Agreement in an aggregate amount not to exceed $25,000,000. The Company has requested that certain covenants in the Credit Agreement be modified and amended. The Company, the Administrative Agent, the Documentation Agent, the Subsidiary Guarantors and the Lenders have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended. AGREEMENT Section 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning assigned such terms in the Credit Agreement. Section 2. Amendments to the Credit Agreement. On and after satisfaction of the conditions set forth in Section 3 below, the Credit Agreement shall be amended as follows: (a) The following new definitions are hereby added to Section 1.01 of the Credit Agreement: "Additional Senior Subordinated Notes" shall mean the additional senior subordinated notes issued pursuant to the Additional Senior Subordinated Notes Indenture, as amended, in an amount of at least $150,000,000 issued by the Company. "Additional Senior Subordinated Notes Indenture" shall mean that certain Sterling Chemicals, Inc. $150,000,000 Senior Subordinated Notes Due 2007 Indenture with Fleet National Bank, as Trustee. "First Amendment" shall mean the First Amendment to Credit Agreement dated as of March 31, 1997, among the Company, the Administrative Agent, the Documentation Agent and the Lenders. "First Amendment Effective Date" shall mean March 31, 1997. "Senior Debt" shall mean, as to any Person, all Funded Indebtedness of such Person, less any subordinated Indebtedness with terms of subordination substantially similar to the terms of subordination of the Senior Subordinated Notes and the Additional Senior Subordinated Notes. "Senior Debt Leverage Ratio" shall mean, on any day, the ratio of (a) Senior Debt of the Company and its Subsidiaries on a consolidated basis as of the date of determination to (b) EBITDA for the Rolling Period ending on the most recent Quarterly Date as of the date of determination. (b) The following definitions set forth in Section 1.01 of the Credit Agreement are hereby amended in their entirety to read as follows: "Agreement" shall mean this Credit Agreement, as amended by the First Amendment to Credit Agreement and as further amended, modified or supplemented. "Cumulative Retained Cash Flow" shall mean an amount equal to the difference of (a) Retained Cash Flow for all then previous Fiscal Years, on a cumulative basis, minus (b) Designated Retained Cash Flow Usage, on a cumulative 2 basis, in each case from the date that is the first day to occur after the next occurring principal payment required pursuant to Section 2.05(a) after giving effect to the application of the prepayment by the Company of the proceeds of the Additional Senior Subordinated Notes pursuant to Section 2.10(b). For the period beginning on August 22, 1996 and ending on the date that is the first day to occur after the next occurring principal payment required pursuant to Section 2.05(a) after giving effect to the application of the prepayment by the Company of the proceeds of the Additional Senior Subordinated Notes pursuant to Section 2.10(b), the Cumulative Retained Cash Flow shall equal zero. (c) Section 2.10(a) of the Credit Agreement is hereby amended by adding a new clause (v) to read in its entirety as follows: (v) Prior to the date that is the first day to occur after the next occurring principal payment required pursuant to Section 2.05(a) after giving effect to the application of the prepayment by the Company of the proceeds of the Additional Senior Subordinated Notes pursuant to Section 2.10(b), the Company shall use its Retained Cash Flow to prepay or repay first the outstanding Revolving Credit Loans and second to prepay the Combined Term Loans, such prepayments to be applied as provided in Section 2.10(a)(iv). (d) Section 2.10(b) of the Credit Agreement is hereby amended by inserting the following proviso in the fifth sentence of such Section immediately after the words "respective installments of principal thereof" as they appear in clause (i)(A)(y) of such sentence in such Section: "; provided, however, that with respect to the proceeds of the Additional Senior Subordinated Notes received by the Administrative Agent as a prepayment by the Company pursuant to this Section 2.10(b), 50% of such proceeds shall be applied pro rata to scheduled amortization payments of the Original Tranche A Term Loans, the Original Tranche B Term Loans and the Loans in the order of maturity thereof and the balance of such proceeds shall be applied pro rata to the respective remaining installments of principal thereof." (e) Section 5.03(a) of the Credit Agreement is hereby amended to read in its entirety as follows: "(a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio of not less than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio December 31, 1996 1.75 March 31, 1997 1.75 June 30, 1997 1.75 September 30, 1997 1.50 3 Each Rolling Period during the Fiscal Year ending Ratio September 30, 1998 1.35 Each Rolling Period ending Ratio December 31, 1998 1.50 March 31, 1999 1.50 June 30, 1999 2.25 September 30, 1999 2.25 Each Rolling Period Ratio thereafter 2.50" (f) Section 5.03(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of not less than the ratio for each Rolling Period indicated below: Each Rolling Period during the period beginning January 1, Ratio 1997 through September 30, 1997 1.05 The Rolling Period ending Ratio December 31, 1997 1.00 Each Rolling Period during the period beginning January 1, Ratio 1998 through September 30, 1998 1.05 Each Rolling Period during the period beginning October 1, Ratio 1998 through September 30, 1999 1.10 Each Rolling Period during the Fiscal Years ending Ratio September 30, 2000 1.15 September 30, 2001 1.20 Each Rolling Period Ratio thereafter 1.20" 4 (g) Section 5.03(d) of the Credit Agreement is hereby amended to read in its entirety as follows: "(d) Leverage Ratio. Maintain a Leverage Ratio of not greater than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio December 31, 1996 5.25 March 31, 1997 6.35 June 30, 1997 7.00 September 30, 1997 7.00 December 31, 1997 7.00 March 31, 1998 7.00 June 30, 1998 7.00 September 30, 1998 7.00 December 31, 1998 6.50 March 31, 1999 6.00 June 30, 1999 4.50 September 30, 1999 4.50 Each Rolling Period during the Fiscal Years ending Ratio September 30, 2000 4.00 September 30, 2001 3.50 September 30, 2002 3.00 Each Rolling Period Ratio thereafter 3.00" (h) Section 5.03 of the Credit Agreement is hereby amended by adding a new clause (e) to such Section to read in its entirety as follows: "(e) greater than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio March 31, 1997 3.50 June 30, 1997 3.50 September 30, 1997 3.50 December 31, 1997 3.50 March 31, 1998 3.25 June 30, 1998 3.25 September 30, 1998 3.25 5 Each Rolling Period during the Fiscal Years ending Ratio September 30, 1999 3.00 September 30, 2000 3.00 September 30, 2001 3.00 September 30, 2002 3.00 Each Rolling Period Ratio thereafter 3.00" (i) Section 5.04(a) of the Credit Agreement is hereby amended: (i) by amending clause (xi) of such Section to read in its entirety as follows: (i) Indebtedness under the Original Credit Agreement in the principal amount not to exceed the sum of the outstanding Original Term Loans and the Revolving Credit Commitments (as defined in the Original Credit Agreement) less the aggregate amount of permanent reductions of the Revolving Credit Commitments and payments or prepayments of the Original Term Loans; (ii) by deleting the word "and" at the end of clause (x) of such Section, by changing the period at the end of clause (xi) to read "; and" and by adding the following new clause (xii) to read in its entirety as follows: (xii) Indebtedness evidenced by the Additional Senior Subordinated Notes. (j) Sections 5.04(p)(i), (ii) and (iii) of the Credit Agreement are hereby amended in their entirety as follows: (i) Amend, modify, or waive any covenant contained in the Senior Subordinated Notes, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture or the Additional Senior Subordinated Notes Indenture if the effect of such amendment, modification, or waiver would be to make the terms of the Senior Subordinated Notes, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture or the Additional Senior Subordinated Notes Indenture materially more onerous to the Company; (ii) Amend, modify, or waive any provision of the Senior Subordinated Notes, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture or the Additional Senior Subordinated Notes Indenture which (A) subjects the Company to any additional material obligation, (B) increases the principal of or rate of interest on any Senior Subordinated Note or any Additional Senior Subordinated Note, (C) accelerates the date 6 fixed for any payment of principal or interest on any Senior Subordinated Note or any Additional Senior Subordinated Note, (D) would change the percentage of holders of such Senior Subordinated Notes or such Additional Senior Subordinated Notes required for any such amendment, modification, or waiver from the percentage required on the Effective Date, or (E) relates to the subordination provisions thereof; or (iii) make any voluntary prepayment of, or optionally redeem, or make any payment in defeasance of, any part of the Senior Subordinated Notes or the Additional Senior Subordinated Notes. (k) Section 6.16 of the Credit Agreement is hereby amended to read in its entirety as follows: Section 6.16 Senior Indebtedness. The Senior Subordinated Notes or the Additional Senior Subordinated Notes shall cease, for any reason, to be validly subordinated to the Lender Indebtedness, as provided in the Senior Subordinated Notes Indenture and Additional Senior Subordinated Notes Indenture or the Company, any Affiliate of the Company, the trustee in respect of the Senior Subordinated Notes or the Additional Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes or the Additional Senior Subordinated Notes shall so assert in writing; Section 3. Effectiveness of Amendments Contained in Section 2 of this First Amendment. If, but only if, the Administrative Agent has received as a prepayment from the Company pursuant to the provisions of Section 2.10(b) of the Credit Agreement the proceeds of the Additional Senior Subordinated Notes in an aggregate principal amount equal to at least $150,000,000, then shall all the amendments contained in Section 2 hereof become effective. If the Administrative Agent does not receive such prepayment from the Company then the amendments contained in Section 2 of this First Amendment shall be of no force and effect whatsoever. Section 4. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Financing Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Lenders may now have or may have in the future under or in connection with the Credit Agreement, the Financing Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Financing Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this First Amendment and any of the foregoing documents, the terms of this First Amendment shall be controlling. Section 5. Conditions Precedent and Effectiveness. This First Amendment shall not be effective until: (a) this First Amendment has been executed and delivered by the Required Lenders; (b) a certified copy of the resolutions of the Board of Directors of the Company dated as of the First Amendment Effective Date has been delivered to the Administrative Agent, such resolutions 7 approving, the prepayment described in Section 3 of this First Amendment, the Additional Senior Subordinated Notes, this First Amendment, the Second Amendment to Original Credit Agreement, and all other documents, if any, to which the Company is a party and evidencing corporate authorization with respect to such documents; (c) the delivery of an opinion of counsel from Andrews & Kurth L.L.P., addressed to each of the Agents and the Lenders and covering such other matters as any Administrative Agent or the Lenders may reasonably request; and (d) the execution and delivery of this First Amendment by the Subsidiary Guarantors and the Company. Section 6. Representations and Warranties. Except as affected by the transactions contemplated in the Credit Agreement and this First Amendment, each of the representations and warranties made by the Company and the Subsidiary Guarantors in or pursuant to the Financing Documents, including the Credit Agreement, shall be true and correct in all material respects as of the First Amendment Effective Date, as if made on and as of such date. Section 7. No Default. No Default or Event of Default shall have occurred and be continuing as of the First Amendment Effective Date. Section 8. Approval of Revolving Credit Commitment Increase under Original Credit Agreement. Each of the Company, the Administrative Agent, the Documentation Agent and the Lenders signatories hereto hereby approve and consent to the increase in the Original Lenders' Revolving Credit Commitment by an aggregate amount not to exceed $25,000,000. Section 9. Adoption, Ratification and Confirmation of Credit Agreement. Each of the Company, the Administrative Agent, the Documentation Agent, and the Lenders signatories hereto does hereby adopt, ratify and confirm the Credit Agreement, as amended hereby, and acknowledges and agrees that the Credit Agreement, as amended hereby, is and remains in full force and effect. Section 10. Ratification and Affirmation of Subsidiary Guaranty. Each of the Subsidiary Guarantors hereby expressly (i) acknowledges the terms of this First Amendment, (ii) acknowledges, renews and extends its continued liability under the Guaranty Agreement dated as of January 31, 1997, in favor of the Agents, the Issuing Banks (as defined in the Original Credit Agreement), the Lenders, TCB as administrative agent under the Original Credit Agreement, the Documentation Agent (as defined in the Original Credit Agreement) and the Original Lenders, as amended, supplemented or otherwise modified, and agrees that such Guaranty Agreement remains in full force and effect; and (iii) agrees with the Administrative Agent, the Documentation Agent, each Lender, the Issuing Banks (as defined in the Original Credit Agreement) TCB as administrative agent under the Original Credit Agreement, the Documentation Agent (as defined in the Original Credit Agreement and each Original Lender to promptly pay when due all amounts owing or to be owing by it under such Guaranty Agreement pursuant to the terms and conditions thereof. Additionally, Sterling Fibers hereby expressly (i) acknowledges the terms of this First Amendment, (ii) acknowledges, renews and extends its continued liability under the Limited Guaranty Agreement (Santa Rosa) dated as of January 31, 1997, in favor of the Agents, the Issuing Banks (as defined in the Original Credit Agreement), the Lenders, TCB as administrative agent under the Original Credit Agreement, the Documentation Agent (as defined in the Original Credit Agreement) and the Original Lenders, as amended, supplemented or otherwise modified, and agrees that such Limited Guaranty 8 Agreement remains in full force and effect; and (iii) agrees with the Administrative Agent, the Documentation Agent, each Issuing Bank, each Lender, TCB as administrative agent under the Original Credit Agreement, the Documentation Agent (as defined in the Original Credit Agreement and each Original Lender to promptly pay when due all amounts owing or to be owing by it under such Limited Guaranty Agreement pursuant to the terms and conditions thereof. Section 11. Payment of Expenses. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agent and the Documentation Agent harmless from and against liability for the payment of all reasonable out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this First Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Financing Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 12. Governing Law. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE CREDIT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, OR ANY SIMILAR SUCCESSOR PROVISIONS THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES) AND TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. Section 13. Descriptive Headings, etc. The descriptive headings of the several Sections of this First Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 14. Entire Agreement. This First Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this First Amendment. Section 15. Counterparts. This First Amendment may be executed in any number of counterparts (including by telecopy) and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 16. Amendment to Intercreditor Agreement. The Administrative Agent is hereby authorized and directed to execute and deliver on behalf of the Lenders an amendment to the Intercreditor Agreement of even date herewith in the form of Exhibit A to this First Amendment. 9 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. COMPANY: STERLING CHEMICALS, INC. By:__________________________________________ Jim P. Wise Vice President and Chief Financial Officer ADMINISTRATIVE AGENT TEXAS COMMERCE BANK DOCUMENTATION AGENT NATIONAL ASSOCIATION, AND THE LENDERS: Individually and as Administrative Agent By:__________________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, Individually and as Documentation Agent By:__________________________________________ Name: Title: By:__________________________________________ Name: Title: [Signature Page-1] ABN AMRO BANK N.V. Houston Agency By: ABN AMRO NORTH AMERICA, INC. as Agent By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: THE BANK OF NOVA SCOTIA By: _________________________________________ Name: Title: BANK OF SCOTLAND By: _________________________________________ Name: Title: [Signature Page-2] BHF-BANK AKTIENGESELLSCHAFT By: _________________________________________ Name: Title: By: _________________________________________ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: _________________________________________ Name: Title: THE CIT GROUP/BUSINESS CREDIT, INC. By: _________________________________________ Name: Title: HIBERNIA NATIONAL BANK By: _________________________________________ Name: Title: [Signature Page-3] NATIONAL BANK OF CANADA By: _________________________________________ Name: Title: By: _________________________________________ Name: Title: OCTAGON CREDIT INVESTORS LOAN PORTFOLIO (a unit of The Chase Manhattan Bank), By: _________________________________________ Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: _________________________________________ Name: Title: ML CBO IV (CAYMAN) LTD. By: PROTECTIVE ASSET MANAGEMENT L.L.C. AS COLLATERAL MANAGER By: __________________________________ Name: Title: [Signature Page-4] VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: _________________________________________ Name: Title: PARIBAS CAPITAL FUNDING LLC By: _________________________________________ Name: Title: CAPTIVA II FINANCE LTD. By: _________________________________________ Name: Title: MORGAN STANLEY SENIOR FUNDING, INC. By: _________________________________________ Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P. as Investment Advisor By: ___________________________________ Name: Title: [Signature Page-5] SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: ___________________________________ Name: Title: SKANDINAVIKA ENSKILDA BANKEN CORPORATION By: _________________________________________ Name: Title: THE CHASE MANHATTAN BANK By: _________________________________________ Name: Title: [Signature Page-6] SUBSIDIARY GUARANTORS: STERLING CHEMICALS INTERNATIONAL, INC. STERLING CHEMICALS ENERGY, INC. By: _________________________________________ Jim P. Wise Vice President STERLING CANADA, INC. STERLING PULP CHEMICALS US, INC. STERLING PULP CHEMICALS, INC. STERLING FIBERS, INC. By: _________________________________________ Jim P. Wise Vice President - Finance [Signature Page-7] EXHIBIT A TO FIRST AMENDMENT TO CREDIT AGREEMENT [FORM OF] [FIRST AMENDMENT TO INTERCREDITOR AGREEMENT] THIS FIRST AMENDMENT TO INTERCREDITOR AGREEMENT ("First Amendment") dated as of March 31, 1997 (the "First Amendment Effective Date") is made and entered into by and among (i) the banks and other financial institutions (the "Original Lenders") which are or may from time to time become parties to the Original Credit Agreement (as hereinafter defined) , TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as their Administrative Agent (the "Original Administrative Agent"); (ii) the banks and other financial institutions (the "AFB Lenders") which are or may from time to time become parties to the AFB Acquisition Credit Agreement (as hereinafter defined), by TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as their administrative agent (the "AFB Administrative Agent") to the AFB Acquisition Credit Agreement (as hereinafter defined) and STERLING CHEMICALS, INC., a Delaware corporation (the "Company"). INTRODUCTORY STATEMENT ---------------------- The Company has entered into a credit agreement dated as of June 21, 1996, among the Company, Texas Commerce Bank National Association, individually, as an Issuing Bank and as Administrative Agent, Credit Suisse First Boston (formerly known as Credit Suisse), individually, as an Issuing Bank and as Documentation Agent, and the financial institutions parties thereto, as amended by the First Amendment to Credit Agreement dated as of January 31, 1997 (as amended from time to time, the "Original Credit Agreement"). The parties to the Original Credit Agreement and the parties to that certain Credit Agreement dated as of January 31, 1997, by and among the Company, Texas Commerce Bank National Association, individually, and as Administrative Agent, Credit Suisse First Boston, individually, and as Documentation Agent, and the financial institutions parties thereto (as amended, the "AFB Acquisition Credit Agreement") have entered into an Intercreditor Agreement dated as of January 31, 1997 (the "Intercreditor Agreement") pursuant to which the parties thereto agreed to share the proceeds of prepayments of term loans made by the Company in accordance with the terms thereof. The Company intends to issue at least $150,000,000 of additional senior subordinated notes and will use the proceeds of such senior subordinated notes to voluntarily prepay the Combined Term Loans (as defined in the Intercreditor Agreement) pursuant to Section 2.10(c) of the Original Credit Agreement, Section 2.10(b) of the AFB Acquisition Credit Agreement and Section 3.02(b) of the Intercreditor Agreement. The Company has requested that certain covenants in the AFB Acquisition Credit Agreement be modified and amended and the Original Administrative Agent and the Administrative Agents, acting on behalf of the Combined Lenders (as defined in the Intercreditor Agreement) have determined that corresponding changes and modifications need to be made in the Intercreditor Agreement. The Company, the AFB Administrative Agent, the Original Administrative Agent and the Combined Lenders have agreed, on the terms and conditions herein set forth, that the Intercreditor Agreement be amended. AGREEMENT Section 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning assigned such terms in the Intercreditor Agreement. Section 2. Amendments to the Intercreditor Agreement. On and after satisfaction of the conditions set forth in Section 3 below, the Intercreditor Agreement shall be amended as follows: (a) The following new definitions are hereby added to Section 1.01 of the Intercreditor Agreement: "First Amendment to AFB Acquisition Credit Agreement" shall mean the First Amendment to Credit Agreement dated as of March 31, 1997, among the AFB Administrative Agent, the Documentation Agent under the AFB Acquisition Credit Agreement, the AFB Lenders signatories thereto and the Company. "First Amendment to Intercreditor Agreement" shall mean the First Amendment to Intercreditor Agreement dated as of March 31, 1997, among the AFB Administrative Agent, the Original Administrative Agent, the Combined Lenders, and the Company. "First Amendment Effective Date" shall mean March 31, 1997. "Second Amendment to Original Credit Agreement" shall mean the Second Amendment to Credit Agreement dated as of March 31, 1997, among the Original Adminstrative Agent, the Original Lenders signatories thereto, the Documentation Agent under the Original Credit Agreement and the Company. (b) The following definitions set forth in Section 1.01 of the Intercreditor Agreement are hereby amended in their entirety to read as follows: "AFB Acquisition Credit Agreement" shall mean the credit agreement dated as of even date herewith by and among the Company, the AFB Lenders, the AFB Administrative Agent, and Credit Suisse First Boston, as documentation agent, as 2 amended by the First Amendment to AFB Acquisition Credit Agreement and as amended, supplemented or modified from time to time. "Intercreditor Agreement" shall mean this Intercreditor Agreement, as amended by the First Amendment to Intercreditor Agreement and as further amended, modified or supplemented. "Original Credit Agreement" shall mean the credit agreement dated as of June 21, 1996, by and among the Company, the Lenders, the Original Administrative Agent and Credit Suisse First Boston (formerly known as Credit Suisse), as documentation agent, as amended by the First Amendment to Original Credit Agreement, the Second Amendment to Original Credit Agreement, and as further amended, supplemented or modified from time to time. (c) Section 3.02(b) of the Intercreditor Agreement is hereby amended by inserting the following proviso in the fifth sentence of such Section immediately after the words "respective installments of principal thereof" as they appear in clause (i)(A)(y) of such sentence in such Section: "; provided, however, that with respect to the proceeds of the Additional Senior Subordinated Notes received by the Administrative Agents as a prepayment by the Company pursuant to Section 2.10(b) of the AFB Acquisition Credit Agreement, Section 2.10(c) of the Original Credit Agreement and this Section 3.02.(b), 50% of such proceeds shall be applied pro rata to scheduled amortization payments of the Original Tranche A Term Loans, the Original Tranche B Term Loans and the AFB Loans in the order of maturity thereof and the balance of such proceeds shall be applied pro rata to the respective remaining installments of principal thereof." Section 3. Effectiveness of Amendments Contained in Section 2 of this First Amendment. If, but only if, the Administrative Agents has received as a prepayment from the Company pursuant to the provisions of Section 2.10(b) of the AFB Acquisition Credit Agreement, Section 2.10(c) of the Original Credit Agreement and Section 3.02(b) of the Intercreditor Agreement the proceeds of the Additional Senior Subordinated Notes in an aggregate principal amount equal to at least $150,000,000, then shall all the amendments contained in Section 2 hereof become effective. If the Administrative Agents do not receive such prepayment from the Company then the amendments contained in Section 2 of this First Amendment shall be of no force and effect whatsoever. Section 4. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Intercreditor Agreement or any of the other Financing Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Combined Lenders may now have or may have in the future under or in connection with the Intercreditor Agreement, the Financing Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Intercreditor Agreement or any other documents or instruments executed in connection therewith are and shall remain in full 3 force and effect. In the event of a conflict between this First Amendment and any of the foregoing documents, the terms of this First Amendment shall be controlling. Section 5. Conditions Precedent and Effectiveness. This First Amendment shall not be effective until: (a) the First Amendment to AFB Acquisition Credit Agreement has been executed and delivered by the Required Lenders thereof; (b) the Second Amendment to Original Credit Agreement has been executed and delivered by the Required Lenders thereof; (c) this First Amendment has been executed and delivered by Texas Commerce Bank National Association, acting in its capacity as the Original Administrative Agent (and in such capacity as Administrative Agent for the Combined Lenders) and on behalf of the Original Lenders and as the AFB Administrative Agent and on behalf of the AFB Lenders; and (d) this First Amendment has been joined and delivered by the Company. Section 6. No Default. No Default or Event of Default under either of the Original Credit Agreement or the AFB Acquisition Credit Agreement shall have occurred and be continuing as of the First Amendment Effective Date. Section 7. Adoption, Ratification and Confirmation of Intercreditor Agreement. Each of the Company, the Administrative Agents, the Documentation Agents, and the Combined Lenders does hereby adopt, ratify and confirm the Intercreditor Agreement, as amended hereby, and acknowledges and agrees that the Intercreditor Agreement, as amended hereby, is and remains in full force and effect. Section 8. Payment of Expenses. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agents and the Documentation Agents harmless from and against liability for the payment of all reasonable out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this First Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agents, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Intercreditor Agreement and the other Financing Documents. The provisions of this Section shall survive the termination of the Intercreditor Agreement and the repayment of the Combined Loans. Section 9. Governing Law. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE INTERCREDITOR AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, OR ANY SIMILAR SUCCESSOR PROVISIONS THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES) AND TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. Section 10. Descriptive Headings, etc. The descriptive headings of the several Sections of this First Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 4 Section 11. Entire Agreement. This First Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this First Amendment. Section 12. Counterparts. This First Amendment may be executed in any number of counterparts (including by telecopy) and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. 5 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent under the Original Credit Agreement (and in such capacity, as Administrative Agent For Combined Lenders) and on behalf of the Original Lenders and as Administrative Agent under the AFB Acquisition Credit Agreement and on behalf of the AFB Lenders By:_________________________________ Name: Title: JOINDER: STERLING CHEMICALS, INC. (as Company under the Original Credit Agreement and under the AFB Acquisition Credit Agreement) By:______________________________ Name: Jim P. Wise Title: Vice President and Chief Financial Officer [Signature Page - 1] EX-11.1 7 EXHIBIT 11.1 EXHIBIT 11.1 STERLING CHEMICALS HOLDINGS, INC. COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE/(1)/
THREE THREE SIX SIX MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED 3/31/97 3/31/96 3/31/97 3/31/96 -------- --------- --------- -------- PRIMARY EARNINGS PER SHARE Weighted average of common stock outstanding 11,118 55,690 10,860 55,682 Total weighted average shares outstanding primary earnings per share computation 11,118 55,690 10,860 55,682 ======= ======= ======== ======= Net earnings $(7,811) $ 6,427 $(15,009) $19,214 Less: Preferred dividend requirements (162) -- (162) -- ------- ------- -------- ------- Net earnings used in primary earnings per share $(7,973) $ 6,427 $(15,171) $19,214 ======= ======= ======== ======= NET EARNINGS PER SHARE $ (0.72) $ 0.12 $ (1.40) $ 0.35 ======= ======= ======== ======= FULLY DILUTED EARNINGS PER SHARE Weighted average of common stock outstanding 11,118 55,690 10,860 55,682 Total weighted average shares outstanding fully dilutive earnings per share computation 11,118 55,690 10,860 55,682 ======= ======= ======== ======= Net earnings $(7,811) $ 6,427 $(15,009) $19,214 Less: Preferred dividend requirements (162) -- (162) -- ------- ------- -------- ------- Net earnings used in fully dilutive earnings per share $(7,973) $ 6,427 $(15,171) $19,214 ======= ======= ======== ======= NET EARNINGS PER SHARE $ (0.72) $ 0.12 $ (1.40) $ 0.35 ======= ======= ======== =======
/(1)/ This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-27.1 8 FDS FOR HOLDINGS
5 EXHIBIT 27.1 0000795662 STERLING CHEMICAL HOLDINGS INC./TX/ 1,000 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 6,280 0 159,653 0 75,819 265,114 686,230 246,665 831,845 155,995 808,576 10,162 0 113 (280,938) 831,845 426,689 426,689 394,779 394,779 13,349 0 39,474 (20,913) (5,904) (15,009) 0 0 0 (15,009) (1.40) 0
EX-27.2 9 FDS FOR CHEMICALS
5 EXHIBIT 27.2 0001014669 STERLING CHEMICAL INC 1,000 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 6,280 0 167,209 0 75,819 270,663 686,230 246,665 831,200 155,990 709,312 0 0 0 (175,246) 831,200 426,689 426,689 394,779 394,779 12,783 0 30,024 (10,897) (3,076) (7,821) 0 0 0 (7,821) 0 0
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